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A Great Business Idea: Outsourced Blog Updating - Part Two

Author Cameron Martel

Part Two: Analyzing Expenses vs. Expected Profits

Every business has certain expenses, financial commitments, and fiscal obligations. The key to maintaining profitability and developing a trend of growth and prosperity is finding a way to offset the costs of business. Traditionally, this has been done with smart pricing and clever forms of marketing. However, when applying these kind of concepts to a blog updating service.There are a few things to keep in mind:

• The blog updating service has very low monthly expenses - Primary expenses, or expenses that must be paid every month, are few. As far as I can determine, the only primary expense that a blog updating service will have is the monthly fee associated with its web hosting.Hosting ranges from $2.99 to $2,999 a month depending on the package and level of competence that you need. For a blog updating service, the $9.99 shared hosting packaged from Crucial Web Hosting is very sufficient- plenty of bandwidth, disk space, and bundled features. When your only primary expense is $10 a month for web hosting the room for profit is high- very, very high.

• Secondary expenses will vary drastically depending on the amount required by the business itself - If you have tried various free marketing methods and have decided to branch to paid marketing methods you have introduced a secondary expense, or an important but fundamentally optional expense. Paid marketing is a great way to generate new clients, but because you are now paying for marketing you have introduced a whole new series of components to your business:
  • Return-on-investment (ROI) - When focusing on free advertising the only real “expense” is the amount of time that it took you to set up the advertisements and generate new clients. Essentially, the ROI on your investment is the percentage of profit (or lack thereof) that you have received from you marketing methods.For example, if you spent $250 on PPC marketing and generated $250 in sales you have experienced a 0% ROI, as you spent $250 to make $250. However, if you spent $250 on PPC marketing and generated $500 in sales you have experienced a 100% ROI, as you spent $250 and made $500, with a profit of $250, or 100% of what you spent. If you made $750 from a $250 promotional campaign, your ROI would be 200%, as your profit is $500, or 200% of $250.
  • Budget increases - Now that you spending money in the form of secondary expenses (advertising, outsourced content, search engine optimization, etc.) you will have to initiate a budget in order to ensure that those expenses are met.

• Time is an expense - If you are spending 8 hours a day to generate $100 a day in revenue you will have to find a way to determine what your time is worth. You should be paying yourself approximately 80% of your total business profits (with the last 20% being reinvested into the business somehow).For example, if you’ve been working 8 hours a day for $100 in revenue, you’re really only making $79.74 per day assuming your only primary expense is $9.99 a month for web hosting (remember Crucial Web Hosting offers an extremely affordable $9.99 per month plan).Following our example, you’re working for $9.97 an hour. That’s about one-third of what I would consider the bare minimum, so you’ll have to find a way to generate a larger income based on your current volume or find a way to increase how much you can do in a day (thus increasing your daily revenue).

Expenses and Scalability:

In the case of this business plan, in order for this business to be scalable it will have to increase its expenses first. This is because of the nature of the product- unlike drop shipping or distribution, for example, blog updating requires a significant amount of input from the business in the way of blog research, topic research, and the actual time it takes to write the blog post.

Hiring writers that have been trained in the various methods that you have been using to update your clients blogs is a great way to increase how much work you are able to perform every day. By hiring writers you are essentially leveraging your time, where you put in one hour of work and it is multiplied by the number of employees that you have. Charging a 20% premium over what you pay your writers, for example, is a great way to earn a passive income from your business without having to do any work.

Remember:
Pay your writers fairly and base your prices as a premium over what you’re paying them. If you are paying your writers $15 an hour, or $120 for an eight hour day, you’ll need to be charging at least $18 an hour, with you retaining a premium of $3 an hour, or $24 a day.

Of course, you could charge as much as you want so long as you are generating enough of a profit to pay your expenses and yourself.

Before you can hire writers you’ll have to generate the new business, but you won’t want to generate new business without the writers in place. This is the catch-22, and so I would say that it makes the most sense to have one or two writers working for you before you start really upping the volume that your business handles.

Profit Margins and Acceptable Pricing:

In this particular business your pricing is going to need to be competitive, yet it is going to need to be high enough to justify performing the work. The key to initial personal success is going to be generating many clients that pay you a decent amount of money every month for a relatively small amount of work, or generating a few clients that are your “heavy hitters” and pay you a substantial amount of money every month.

Since your primary expenses are under $20 a month, anything over $20 is considered profit. This changes if you have employees, but it is easy to figure out as it is an arithmatic equation:

(primary expenses) + (number of employees x their daily wage) = expenses every month

If you had three employees that you paid $80 a day and had $9.99 a month in web hosting fees as your only primary expense, your equation would look like this:

$9.99 + $4,800 = $4,809.99

Now, we’ve determined that your expenses are $4,809.99 a month. You will need to generate at least that amount in order to break even (and that’s not even paying yourself). This is where selling comes into play. Your profit margin should be at least 20%, as this is a service that you are providing. If this were an offline business I would say that your profit margin should be at least 50%, but alas it is online where your expenses are much lower.

Alright, so now you need to offer product packages and pricing based on a few factors:

• The amount of time you estimate it will take to complete each package - If you feel that you can write three packages a week at $200 per package you are making roughly half of what you need to in order to break even. If this is the only volume that you can handle you will either need to charge more for your packages, or you will have to find a way to complete the packages faster.
• Pricing should be based on market prices - If the market pricing is $200 for 15 blog posts you should price within 15% of that figure, either above or below it, in order to remain competitive. If you have a solid reputation for quality and reliability, you could easily charge a 15% premium on the market pricing and receive it.

Now, these expenses are an example and not necessarily reflective of what you will actually be able to charge. As well, if you have no employees your expenses drop down to whatever your primary expenses are.

Have something to say about this idea? Leave a comment- we’d love to hear it!