Internet Reality Check
"The Easy Way to Make Big Profits on the Internet Overnight!" - NOT!
Get rich quick! Can it be done? Sure. It's done all the time.
Here's what it requires:
Great service backing up the product
A huge amount of money - or its equivalent
Has somebody told you can get rich on the Internet, or by another means, without
these four things? Did you believe them? All I can say is: "Beware the person who tells you what you want to hear."
Are you ready for some reality - reality that will give you a realistic shot at building a solid and profitable business? If so, keeping reading. If not, there a 1,001 web sites that will promise to deliver the moon in exchange for your credit card number. It's your call.
Are you even qualified to read this?
I write for and work exclusively with that small minority of people who don't expect something for nothing and who'd rather take an intelligent chance than fantasize or do nothing. Like the Marines, I'm looking for a few good men, or women. If you think you're one of them, read on, but like the Marines, I'm not running a debating society. If you don't like what I have to say on the subject of making money: tough. I'm not in the fantasy-entertainment business. I'm in the money making business. And those are two very different things.
There are people, lots and lots of people, who generate a lot of cash "selling the dream" to naive people who don't have much real world business experience. A healthy number of these scam artists go down in flames. You'd be surprised the number of well known "get rich tonight" infomercial experts who: 1) go bankrupt, 2) get indicted, 3) are barred from doing business in certain states, and even 4) find themselves in jail.
I'm not interested in either of these four options. I've always preferred stability to flash and I don't like dealing with people who have a strong emotional need to believe the "get rich quick" boys promises. So if you're free from that brainwashing - or you sincerely want to be - read on.
First things first
Let's assume - a big assumption - that your product is great and the service that backs your product up is equally great.
This leaves you with the million dollar question: How are you going to get customers? If you can't answer that, you have nothing. If you can, you have a chance.
If you answered "the Internet" to the million dollar question, welcome to the ship of fools. You're in excellent company. Thousands of businesses, from the Fortune 500 to
the "I don't know what to sell" crowd give this answer, as if the Internet were a magic wand that made the practical realities of marketing go away.
The Internet doesn't do any such thing. Answering the million dollar question with "the Internet" is as useful as saying "by rubbing two sticks together."
The Internet, television, radio, classifieds, magazine ads, direct mail - all of these things are tools, nothing but tools. In the hands of somebody who knows what they're doing, you might make something great and wonderful.
Notice I said "might." A lot of people don't want to hear that word. They don't want to face the fact that in the business of living there are no guarantees. Business, like living, is gambling, pure and simple. You put something up and you hope you get more back than you put in.
Like any smart gambler, you want to do everything you possibly can to give yourself an edge, but guaranteed success? Anyone who believes in that needs a visit to his local psychiatrist. You're asking for something that doesn't exist.
My job is very simple: to give you a serious edge in answering the million dollar question. That's it. If you ask for anything more, you're going to get a blank stare.
Now, if you're very smart, you realize that I've just offered you a very valuable thing.
Why? Because you can spend a lifetime and every penny you and your family and friends have and come up with nothing if you don't know how to market. On the other hand, if you do know how to market, you can control your risk and exponentially increase the odds that your business will be profitable.
What's that worth? You tell me. I tell you this: if it ain't worth a lot to you, you're not serious about business because if you're not willing to go to the limit and put it all on the line to make your business succeed, you're just day dreaming, not seriously planning your future.
Do you control your product?
If you don't have a product that you uniquely control the right to sell, you don't have a business. It's that simple. Don't be conned into paying huge fees for "dealerships", "reprint rights," or any other related nonsense. These can be great profit sources for companies with established customer bases because the cost of marketing is relatively low. But the fact is you can't make real money buying wholesale and selling retail and there are 100,000+ retail merchants in the US who I recommend you talk to if you doubt this. Make a living? Yes. Buy yourself a 60+ a week job with more headaches than you can imagine? Absolutely. Make a killing? No way.
The fact of life, and anyone who has succeeded in business knows this, is that
there are only two ways to succeed: 1) sell a huge amount of product or 2) sell product with a huge margin.
The problem with Way #1 is that to sell a huge amount of product you either need a huge amount of money or a huge organization to give you the equivalent of a huge amount of money in services or access to their customers. It simply ain't going to happen any other way. And before you think that getting a big company to back you is easy, keep this in mind: Huge organizations don't get that way by carelessly committing their resources. You better have a bullet-proof plan to make them a ton of money before you call on them. Even then, they're likely to turn your idea down. If you go this route, be prepared to knock on a lot of doors.
This leaves you with Way #2, sell a much smaller number of products at huge margin.
Why a huge margin? Because you're going to need every penny. Marketing and selling and dealing with customers and taking care of the boring but essential parts of your business costs money. If you're not maximizing the profit on every sale on the front end and minimizing your costs of doing business on the back end, you're going to be squeezed. You'll wake up some day realizing that you're working 80 hours a week for the privilege of going broke. I've been there and done that and I promise you it's a place you do not want to go. Hint: don't do it.
