Are You A Profit Prophet?

[John Taylor]

I'm curious..

Whe you decide to persue an idea, set up a
new site or create a new product, just how
much time do you invest in determining if it
your new venture is worth it?

Does anyone take the time to analyse the
cash flow implications?

Before investing in a domain name, hosting,
content creation or anything else, I always
set up a spreadsheet to work out the cash
flow.

It's not so much about determining how much
profit that a project might generate. It's very
much about working out how much cash will
be needed to fund a new project before it
becomes profitable.

Looking at it another way..

It helps me to answer the question.. "How much
cash am I putting at risk if this bombs?"

I've attached a very simple cash flow forecast
template to this post.

Simply enter your income and expenditure in the
appropriate cells and the spreadsheet should do
the rest. It's in .csv format so it should work in
Excel and OpenOffice.

John

[Jim Burney]

Thanks John

Very useful spreadsheet.

Jim

[Anonymous Affiliate]

Originally Posted by John Taylor

It helps me to answer the question.. "How much
cash am I putting at risk if this bombs?"

Quite frankly, the cost of creation for most info products is generally small: a bit of outsourced design here, a bit of video edition there, maybe some custom-coded scripts, but all in all the cost can be easily recovered within the first few days upon launch.

Now a days I don't look at the cost anymore. What I do look though is TIME. Not creation-time but maintenance time. I don't mind working my butt off on a project for a whole month if the maintenance requirements from launch day onward are reasonable. That's the number one priority for me now: products that can be easily and conveniently managed once launched.

[Shaun OReilly]

Useful spreadsheet John.

In addition to considering cash flow implications, I also
like to take 'opportunity cost' into account.

Taking on one project means an investment of my
time, money and effort.

If I choose to invest my time in a worthwhile project,
it means that I can't then spend that time on other
projects - some of which could be more lucrative.

Therefore the evaluation of the inputs and outputs
of projects on the table is vital IMO.

Money can be replaced relatively quickly but my time
and effort are more precious and once they're gone -
they're gone.

So consider time, money and effort before deciding
which projects to focus your resources on.

Dedicated to your success,

*Shaun O'Reilly

[Flyingpig7]

You're quite right John this is the way real world business does things being cautious and looking at all angles before spending the money (the company Accountants help :-> ). Many thanks for bringing this up it's easy to forget in the excitement of pursuing a new idea. Thanks for the great template too, very useful.

Cheers
Keren

[Andy Fletcher]

Originally Posted by Shaun OReilly

Useful spreadsheet John.

In addition to considering cash flow implications, I also
like to take 'opportunity cost' into account.

Taking on one project means an investment of my
time, money and effort.

If I choose to invest my time in a worthwhile project,
it means that I can't then spend that time on other
projects - some of which could be more lucrative.

Therefore the evaluation of the inputs and outputs
of projects on the table is vital IMO.

Money can be replaced relatively quickly but my time
and effort are more precious and once they're gone -
they're gone.

So consider time, money and effort before deciding
which projects to focus your resources on.

Dedicated to your success,

*Shaun O'Reilly

I agree with you 100% Shaun but I'd like to expand on this point a bit for the less experienced.

If you *know* that your time is constantly being profitably spent. That doesn't have to mean every venture works out (that never happens) but you are showing increasing gains for time invested. That's when to include opportunity cost in your calculations. If doing option A is profitable but prevents you doing option B which is more profitable, you don't want to do it.

However, 99% of people that read this forum don't fall into that first category and factoring in opportunity cost is what stops them succeeding. If option A might be profitable but it stops you doing option B which might be profitable. Just pick one and do it. Don't over analyse.

Studies have shown the human brain is wired up in such a way that we hate closing doors and cutting off options. This way of thinking is so deeply wired in most people that they can't overcome it even when it's obviously detrimental to an overall outcome. For a good starting point about this read "Predictably Irrational".

You will never get anywhere if you let the fact that doing X will stop you doing Y get in your way. There will always be another option. You will always be passing something up. You *have* to get over that and start doing something.

[Roger Mayne]

Thanks for the spreadsheet, John. I think that will come in useful when I analyse my projects.

