March 9, 2011, 5:00 am

You Must Spend To Earn

by: The Financial Blogger    Category: Business,Make Money Online
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We have all heard that you need to spend money to make money. And that if you don’t have funding, you can’t get anywhere.

That’s totally wrong.

The only difference is that when you have money, things seem easier. For example, when I started my online company, paying $1,000 for a design seemed completely out of range. Besides the $10-$15 spent on my domain name and a small monthly fee for a server, I wasn’t willing to spend another penny. Why? Because I didn’t have money to invest in some wacky project.

However, I’ve spent a lot to get where I am. I’m not talking about money, but I’m talking about time and energy. Every single moment that I could have spent watching TV, reading a book or surfing the net for fun, was spent on my business. And I’m still very far from slowing down on the number of hours devoted to my company. But I can now leverage my talent with a new tool; now that I am making money, it is time to spend it all… reinvested in the business!

Spend to Earn

I recently shared the projected cost of my online business for 2011. I’ll spend somewhere between 60K and 75K this year to get my company rolling. Since I expect to make about 100k, this doesn’t look like the best deal on earth.  While generating 6 figures online is cool, spending more than 50% of my revenue doesn’t make the online money making project seem so appealing ;-).

But you have to open your mind (while I open my wallet) for a minute.

In 2011, I had 2 options:

Option #1: Keep my expenses to a minimum

I could easily have kept my expenses around 30K per year by cutting on my VAs and not borrowing to buy more websites. With a strict budget (reserved for writers and minimal overhead costs), I could continue to make 7 to 8K per month. Considering I put about 20 hours per week, making 2,5K per month (I must split my profit with my partner 😉 ) for 80 hours of work seems pretty good. At $31.25/hour, I think most people would like to run my business. Especially since I can take vacations whenever I want ;-).  As you can see, this option seems quite interesting.

Option #2: Take a deep breath. Open my wallet, and hope!

Obviously, I didn’t decide to go the minimalist route. To be honest, I have never done something with minimal effort, resources nor risk. I find these things boring and I want to have fun in my life. This is why I decide to take so many risks ;-).

So instead of cashing in my profit and feeling lucky to have a lucrative sideline, I have decided to hire 2 VAs and start more projects. This is why I am spending more than double of what I did last year. I seriously think that I can make my sideline grow into a real business. Real business meaning having full time employees… and full time owners ;-).

I am feeling pretty fit with my new expense budget. Considering that we are paying ourselves some dividends, we are barely breaking even right now. However, the expenses I have added in 2011 should reflect my expense structure for the next 2-3 years.

During the same period of time, I expect to increase my online income from 100K to 150K…200K…250k… and so on ;-). While I can’t wait to see my first month with 10K of regular income (e.g. without selling any websites 😉 ), I am really looking forward to my first 20K month.

Having more people working for me doesn’t do much good in managing the company as it is. They are contributing to create more content, start other websites, and generate more value in the long run.

Here’s the worst case scenario: the project we start in 2011 don’t bring the expected profits. After a year worth of effort, we are at the same point; breaking even with our budget. If this ever happens, I will either reorient my projects or simply cut back on my expenses and feel lucky to have a lucrative sideline ;-).

So the choice I am making this year is the following; not cashing out profits right now in order to have way more profit later!

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I definitely agree that while you can make money while on a shoestring budget, the only way to really grow your revenue is to invest back into your business. I started trying to do everything as cheaply as possible, but you expend a lot of time and energy that way. I’m finally learning the importance of outsourcing and investing in tools that make tasks easier and more efficient.

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Spinning off this theme … a lot of tips and tricks that working class and middle class families can use to cut household expenses will take time, money, or both, up front to see results later.

Examples: buying and installing CFL light bulbs, getting a Sunday paper to get the grocery coupons, buying an extra jar of peanut butter because there’s a sale, buying cloth towels to clean your kitchen and glass rather than paper towels …

Don’t get derailed by that upfront effort. If you have to penny pinch money now, what makes you think the finances will be that much better later?

[…] week Mike wrote about how he believes that you must spend to earn. This means that if you want your business to grow, you’re going to have to invest money into […]