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The Cost Of Doing Business...When Does It Become Too High?

by Steven Wagenheim
15 replies
We all talk about the cost of doing business.

For example, when we talk about serial refunders or refunds in general, we
say it's the cost of doing business.

When we talk about high PPC costs for certain keywords, we say it's the
cost of doing business.

When we talk about digital theft, we say it's the cost of doing business.

And the list goes on. We have so many "costs" that we make excuses for
or just shrug off as "nothing we can do anything about."

But at what point does the cost become too high?

Would you go into an auto dealer and pay $400,000 for a car?

At what point would you say, "This is frickin ridiculous...I'll walk to work."?

It just seems to me that so many people so easily accept whatever is
thrown at them without looking at alternative solutions, even if those
solutions aren't the most attractive.

For example, I'm not going to pay $1 a click for MMO keywords. I'd rather
spend the time writing articles and getting my traffic that way.

As for refunds, I'm moving away from Clickbank and their "Buy now refund
5 minutes later" policy. I now sell most of my stuff through PayPal and
have almost no refunds at all.

As for theft, I got DLGuard. It's not fool proof, but it cuts down on things
a lot.

I'm sure you get the point. There are always options. We don't have to
just lie down and take it. We can look for alternatives.

What about you? When does the "cost of doing business" become too
high for you?

Or are you just willing to accept whatever the world throws at you?

I'm not.
#businesswhen #cost #high
  • Profile picture of the author TLTheLiberator
    Neither am I.

    One of the absolutely most exciting things about conducting online business is that there are so many great options in most any situation you'd come across.

    There is a workable and affordable solution to every problem.

    Resources, tools and knowledge are abundant and rather inexpensive.

    You simply need to be savvy and also be crystal clear about what you're trying to do and then take appropriate action to solve your online business problems.

    TL
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  • Profile picture of the author Andyhenry
    It probably depends on what the purpose of your business is - as soon as your business model stops being able to get the results you need - the cost is too high.

    If you're just dabbling and not bothered how much you make then you probably don't even know or care much about the cost as long as you enjoy what you're doing and feel like it's a good use of your time.

    I think everyone is different in what they're doing and why they're doing it.

    I don't give any focus to the negative side of doing business online - it's just a distraction from moving forward.

    Andy
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  • Profile picture of the author MichaelHiles
    When does the cost become too high?

    The moment the cost consistently exceeds the revenue on a sustained basis.

    You'd buy a $400,000 car if it was going to earn you $4,000,000.

    (think NASCAR)
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    • Profile picture of the author Steven Wagenheim
      Originally Posted by MichaelHiles View Post

      When does the cost become too high?

      The moment the cost consistently exceeds the revenue on a sustained basis.

      You'd buy a $400,000 car if it was going to earn you $4,000,000.

      (think NASCAR)
      That's an excellent point, but I don't think I'm going to be doing any race
      car driving any time soon.

      But you're right, if you're going to race at NASCAR I'd guess that $400,000
      for a killer machine wouldn't be all that much...not that I know anything
      about racing.
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    • Profile picture of the author Ron Douglas
      Originally Posted by MichaelHiles View Post

      When does the cost become too high?

      The moment the cost consistently exceeds the revenue on a sustained basis.

      You'd buy a $400,000 car if it was going to earn you $4,000,000.

      (think NASCAR)
      I was thinking the same thing. The cost is always relative to the amount of profit you make with the current option vs the profitability of other alternatives. If you're spending $1 per click but making $7 per click, the cost is welcomed. If you decide that it's too expensive and switch to an alternative that makes you less profit, you're probably making a foolish business decision.
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      • Profile picture of the author Steven Wagenheim
        Originally Posted by Ron Douglas View Post

        I was thinking the same thing. The cost is always relative to the amount of profit you make with the current option vs the profitability of other alternatives. If you're spending $1 per click but making $7 per click, the cost is welcomed. If you decide that it's too expensive and switch to an alternative that makes you less profit, you're probably making a foolish business decision.
        Yes Ron, but I think you're pointing out the obvious. If I'm making $7 for
        every $1 click I'd be jumping in the streets for joy. Heck, at $7 for every $3
        click I'd be doing the jig.

        I'm talking about when you're paying $1 per click, making maybe $2 and at
        the same time, there is an option where you can pay less and make the
        same $2.

        Why wouldn't you take it?

        And for that matter, if you could make $7 for less than $1 per click, why
        wouldn't you take that option as well?

        Aren't we always looking to minimize our costs? Isn't that ultimately how
        we make the most profit as long as lowering our costs doesn't also reduce
        our sales?
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        • Profile picture of the author John Taylor
          Originally Posted by Steven Wagenheim View Post

          I'm talking about when you're paying $1 per click, making maybe $2 and at
          the same time, there is an option where you can pay less and make the
          same $2.

