publication date: Apr 16, 2008

author/source: Miles Galliford

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How to Start a Recession-Proof Online Business

Recession is here … and it could be with us for some time.

In this article I will explain how you can plan and create an online business about any subject. The target income I look at is $60,000 a year, but you can decide and plan your site for whatever income you need to meet your lifestyle.

Building an online business is available to everyone. Over the last 12 months I have been involved in launching over 140 sites for a wide range of clients, so I know anyone can do it. All you need is an internet connected PC, some knowledge and a willingness to work hard to get it established.

The Silver Lining in a Very Dark Cloud

The headlines about the economic outlook for the western world could not be more gloomy.

But this contrasts dramatically with the positive and upbeat headlines coming from researchers, analysts and companies in the internet sector.

These headlines are supported by very upbeat forecasts about revenue growth across all areas of online business …

… advertising …

… ecommerce …

…and paid content.

Therefore, it follows, that if you want to start a successful business during this coming recession you need to follow the money. In the last recession at the end of the ‘80’s the internet was not available to entrepreneurs. In this recession it is accessible to everyone.

One word of caution.

Because the internet will prosper, as other sectors struggle, it will attract a lot of opportunity seekers. To succeed, you must be totally committed to creating a website and business that is a leader in its sector and stands out from the crowd.

The Perfect Online Business

There is no such thing as a perfect business, but there are some characteristics of an online business that reduce costs and improve its chances of success. These characteristics include:

Niche subject with unique content – Specialist websites with unique content can become leaders in their field. Websites that lead a niche always make more money than me-too websites. Choose a niche in which you can become a leader

Provide digital products or services – If you can create and generate revenue from products and services that are delivered over the internet, you can minimise costs and maximise your profit margins

Global potential audience – One of the greatest advantages of the internet is you can reach a global audience for the same cost as reaching your neighbour

Multiple revenue streams – the most profitable websites have multiple revenue streams including advertising, ecommerce and subscription

Planning a Recession-Proof Online Business

To illustrate how you can plan an online business, I will take you through the process of what you need to do.

Choose the site’s subject

Decide on your target income

Define how you will make money from the website

Create a plan that shows how your site needs to perform to hit your target income

Funnel of Trust Methodology

The Funnel of Trust is a framework for building an online business which has been developed after observing hundreds of successful (and not so successful!) commercial websites.

It is simple to understand yet extremely powerful in what it can deliver.

Successful websites focus on attracting relevant traffic, building a relationship with visitors and then … and only then … making money from them.

Freemium Content – “A website without visitors is like a car with gas”. As an online entrepreneur, your overriding focus must be attracting people to your website. The best way to do this, without having to pay for traffic, is to provide free premium (or “Freemium”) content. This content will get found and indexed by the search engines, which in turn will drive free traffic to your site.

The freemium content should be written based on the guidelines of the HEART rule … it should be Honest, Exclusive, Accurate, Relevant and Timely. It must engage and excite your audience and make them want to stay on your website.

Eyeballs – Once a visitor arrives, they should be tempted and encouraged to look around the website. The more time they spend with your content, the greater chance you will have of convincing them of your expertise and authority. If they value what they see, you will have a chance of developing a relationship with them.

Relationship – Your single most important goal once you have someone on your site is to get their email address. When you have this vital bit of information, you can start to proactively build a relationship with them. As the relationship develops, so will the trust

Commercialise – Only once you have developed a relationship with your audience and they trust you, can you start to make money from them.

The most successful and profitable websites have multiple revenue streams which follow a similar sequence of building trust over a period time. The greater the trust the more money you can potentially make from each visitor, prospect or client.

Advertising – Displaying ads requires the least amount of trust. Visitors can choose to view and click them, or ignore them. This is the easiest and quickest way to make money from your Freemium content, but the value of revenue per visitor is very low

Affiliate Marketing – Affiliate marketing is where you recommend a product or service via your website in exchange for a commission on sales. This requires more trust than advertising because to influence your visitors to follow an affiliate link, you need to review and recommend the products or services. If you lie or mislead with your recommendations, the trust will be wiped out

Ecommerce – Selling products, such as ebooks, reports, software and branded merchandise, requires your visitor to enter their details and credit card information into your website. Your customer must trust you enough to provide their personal data and believe that you will deliver what you have promised in a timely way.

Subscription – Selling subscriptions to premium content or for use of a web-based service is one of the best income streams you can make from an online business. Recurring subscriptions can provide you with a long-term, sustainable revenue stream, which is what ever business owner is looking for. However to persuade your customers to part with their money for content you are promising to deliver in the future requires a further and significant level of trust

Participation – Finally we have ‘participation’ which is any activity that involves your visitors investing time, money and effort to participate in an event, such as a seminar, workshop, mentoring program, course or re-selling your services. Your customers must love what you do so much that they want to get personally involved with your activities and business.

