The Shocking Reality of Scaling an Online Business
It's not magic; it's just math.
Editor's note: This is an excerpt from Daniel DiPiazz's new book Rich20Something: Ditch Your Average Job, Start An Epic Business, Score The Life You Want.
It’s two-thirty in the morning, and you’ve woken up from your sleep to feel the bedside table vibrating ever so slightly. A notification on your phone is making a white shadow dance across the wall next to your bed. You know you should go back to sleep, but on impulse, you grab your phone and flick your groggy fingers across the touch screen.
It’s a Gmail notification bubble. Normally this could wait until later -- who the hell has time to respond to emails at two-thirty? Then, you read the subject line of the email:
Subject: You just received $1,297
You realize this is not spam; it’s real. Holy shit! You just made almost $1,300 without lifting a finger.
What would it be like to have this happen every single night? How would it change your life to know that you have a business that pays you automatically every single day, whether or not you decide to “clock in” for work that day, no matter what country you’re in, for the rest of your life?
How would your life change if you had the ultimate security of knowing that you had an army of salespeople working around the clock to make you money and you didn’t have to pay them a dime?
To some people, this might sound like science fiction - or worse yet, a sleazy late-night infomercial. If you’re rolling your eyes all the way to the back of your head right now, I get it. Trust me, I do. I thought the same thing. Then I discovered the power of starting an online business. And I can tell you one thing: All this, and much more, is possible.
Want to learn how I created the life of my dreams (and nearly unlimited income) building online products? Of course you do.
I’ll admit, the above description of online business is a bit “hypey.” Full disclosure: I took it straight from one of the sales emails for my premium training on building an online business, Startup from the Bottom. But despite being a bit over the top in its approach and copywriting, for the most part it’s true. Online business is where it’s at.
The Shocking Reality of Scale (aka, “How Much Money Can I Make?”)
I think the number-one thing that surprises most people about info products is how much money you can make with a relatively small email list and halfway-decent marketing.
Here’s a quick example: Let’s say you’re a bomb-ass photographer who wants to teach beginners how to get started in the industry. You decide to create a relatively inexpensive mini-course that will teach step-by-step instructions for taking great wedding photos and booking your first job. Simple enough, right?
You set up a blog and start writing about your photography ideas, and slowly, people start signing up for your email list. It doesn’t happen overnight, but as the months roll by and you keep writing, the subscribers trickle in. After six months, you have your first thousand subscribers.
You make the course and price it at two hundred dollars, then promote it to your list.
The reality of any sales situation (not just online sales) is that only a fraction of people will end up being buyers. And that’s OK. You don’t need everyone to buy; you only want people who are engaged and interested.
Assume that of the thousand people on your list, you get a conversion rate of 5 percent, which is not unrealistic for a small, engaged list:
5 percent of 1,000 = 50 sales
50 sales at $200 = $10,000
That’s ten thousand dollars from a small email list, after sending out just a few emails! I don’t know about you, but that’s a lot of money to me. It’s more than most people make in several months, and you’ve done it all automatically from your laptop. You didn’t need a lot of customers, and there’s not a ton of support needed to keep them happy.
But let’s play with the numbers a bit.
Perhaps you want to turn your course into premium, all-inclusive flagship training in the photography business. It will have everything from how to turn the camera on, to how to become a full-time photographer making six figures. A program of this depth is going to require a lot more time on your part, and it’s going to offer a lot more value to the customer, so you’re going to charge more.
This course is going to be priced at two thousand dollars (with an option for payment plans to make it easier on people). Assume that since the price is much higher, the conversion rate is going to go down from a healthy 5 percent to 1 percent, which is industry standard for a course of this price. Look at what happens:
1 percent of 1,000 = 10 sales
10 sales at $2,000 = $20,000
After tweaking your prices, even with drastically reduced conversion, you’ve still doubled your money. Twenty thousand dollars is a significant fraction of most people’s yearly income -- and you’ve managed to make that by simply creating a product that people need and finding 10 customers somewhere in the world that are willing to pay for that value.
As your email list grows from one thousand to ten thousand, to a hundred thousand, so will your profits. But it’s all based on the same basic model of giving value up front for free with content, directing people to your email list, and offering them something else.
It’s not magic; it’s just math.
Imagine that you took the same photography product and made it into a recurring product where new content was continually added and users paid fifty dollars per month to access it -- similar to the Netflix model. Now, assume that your email list continues to grow and you’re able to continually get people to buy this product. Some people will drop off and more will sign up as the year progresses since it’s a monthly payment, but your average retention rate is about six months. Since the barrier to entry is considerably lower at fifty dollars per month, let’s assume that you can keep a hundred people in the membership program at any given time.
Here’s what those numbers look like for the year:
100 people x $50/month = $5,000 per month
$5,000/month x 12 months = $60,000 per year
Do you see what just happened there? By creating a fifty-dollar product, you’ve just made a nice yearly salary with only one hundred people. Imagine if you got two hundred people! This is why creating information products is so powerful: It allows you to scale your knowledge and make incredible amounts of money with a small handful of customers in very small niches. This is a powerful business model. (As I write this, I’m also beginning to realize why some pastors are driving Bentleys. If every member of the congregation gives twenty dollars per week . . .)
Note: I’m purposely simplifying the math here so that you can understand the opportunity at hand and the general process for creating an information product business. This isn’t some late-night infomercial where you just set it and forget it—at least not in the beginning. It’s going to take a lot of hard work to get everything set up -- but so will any business.
Hell, it’s hard to clock into work every day and work for someone else, isn’t it? If you’re going to be working on something, doesn’t it make sense to create something with this type of flexibility and unlimited potential?
Starting a business is one of the hardest things you can do—and as some of these examples should demonstrate, the answers can often be quite counterintuitive. But you don’t have to do this alone.
If you thought the strategies I shared for how an online business works were helpful, you’re going to love my new book Rich20Something: Ditch Your Average Job, Start An Epic Business, Score The Life You Want.
In total, the book has more than 300 pages of detailed strategies, crazy anecdotes and larger-than-life personalities -- including case studies from over a dozen wildly successful entrepreneurs who will tell you exactly how they did it.
Entrepreneur Leadership Network Writer