          Why wouldn't you take it?
          Because the financial cost may be lower but the cost
          in time is much higher.

          When you set up a PPC campaign, you can predict with
          a reasonable amount of certainty that your will generate
          an overall profit.

          Once the camplaign is set up, it will more or less run on
          autopilot with a little bit of time to monitor results and
          maybe to test and tweak to increase its effectiveness.

          Article marketing, although free, requires much more time
          to set up and, although articles will continue to drive some
          traffic, they become less effective over time.

          Submitting your articles to even just the top six directories
          also requires quite a lot of time, especially if your approach
          is to submit psuedo unique articles.

          I guess it boils down to how much value you place on your
          time.

          John
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        • Profile picture of the author Ron Douglas
          Originally Posted by Steven Wagenheim View Post

          Aren't we always looking to minimize our costs? Isn't that ultimately how
          we make the most profit as long as lowering our costs doesn't also reduce
          our sales?
          I'm more focused on increasing revenue than lowering cost. If I was making $2 for every $1 in Adwords, all things equal, I'd be looking to increase my daily Adwords budget.
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        • Profile picture of the author Amitywill
          Originally Posted by Steven Wagenheim View Post

          I'm talking about when you're paying $1 per click, making maybe $2 and at
          the same time, there is an option where you can pay less and make the
          same $2.

          Why wouldn't you take it?
          Good point Steven but...

          Why not do both? Makes sense to me.
          If your smart you'll keep what's already
          making you money and then scale it up with
          the other options.

          Will Cooper
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          • Profile picture of the author Steven Wagenheim
            Okay, let me put it this way.

            You start a PPC campaign. Your keywords are costing you 10 cents a click.
            You're making a whopping $2.50 per click on average.

            There's another solution that's going to cost you $1 per click and will only
            make you $2 per click on average, so naturally, cost wise, it makes more
            sense to go with the PPC campaign.

            Okay, time goes by and those same keywords are now costing you $1 per
            click and now yuo're only making $1.50 per click.

            Wouldn't it make more sense to now move over to the $1 per click
            solution (let's say it's banner advertising on a site) that will now actually
            make you more money?

            My point is, as costs for something rise, at what point does it just not
            make any more sense to use that solution?

            With product theft, if you're losing 30 sales a month maybe it's no big
            deal. But what happens when you find out you're losing 300 sales a month?

            At what point do you say "I have to do something about this even if it
            means I end up making things harder for my customers" (such as with EXE
            files instead of PDFs)

            There is a cost to everything we do and sometimes we can't see that
            cost (such as theft) because it doesn't really translate into dollars and
            cents we can see. We take that theft as "well, they wouldn't have bought
            anyway" but at what point do the lost monthly sales warrant putting in
            another solution?

            This isn't so cut and dried and some people might think. Everything we do
            has consequences. And yes, dropping one form of promotion just because
            costs are going up may not be the best idea. On the other hand, it may
            be exactly what we need to do, even if that form is still making us a profit.

            If there is a better way, why not use it instead?
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            • Profile picture of the author Andyhenry
              again it comes back to WHY you're doing what you're doing.

              It would take a LOT for me to want to make things more difficult for my customers - I hate the thought.

              I had some decisions to make a while ago about this type of thing and I decided the money was less important than helping people, so I just accepted that I'm driven more by helping and that I didn't really care about the financial ramifications - as long as it's not costing me more than I am comfortable with to do business - I'm gonna do it my way whether it makes nothing or millions.

              Most people have some sort of goal for their business and as long as they're happy that they're moving towards that goal, they often don't care too much for the reasons why not to keep going.

              Steven, in the situation you just layed out - why not do BOTH?

              If they're two different methods then there may be advantages to using both regardless of their differing return levels - as long as they both fit within your desired marketing mix and the numbers work out acceptably.

              Sometimes it's ok to pay for advertising just to build your brand - not everything comes down to dollars and roi.

              Andy
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              • Profile picture of the author Steven Wagenheim
                Originally Posted by Andyhenry View Post

                Sometimes it's ok to pay for advertising just to build your brand - not everything comes down to dollars and roi.

                Andy
                Interesting way to look at it Andy.

                In other words, if one form of promotion doesn't bring you a great return
                but reaches more people and gives you more recognition, it may be to your
                advantage to use it, even if it's at a loss?

                Not something that I've considered but I guess there are merits to this.
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  • Profile picture of the author Ron Douglas
    Yeah, what John said
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  • Profile picture of the author MichaelHiles
    I think we're all sort of saying the same thing. If you're expecting x% ROI for the amount of work, risk, et al, then it's all relative. If one operational method stops returning the targeted goal of x% then it should be evaluated.
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  • Profile picture of the author 4Highflyers
    Aren't we always looking to minimize our costs? Isn't that ultimately how
    we make the most profit as long as lowering our costs doesn't also reduce
    our sales?
    No and No. Wouldn't you want to be effective before being efficient?
    Being effective doesn't always equal reducing costs...and that's why the
    'recession' mindset of cutting costs by many businesses becomes self
    defeating in relation to the aim of increased profit.