As you move your visitors down the Funnel of Trust you should make more money from each transaction.

The income generated from advertising per visitor is very small; it increases slightly with affiliate marketing; ecommerce can be a significant step-up; subscription can lead to a long-term income from each member which can be hundreds or thousands of dollars; and participation activities can make you thousands of dollars per event.

Choose a Subject for Your Website

You MUST choose a subject for your business that you are passionate about. On the internet just about any niche, however specialised, can become a successful business if driven by passion.

For this article I’m going to imagine creating a website about Pond Building.

“Why pond building?” I hear you exclaim!

Because I want to pick an obscure, niche subject to demonstrate how any topic can become a successful online business.

This is the scenario:

I’m a passionate gardener with a particular interest in building ponds. I’ve been building ponds for years for friends and family and now want to turn my knowledge and expertise into an internet business.

I have worked out a revolutionary way to streamline the pond building process so instead of taking over a week to build a reasonable sized pond, my process enables you to build it in just two days. I don’t have any products myself; I just recommend combinations of standard products which can be combined to achieve the desired results.

I believe that my process can revolutionise the pond building business. It means that pond building companies and gardeners can double the number of ponds they can build with the same effort and number of people.

To share this information with my target audience, I plan on building a website.

My plans for the website are:

I will create free articles, images and videos to drive traffic from the search engines. This content will demonstrate my knowledge and expertise as a pond builder so that I’m viewed as an authority on the subject. The information will be targeted at hobbyists and professionals alike

I will ensure that I create links between content so that visitors are encouraged to spend time reading and viewing multiple pages each time they visit. I hope that this will make people see my site as a valuable resource which they want to return to regularly

On every page I will encourage visitors to sign-up to a bi-weekly email newsletter which will be a summary of the articles I’ve added to the site. This will enable me to build a relationship and start promoting membership and paid events to my loyalist followers

The website will have a membership area targeted at professional pond builders or people thinking of setting up a pond building business. In this area there will be detailed pond designs with build instructions based on my speed construction process, video guides, business marketing material, etc. It will also have a forum where members can meet and exchange expertise. It will be the most comprehensive and valuable online resource for pond builders on the internet. As membership numbers grow I would negotiate products discounts with manufacturers and retailers

So how will I make money:

Advertising will be served on all free content pages. This will be a combination of Google Adsense (www.google.com/adsense) and an ad network. By using these services, I can put them on the site and forget about them; just log into my account at the end of each week to see how much money I’ve made. I don’t have to worry about selling ad space or managing the relationship with advertisers. As the site becomes more popular, I may decide to sell direct to advertisers, but at launch its not worth the time and effort

I don’t want to hold any stock of physical products so I will promote the stock from other companies in exchange for an affiliate commission. This will include books from Amazon and pond equipment from a major online pond retailer, such as Aquascape (www.aquascapeinc.com)

Over the years I have created a book of pond designs and techniques for building and maintaining water features. I plan on putting this information together in a downloadable ebook. It is unique and valuable information not available anywhere else in the world

A very important part of the websites revenues will be selling membership for access to the premium content. This will be unique and exclusive information aimed at individuals and companies who want to increase their profits from their pond building activities

Finally I plan on running four courses each year which will take the participants through the whole process of designing, building and maintaining a pond. It will be targeted at enthusiasts and professional gardeners

Set a Target Income

For this case study I’m going to set my target income at $60,000 a year, or $5,000 a month.

I will assume that the costs of running the website, marketing and some additional writing support are $24,000/year.

Therefore I need the site to make $84,000 a year, or $7,000 a month, to give me my target income and lifestyle.

Target income from each Money Making Activity

There is a simple formula that you can use to forecast your revenues:

The number of unique visitors coming to your website, multiplied by

The percentage of these people who buy your product or service (The Conversion Rate), equals

The number of sales. Multiply the number of sales with

The average sales value, and you have

The revenue you will generate from your site

Based on this formula I will estimate the target revenue from each of my money making activities (except advertising which is calculated in a different way):

Advertising

On the internet, advertising tends to be measured in terms of the amount of money made per 1,000 pageviews. A pageview is counted every time one of your visitors looks at a page on your site.

The industry jargon for this is dollars per CPM, where CPM stands for Clicks Per Mille (Mille is French for 1,000) e.g. if you were receiving $10 CPM it means you would receive $10 every thousand times you displayed an ad on your website.

It is worth noting that if you display two ads on each page that you are charging the advertiser $10 CPM for, your web page is earning 2 x $10 per CPM.

A top content site with well targeted audience can earn up to $50 per 1,000 pageviews ($50 CPM) from each advert. Smaller sites with small audiences will earn between $3 - $8 CPM.