Margins, profits, and survival
When you control your product, you control your price. If you are one of ten million
Brand X dealers, you're stuck. You can get Brand X wholesale for $5 and everyone in the world sells it for $10. That $5 markup will be eaten up so fast by the costs of doing business it will make your head spin. If you're selling one million Brand X widgets,
the story is a little different, but you're going to have to pay some very serious financial dues to build a market that size. Nothing's going to just hand it to you, least of all the overcrowded, over hyped, hypercompetetive Internet.
Bottom line: if you're little guy with a minimum of resources, stick to products you control and figure out how to market them at huge margins. How huge is huge? Think 5 to 1 as an absolute minimum. Otherwise, prepare to spend long hours trading dollar bills for dollar bills. By the way, please note I used the word "margins" and not profits - margins are not profits. If you sell something for $25 that you've acquired for $5 you have not made $20. You have marketing costs, selling costs, taxes, the cost of customer service, and the value of your time. Only after you've paid your bills, do you have a profit.
If this seems too simplistic to you, you should talk to the thousands of business people, in ventures large and small, who have run potentially profitable businesses into the ground because they didn't "get" this.
There's only one way to make these kind of margins: offer something unique that has a high perceived value to the audience you're selling it to. Creating such opportunities is a high art and beyond the scope of this report. For now, it's enough to know that this is what you're shooting for. I know for many reading this, this is the first time you've been exposed to these basic facts of life.
No matter what I say
No matter what I say, there are people who, for what they believe to be very good reasons, are going to ignore the advice I just delivered. Fine. I'm not going to argue with you. I've discharged my responsibility by telling you the truth as I know it. If you want to go ahead and try to prove the laws of business wrong, I won't try to stop you.
Now let's get very real fast. If you plan to sell a lot, you better be prepared to spend a lot. You want 10,000 new customers this year? Then plan to come up with a minimum of $100,000 for sales and marketing.
Where did I get that number? Frankly, I pulled it out of my hat. It may be higher. It may be lower. The odds? It will be higher, much higher.
At a cost per sale of $10, you need $100,000 to play. At a cost per sale of $20, you're going to need $200,000. If your cost per sale is $100, then set aside $1,000,000.
Discouraged? Good. It's about time someone got real with you about the costs of running a business. Customers do not leap into your arms just because you've declared yourself in business. You've got to pursue them and woo them - and that costs money.
The trick to all this is to acquire customers at the lowest possible cost. You probably never thought of it this way, but what a seller is doing is actually buying, buying customers. To take a very simple example, if you want to sell your old car, you're going to buy an ad in the classifieds. It may cost you $10. You may spend $50. Your phone will ring with prospects. You're going to have to take the time to meet with them and show them the car. Eventually, someone will buy it. You've got a "cost per sale" there, don't you? You paid for your customer, didn't you? So if you're planning to go into business, it follows that you better have some dollars set aside to buy some customers.
If you're very smart, you might have asked yourself "what is a customer worth?" or "how much should I pay for a customer?" After all, anyone who spends dollars usually gives some thought to the value of what he's getting in return. You wouldn't pay $100 for a candy bar, would you?
But how do you value a customer? I'm not talking about the sign on the door "We value you our customer." I'm talking about dollars and sense.
Stop for a second and think about what a profound question this is. If you know the value of a customer, you'll have a crystal clear target for what you can spend to acquire one. If you can succeed in developing a marketing system that creates customers for this price, or preferably for less, then you're in business. If you can't, don't go any further. There's no business there. It's that simple and I can virtually guarantee that this thought has never crossed the minds of 999 out 1000 people who've started a business. I can also guarantee that 1000 out of 1000 successful businesses
do this whether they are consciously aware of it or not.
There. Did you see that? You just acquired an edge.
There's more to it
If you profit $100 from the sale of a widget before sales and marketing costs,
how much can you spend to acquire a customer?
The obvious answer is less than $100 and as much less than $100 as possible.
If you spend $90, you'll make profit $10. If you spend $80, you'll profit $20 and so on.
All this is correct, but let's go into this a little deeper.
Consider this: What happens when the acquired customer buys again? That changes things, doesn't it? Let's say for the sake of argument, it will cost you $20 in sales and marketing costs to get an existing customer to buy another widget. (Why so little? It's one of the golden rules: It's much less expensive to sell to a satisfied customer than it is to create a new one.)
Anyway, the profit on the second sale, after sales and marketing costs, is sweet: $80. If you sell him another, it's another $80. Wow! In just two sales that's a $160 profit and that doesn't count the profits, if any, from the first sale. What if you knew that your average customer would generate $160 in profits for you? Now how much would you be willing to pay to acquire a customer?
