There are thousands of guides that will help you learn how to generate revenue with your website. There aren’t very many that actually help you figure out whether or not you’re generating a profit, though.
Many amateur internet marketers plunge into all of the steps and tools recommended by the so called “gurus” without actually taking the time to figure out if they will lead to a profit. When you’re running an online business, you have to treat it the same as you would if you actually maintained inventory at a physical location.
Set a Budget
Even if you have already spent money on tools, web hosting, advertising, or any of the other things you might need to put your business together, you need to figure out your budget. Most internet marketers find that they can build their website and bring it to profitability with less than $300.
You might not have that much to spare, or it might seem like an incredibly small amount. Either way, you need to determine how much you can afford to invest in your business before you can calculate your return on investment.
If you have already spent money building and advertising your site you should go back and figure out the total amount you have spent. Subtract that from the total budget you set aside for yourself. Now, whatever you do, try to avoid exceeding your budget.
Build a Spreadsheet
The next step in the process is building a spreadsheet that will help you track each expense related to your site. You should include some common categories, like:
- Hosting costs
- Domain costs
- Outsourced work
- Advertising
- Software / Tools
The good news is that most of your expenses will be tied up with outsourced work, advertising, and software. While these things make your job easier, you can completely eliminate them from your budget by just doing everything yourself.
Whether you’re going to tackle these tasks yourself, or not, you next need to figure out what you want your website to pay you for each hour of time you invest in it. Avoid grandiose predictions and expectations. Most internet marketers will start out hoping their site will generate thousands of dollars for every hour of time invested.
You should probably start out by expecting something in the range of $10 to $30 for each hour of time invested.
The number that you set will determine the total “labor budget” for your site.
Adding it All Up
You have two types of expenses at this point – actual cash investments, and time investments. Since we know what we want to earn each hour, you can actually put a dollar amount on your time investments, too.
These two different types of expenses will be tracked separately, though.
Now, each time you spend money on your site you need to track it. Keep your cash expenses on one sheet, and label them clearly so you never forget what you actually spent your money on.
Include each hour of labor you invest in your site with a label that categorizes it appropriately. For instance, if you spent ten hours writing content for your site, you should have an item labeled “content creation.” If you want to earn $30 per hour, you’re looking at a $300 labor expense.
In a third sheet, track any revenue that the site generates. You can do this daily, weekly, or monthly.
At the end of each thirty day period, add together your cash expenses and time expenses. Subtract the sum of these two sheets from your total revenue.
Now, take the total number of hours you have worked, and divide your total revenue by that figure. The result is the actual amount you earned for each hour you have invested in your site.
The important thing is that you check this figure at least once per month. In some cases, it will become very clear, very early in the process, that your site will never generate the kind of ROI you want. In that case, you might want to abandon the project.
In other cases, though, you will find that your ROI is far greater than you expected. In these instances, it might make sense to put more time into the project.