For our pond building website, I’m estimating I will earn $5 CPM

Affiliate Marketing

Affiliate marketing is where you promote another company’s products or services. If one of your website visitors clicks on a link that takes them to the merchant’s website, where they make a purchase, you earn a commission from the sale.

There are affiliate programs for most products and services. The commission rates vary hugely. For example, the commission for promoting and selling a holiday could be 0.5% of the value, whereas the commission for selling an eBook could be 50% of the sale price.

The best way to get started as an affiliate marketer is to visit one of the big affiliate networks. These companies aggregate hundreds or thousands of merchants. They manage the whole affiliate process, monitoring links and facilitating commission payments.

Networks include:

Commission Junction (www.cj.com)

Trade Doubler (www.tradedoubler.com)

Affiliate Window (www.affiliatewindow.com)

But.at (www.buy.at)

My pond building site will have links to several affiliate marketing programs promoting:

Books (Amazon partner program)

Pond products

Aquatic plants

For the purpose of this example I will assume that the conversion rate of visitors who click on an affiliate link on my site and then makes a purchase is 0.5%. I will assume that I will make an average commission of $10 per transaction.

Ecommerce

I will have a simple shop integrated into the website through which I will sell my ebook of plans and guides for rapidly building ponds.

I estimate that I will sell the ebook to 0.5% of the visitors who come to my site (i.e. the conversion rate = 0.5%). The average sales value of each ebook is $14.97. The conversion rate on a good ecommerce site is between 1% and 10%, so 0.5% should be conservative.

Subscriptions

Selling subscriptions for access to the premium content on the site will be the most important revenue stream and will enable me to build a sustainable business. I plan on making my website the world’s number one community for professional pond builders. The member area will be a combination of me providing information to members, and the members helping each other through the forums.

I estimate that I will convert 0.25% of my website visitors to paying membership. That is one out of every 400 people. The average subscription fee will be $14.97 a month or $97 a year. To simplify my forecasting I will assume everyone pays annually. The conversion rate on a good membership website is between 1% and 5%, so again 0.25% should be realistic.

Events

Finally I plan on hosting four events a year which will take attendees through the whole process of planning and installing a pond.

I’m aiming to get 25 people attending each course, which means on average I will need to sign-up 8 people a month at a price of $149 for the day. I will also promote the event locally through garden centres, nurseries and aquatic centres where I’m well known to the owners.

So in summary, this is what my monthly financial spreadsheet looks like:

Now all I have to do is to test different visitor levels to see how much targeted traffic I need to hit my monthly target income of $7,000.

With a little bit of experimentation, I find my target traffic number is 15,500 visitors which will make me $7,086.

This means I need to get just over 500 people a day to my site who are interested in ponds. Is this realistic? It seems very achievable particularly as I’m targeting a global audience of enthusiast and professionals. However you should do some research into your sector to help you judge whether your forecasts are achievable.

The other important thing to note is the importance of having multiple revenue streams. Most people start an online business with just a single revenue stream. You can see from this case study that it would be extremely difficult to hit your target income levels with just one source of income, particularly, if like most blogs, it is advertising.

Next Steps

The next step in this planning process is to put together a business plan for the first twelve months. Don’t worry this is a very straight forward thing to do. Here is an example for the pond building site

You will not be able to instantly attract an audience of 15,000 visitors so you need to estimate how long this will take and understand the cost implications of building the business.

Your biggest start-up cost will be building your website. It is worth investing some money at the outset to build a website that is easy to manage and is ready to generate multiple revenue streams. If you compromise at the start it will cost you a lot of time and money later to put it right. There are services available that can provide everything you need at a reasonable cost such as SubHub (www.subhub.com).

Your biggest ongoing cost will probably be marketing. There are lots of ways to get free traffic, but to accelerate your growth you will need to invest some money in marketing.

Once you have built a business plan you are happy with. You are ready to build and launch your website. To watch a free ten part video series on how to do this, take a look at this video course.

Conclusion

As the western economies plunge into recession, the internet sector appears to be bucking the trend. Revenues from advertising, ecommerce and paid content are all predicted to grow.

Entrepreneurs have an opportunity to follow the money and setup an internet business.

The most successful internet businesses focus on a niche subject and are dedicated to becoming recognised as world leaders in what they do. They follow the Funnel of Trust methodology (even if they don’t realise they are doing it!) which emphasises the importance of driving traffic, building relationships and then generating multiple revenue streams.

I hope this article has inspired you to look into starting your own online enterprise. There has never been a better or more exciting time to join the thousands of entrepreneurs who are making their living on the internet.

Good luck!

Have You watched the Accompanying Video?

A 25 minute video, to accompany this article, is now available:

http://www.subhub.com/articles/how-to-start-a-recession-proof-online-business-video