I've just painlessly introduced what can be one of the most complicated, but most important concepts in business: the lifetime value of a customer. Knowing this number does two things: 1) it tells you instantly when your marketing system is on target and 2) it inspires you to create more products and services to increase your average customer's lifetime value and thus your profits.
That, dear reader, is the game of business is a nutshell: acquiring customers at the right price and maximizing their lifetime value to you. It has nothing to do with positive thinking, being in the right place at the right time, talent, good looks, or the cut of your suit. It also has very little to do with being creative or even being hard working.
If you can set up a marketing system that delivers clients to you at a good price and then takes care of them in a mostly automated way, you'll not only find yourself with a lot of money in the bank, but also a lot of time on your hands to do a lot of other things.
There's a little more to it
How do you know the lifetime value of a customer? In the beginning, you don't.
By definition, it takes a few years at least to get a sense of what the average customer can be induced to spend with you. Also, the number should be changing all the tine (hopefully going up.) Therefore, when you're getting started you have to guess.
Also, unless you have the luxury of starting with a huge pile of patient cash, you probably are not going to be in the position of going into hock to buy customers in the hope of paying back the cost from future sales. You'll want to break even from the get go, or, ideally, make money from day one.
But notice, if your goal is to have 10,000 customers, you do not need to start out with $100,000 (if your cost per sale is $10) or $1,000,000 (if your cost per sale is $100.)
If you have just $10,000, you can buy 100 customers even at the high cost per sale of $100 each. But note this magic well. Even if you just break-even on these first 100 customers after sales and marketing and all the other costs, you've acquired an asset that can, with smart marketing, generate $80 in profits for a $20 investment. Getting a four-to-one return on your marketing investment is a great way to generate cash to buy the next round of customers. At this point borrowing money for marketing purposes, even at high rates, makes sense.
Do the numbers always work out this neatly? No. But when you do things right - and if things go right, a big if - you can leverage a relatively small investment into a healthy business.
Before you get too excited and start planning to use this method to take over the world, let me point out in advance, the limiting factors. Inevitably, as your work through your market, your cost to acquire a customer will go up. Why? The easy ones will already be in your system and the tough ones, the ones that didn't say yes the first couple of times, will be all that's left. Eventually, the cost to acquire new customers will be prohibitively high. And, if you're working a niche, and every market has its ultimate limits, you may even run of new prospects.
The moral of all this is: 1) plow your profits back into acquiring new customers. Don't celebrate (i.e. waste capital) just because you've made a few sales and have some cash in hand. 2) As your ad budget grows fed by your profits, make sure you carefully monitor your customer acquisition costs so that when that number hits the point of negative returns, you can stop the locomotive before it runs you off the cliff. A surprising number of people build good sized businesses through aggressive marketing only to find themselves bankrupt because they kept spending the big ad dollars long after the market had ceased responding to them.
In other words, the road to success is always under construction. Or as another fellow once put it, the price of liberty, or in our case solvency - and they can be the same thing - is eternal vigilance.
Now I can help you
I'm in the business of developing and managing web sites and e-mail marketing programs. I also have more than a little experience with the nitty gritty of real life marketing. When you do business with my company, Amacord, you get the benefit of working with one of the most experienced Internet shops on earth - we started in 1993, not a whole
lot of people can match that - plus a very savvy, no nonsense marketer who will do everything he can to minimize your costs and maximize your gains.
After all, I want all my customers to have a long and profitable lifetime.
Here's the kind of customer I'm looking for:
1. You're smart and lean. I only deal with entrepreneurial companies. I don't work with committees, I don't respond to requests for proposals, and I won't pretend to be impressed by the shenanigans of most marketing managers. If you work with me, you'd better have your act together. I won't waste your time or money. You don't waste mine.
2. You want the details and day-to-day management of your Internet business to be handled by a team of experienced pros. You prefer, quite wisely, to devote the lion's share of your time to finding more customers and creating new products to sell to your current ones. In other words, you're not a budding "do it yourself" webmaster, nor are you running an on-the-job training program for otherwise unemployable friends and relatives who want to "break into the Internet business."
There are many, many things your regular employees can do to cut down on your Internet marketing costs. We'll be delighted to show them to you, but for reasons of focus, we are not in the webmaster training business. If we were, the tuition, based on all that we have to offer, would start at $10,000 and would be a bargain at twice the price.
3. Most important, you have a serious budget. You can afford to pay what it costs to have this important aspect of your business executed and managed professionally. How much is enough? We'll work out a budget with you based on your goals. If we think you're dreaming (big dreams, low budget) we'll be the first to tell you.
Can you deal with it?
If you haven't been not scared off by this point, you have a shot at having one of the most experienced, least pretentious, most effective Internet marketing teams focusing its energy on your business.
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