@Andy - I think you're absolutely right about this. I used to have a life coach some years ago, and she used similar methodology for helping me stay focused. She said that whenever you have to make a decision, consider what you're saying YES to, but also what you're saying NO to, which is basically what you've said.

You have to consider both sides of the coin before you can make an informed decision. For instance, if you start a new project that will make you $1,000, but it means you can't work on a project that could have made you $2,000, you've basically lost $1,000, not made it.

[Andy Fletcher]

Originally Posted by swiftdeal

Thanks for the spreadsheet, John. I think that will come in useful when I analyse my projects.

@Andy - I think you're absolutely right about this. I used to have a life coach some years ago, and she used similar methodology for helping me stay focused. She said that whenever you have to make a decision, consider what you're saying YES to, but also what you're saying NO to, which is basically what you've said.

You have to consider both sides of the coin before you can make an informed decision. For instance, if you start a new project that will make you $1,000, but it means you can't work on a project that could have made you $2,000, you've basically lost $1,000, not made it.

Yes, but only if it's a single decision and means you're going to go work on the $2,000 idea and make it happen.

If the result is you then start comparing the $2,000 idea to something else. Again and again. Without ever being able to commit to something then you're not making $2,000 you're making a mistake.

[John Taylor]

When considering a new idea or project
I start by writing a very brief outline to
describe the general idea, the target
market and any other relevant information.

The process of creating a project file
helps on several levels..

• It allows me capture ideas that may
  otherwide have been lost.
• It serves as an "aide memoire" to
  refer back to in the future
• It provides a sense of completion
  of the initial phase, freeing me up
  to focus on more immediate priorities.
• It serves as a document folder that
  I can add to should I decide to
  proceed with the project

I usually create a cash flow forecast as part
of that initial process. This gives me data upon
which to make decisions about which project
to implement.

John

[Steven Wagenheim]

John, being the stingy, cheap SOB that I am, I won't even go near something
unless I am absolutely dead sure that I can generate a substantial profit on
a shoestring budget. Then, if I see I can do that, I will then invest more
funds into increasing traffic and income.

Out of all the products I have ever created, I have had only 2 failures. And
even these did NOT put me in the red.

Not a bad track record for a stingy, cheap SOB.

[John Taylor]

Steven,

Originally Posted by Steven Wagenheim

I won't even go near something
unless I am absolutely dead sure that I can generate a substantial profit on
a shoestring budget.

How do you know?

My point is that by calculating your
cash flow requirements, you'll be in
a much better position to make such
a decision.

John

[Steven Wagenheim]

Originally Posted by John Taylor

Steven,



How do you know?

My point is that by calculating your
cash flow requirements, you'll be in
a much better position to make such
a decision.

John

John, I'm assuming that this isn't a rhetorical question so I'm actually going
to answer it.

And hopefully, some of the members here will get something out of it.

Here are my steps for creating any new product BEFORE I actually create
it.

1. I check out the latest Internet Marketing news. One site that I go to
is IMNewsWatch. It takes a while to go through it but you will find out
many of the latest developments.

2. I attend forums, discussion groups and even go to places like Yahoo
Answers to see what people are asking and what problems they're having.

3. I go to the Clickbank and PayDotCom marketplaces, for whatever
niche I'm interested in to see what the hottest selling products are. This
gives me a very good idea if there's already a market for the product.

4. I'll email my list and put out a survey as to whether or not this is
something they'd be interested in. If I don't have a list in that niche, I'll
test the waters by writing a few articles on the subject and promoting
an affiliate product (after I have checked it out) to see if it sells.

5. After all of that, I'll then estimate how much it's going to cost to
create the product and then market it based on what mediums I choose
to use. I will then estimate my traffic volume based on the popularity of
the niche (keyword and competing site figures) and compare them to
other niches I am in to try to get a feel for what kind of traffic I can
expect.

My ultimate goal is to earn a minimum of $2 for every $1 spent.

No, this isn't an exact science as there is a lot of guesswork involved,
but at least I am making those guesses based on a specific plan that I
have in place.

Sometimes the results are much better than I expected, meaning I get
much more traffic and many more sales.

Other times (has happened twice) I fall flat on my face either because I
misinterpreted the market, the product, the price I decided to charge (Oh,
I didn't go into my price selection process...probably should have done
that as it IS very important) or any one of a number of minor factors.