    John Taylor:
    I guess it boils down to how much value you place on your
    time.
    And there's the key point that many of us stick too low a
    value on before realizing just how valuable it truly is.

    And that's also why (as Andy [Henry] pointed out) it's often a costly decision
    to pursue the negative angles you mentioned in relation to doing business.

    I'm talking about when you're paying $1 per click, making maybe $2 and at
    the same time, there is an option where you can pay less and make the
    same $2.
    Then why not find an effective way to do both?

    One thing I do agree with though Steven...
    There are always options.
    Including many that we don't initially think about

    And thanks for a fun topic.

    Best,
    Adam
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  • Profile picture of the author Chris Lockwood
    I think people are lumping different types of things together here.

    "Cost of doing business" usually means "I have little control over X so I might as well accept it" - for example, the Clickbank refunds. No point in getting upset there since you have to comply with their terms (or leave, which means giving up affiliates you got from them).

    Then there are things like PPC which are literally "costs of doing business" but in a positive way, since if I'm making a profit, I want to spend as much on these things as possible.
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  • Profile picture of the author Kenneth L
    With regard to the earlier suggestions in this thread it doesn't have to be an either/or.

    If both avenues make profit then just do them both. Especially when it's PPC, since it doesn't involve your time in the way articles do, there's very little opportunity cost providing both avenues make profits.

    Just do both.
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  • Profile picture of the author John Taylor
    Steven,

    How do you measure success?

    Or, perhaps more importantly, what
    specifically do you measure in your business?

    The vast majority of people who get into
    Internet Marketing don't measure very much at
    all.

    How do you know how much profit you're losing
    to digital theft?

    How do you know if one banner advert is more
    effective than another?

    Have you established the break even point for
    each of your advertsing campaigns?

    If you have your finger on the pulse of your
    business, you'll know the answers to those
    questions.

    There isn't a right or wrong answer, because
    the numbers will depend on each individual's
    business model.

    John
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    • Profile picture of the author Steven Wagenheim
      John

      The vast majority of people who get into
      Internet Marketing don't measure very much at
      all.
      Isn't that the truth.

      How do you know how much profit you're losing
      to digital theft?
      I look at how many of a product I sold as opposed to how
      many actual downloads I've had off my server. Granted, I
      can't account for how many people just pass my PDFs
      around, but it gives me some indication. Now that I use
      DLGuard (something I didn't always use) the downloads
      are almost down to nothing.

      How do you know if one banner advert is more
      effective than another?
      That's easy enough...through simple tracking of impressions,
      clicks and how many sales from that banner ad. If people
      aren't at least doing some kind of simple ad tracking on
      their campaigns they're marketing in the dark.

      Have you established the break even point for
      each of your advertsing campaigns?
      Since most of my advertising is free, this is hard to
      answer without factoring in what my time is worth.

      I do know this much, up until recently, I didn't have one
      campaign that was running negative. Then I found
      certain sources weren't performing well at all (I was
      losing $25 for every $200 spent) and I cut those
      sources out of my budget. Now, Andy might say that
      I should have possibly considered keeping them
      because of the exposure, but I decided that it just
      wasn't getting me enough exposure (about 20 clicks
      a day) to warrant doing it anymore. It was a judgment
      call.

      And I guess that's my point of the whole OP. I'm not
      giving anybody any hard and fast figures saying, "This
      is when you cut your loses." I'm asking, "At what point
      do you say this is costing me too much?"


      There isn't a right or wrong answer, because
      the numbers will depend on each individual's
      business model.
      I couldn't have put it any better.
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  • Profile picture of the author 4Highflyers
    Quote:
    There isn't a right or wrong answer, because
    the numbers will depend on each individual's
    business model.
    I couldn't have put it any better.
    True enough - but so is this...

    There is always a better or worse

    The general question you ask an answer of is as much to do with mindset as it is
    about economics and ethics of doing business...as this bit shows Steven...

    With product theft, if you're losing 30 sales a month maybe it's no big
    deal. But what happens when you find out you're losing 300 sales a month?
    Is the reality really that you are not losing those sales?...

    Probably not. Likelihood is that many of the thieves would never have ordered
    the product if they couldn't have got it for 'free'.

    So then you could ask yourself...

    "Is my time better used in adding extra security (with its own pros and cons), or
    is there some way to effect (in my favor) how the pirates use it?"

    And beyond this: you could also ask yourself...

    "Am I also losing 300 sales from not promoting to more valid, target customers?"

    You see, it really is all down to how you (literally) mind your own business

    Best,
    Adam
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