But at least I do have a plan. Some people just go into creating a product
blindly without even having a clue if anybody even wants it. I made that
mistake once and I'll never do it again.

Anyway, hopes this somewhat answers your question. I have left a few
steps out but I didn't want to turn this post into a novel or hijack your
thread. But I did want to answer your question.

[Bev Clement]

John, the problem is a lot of people don't understand about running a business. We spoke to a start-up company last week, who have a brilliant idea. The person has done some work to see if there is a market for it, but they have done a limited plan. They believe the end result will be xxxx based on some of the data they have. But, they have no real idea because their research is being influenced by what they believe the bottom line will be.

For the idea they have, it should take about 2 weeks to complete an intensive start up business plan, and that will give a truer picture of what is possible.

They have been dazzled by the bottom line, and I think they will be in for a shock.

[Andy Fletcher]

Originally Posted by Steven Wagenheim

John, being the stingy, cheap SOB that I am, I won't even go near something
unless I am absolutely dead sure that I can generate a substantial profit on
a shoestring budget. Then, if I see I can do that, I will then invest more
funds into increasing traffic and income.

Out of all the products I have ever created, I have had only 2 failures. And
even these did NOT put me in the red.

Not a bad track record for a stingy, cheap SOB.

This seems like a very risk averse strategy to me. While I'm not condoning taking up any opportunity without considering the risk/reward it seems to me that only pursuing opportunities that you perceive as a dead cert is leaving money on the table.

Is this an active choice, in that you're prepared to take less profit in exchange for reduced risk/stress? Or do you think this is the most profitable strategy?

Either way I'd like to hear your thoughts.

Cheers,

Andy

[Adi E]

Thanks for the Spreadsheet John, I like how you've saved it as a .CSV so as not to limit its usage to MS Excel

[Steven Wagenheim]

Originally Posted by Andy Fletcher

This seems like a very risk averse strategy to me. While I'm not condoning taking up any opportunity without considering the risk/reward it seems to me that only pursuing opportunities that you perceive as a dead cert is leaving money on the table.

Is this an active choice, in that you're prepared to take less profit in exchange for reduced risk/stress? Or do you think this is the most profitable strategy?

Either way I'd like to hear your thoughts.

Cheers,

Andy

Andy, it goes back to my days learning how to gamble from a professional
gambler by the name of John Patrick, who I actually met personally.

His theory to gambling was always minimize losses as opposed to maximizing
wins.

It is the way I gamble and it's the way I do my business.

I'd rather make less money than take a risk that I will invest heavily in
something that might not pan out.

Having said that, if I find something that sells well, after testing the
waters, I am not against putting a lot of money into promoting it if I see
the conversion percentage is there.

That's another thing I look at greatly when promoting any of my products.
And to be honest, most of my products don't convert much better than
1%. Some are at around 2% but very few.

But that's a topic for another day.

[BIG Mike]

Originally Posted by Bev Clement

John, the problem is a lot of people don't understand about running a business. We spoke to a start-up company last week, who have a brilliant idea. The person has done some work to see if there is a market for it, but they have done a limited plan. They believe the end result will be xxxx based on some of the data they have. But, they have no real idea because their research is being influenced by what they believe the bottom line will be.

For the idea they have, it should take about 2 weeks to complete an intensive start up business plan, and that will give a truer picture of what is possible.

They have been dazzled by the bottom line, and I think they will be in for a shock.

And that's exactly what I believe is the root cause in most people failing (or giving up) online and off.

From my corporate days, you didn't propose a new venture until the research and planning was done, the numbers were transparent and ready to pitch the board.

Unfortunately, many people seem to get "Dazzled" and neglect the most important parts of starting up something new.

Well done John

[John Taylor]

Mike,

Originally Posted by BIG Mike

Unfortunately, many people seem to get "Dazzled" and neglect the most important parts of starting up something new.

I think that's a very important point. Many
Internet Marketers lack that real business
experience and, therefore, are not aware of
many of the fundamental tools and techniques.

It's amazing just what a simple spreadsheet
will reveal about the real financial needs of a
project.

John