EFP 84: Reviewing 6 Established Website Profit Models
With so many different ways to build websites, it can get confusing trying to figure out what works best for you. AdSense, Amazon, Dropshipping, Affiliate, etc. Lost yet? (Make sure to check out our post The 11 Most Popular Online Business Models)
6 Proven Established Website Models
Today, we dig into the advantages and disadvantages of six established website profit models and share with you some resources to help get you started. We’ve actually dealt with every single one of these monetization methods and wanted to share our experiences with each to help you get up and running.
There’s no best way, but hopefully this helps you narrow down your thoughts on the path you’d like to take.
Check Out This Week’s Episode Here:
Topics Discussed This Week Include:
- Advantages and disadvantages of AdSense.
- Benefits of running an Amazon affiliate site.
- Finding affiliates that work well with you.
- The upsides of running a dropshipping site.
- Running and selling a productized service.
- Jon Haver’s Authority Website Income
- Tung Tran’s Cloud Living
- Pat Flynn’s Niche Site Duel
- Spencer Haws’ Niche Pursuits
- Yaro Starek’s Entrepreneurs Journey
- Example of great affiliate marketing: 50em.com
- Anton Kraly’s Drop Ship Lifestyle
- Andrew Youderian’s eCommerceFuel
- Dave Hermansen’s StoreCoach
- Dan and Ian’s Tropical MBA
- Damian Thompson’s Linchpin
- Dan Norris’ WPCurve
- Startups for the Rest of Us
- OnDeck – Business Loans
- “You always have someone casting a shadow depending on what boat you’re in.” -Justin – Tweet This!
What monetization methods do you use and what tips do you have for us? Leave us a SpeakPipe message or comment below!
Need help building a website? Get our free eBook, Building A Niche Site Empire.
Speaker 1: Welcome to the Empire Flippers Podcast. Are you sick and tired of gurus who have plenty of ideas, but are short on substance? Worried that e-book you bought for $17.95 won’t bring you the personal and financial freedom you long for? Hey, you’re not alone. Join thousands of others in their pursuit of niche profits, without the bullshit. Straight from your host, Justin and Joe from Empire Flippers.
Justin Cooke: Welcome to episode 84, the Empire Flippers Podcast. I’m your host, Justin Cooke and I’m here with Joe” Hotmoney” Magnotti. What’s going on brother?
Joe Magnotti: Hello everybody.
Justin Cooke: We’ve got a great episode lined up. We’re going to be reviewing six established website profit models. We’re going to be going through all of them, giving you advantages, disadvantages, some tips and tricks, and some additional resources you can check out if you’re interested in that particular model.
Basically we just want to go through a bunch of different models, and share with you some resources that you can get more information and try to determine your entrepreneurial journey, when it comes to building out established, and profitable sights.
Before we do that, let’s do some updates, news and info. First thing, buddy, we’ve got one new five star iTunes review.
Joe Magnotti: Hit me up man.
Justin Cooke: We’ve got James Blues from the U.S. He’s got one of the best podcasts on niche sites, period. Justin and Joe are the one two punch in flipping niche sites for real profit. I’ve been listening since Spencer Haws, John Heavrin, Tung Tran. Caught you guys on the Niche Pursuits Podcast and now I’m hooked, keep it up.
Thanks James, really appreciate it.
Joe Magnotti: Yeah James, that’s an awesome review.
Justin Cooke: Next thing is I want to do an update. We did a focus 55 weekend, this last weekend. We all … it was five of us and we got together and knocked out some projects in our business. I am ashamed to say ours was not completely shipped, I’m still working on it. But it’s basically our affiliate program. So we’re setting that up now. We’re going to invite a few specific affiliates to test it out with us.
Joe Magnotti: Yeah, how did you feel about the weekend? Did you feel tired? I mean, you took yesterday off. So-
Justin Cooke: Yeah, it was rough. So I had a really rough week last week anyway, I was really busy. And to do it at the end of that week, made it a bit tough. I’d say I was good on Friday, knocked a bunch of stuff out. Saturday knocked a bunch of stuff out. And Sunday I was a little drag ass. So I was hurting a little bit on Sunday.
Basically the idea is, if you have an established business, and you really want to get a new product up and running. You want to get a new tool up and running. That’s something that would normally take you three or four weeks, maybe over time. Little bits here and there. It just allows you to dump everything else, and really focus on the projects. You have accountability partners and you’re doing regular updates with the rest of the people.
So it’s really helpful. It’s kind of like a start up weekend, except you’re actually building a piece of your business that in an already established niche, it’s pretty cool.
Joe Magnotti: Yeah, it’s interesting. I’m not sure it would fit my type of work schedule, but yeah, it’s definitely interesting. Maybe I’ll try it next time.
Justin Cooke: We’re talking about doing something next time where we bring in a developer, and a designer for each person. And we do more technical project. Something that you have to find someone, it would be kind of a pain. But we set that all up for four or five of us. And we have teams of people knocking out the work. I think that would be an interesting way to do it.
Joe Magnotti: And I would love to do it in an office space. Some sort of office environment. I know we had it at your house, which was very comfortable, but it would be cool to have it in some sort of office environment.
Justin Cooke: Conference room or something. Obviously if you have two people each, especially for the technical one. My house is cool, but not for 15 people or whatever.
So next thing I want to talk about is you’re heading off man, you’re leaving me once again. You’re going to Puerto Galera.
Joe Magnotti: Hey, well I’ve been around for almost two months, it’s time for me to get out of Davao. I’m looking forward to this though.
Justin Cooke: There’s a whole bunch of people going there, man. It’s a thing.
Joe Magnotti: Yeah, well you know, came out of the dynamite circle [inaudible 00:03:39] happening February 20th. So there’s a music festival happening in Puerto Galera the 28th through the 3rd of March. So this is just a natural progression of that. So I get to hang out with cool entrepreneurs.
Justin Cooke: Whole bunch of people coming down from Ho Chi Minh. People coming down from Chiang Mai. It’s going to be a thing, like 20 something people, maybe?
Joe Magnotti: Yeah, sit on the beach, listen to good music, and have a good time, talk business.
Justin Cooke: I’m not going to this one, but I know we’ve got some people probably coming down after to visit Davao and hang out a bit. So that will be pretty cool. And then you and I were talking about a Subic trip for our birthday bash right at the end of March. That will be fun.
The next thing that I want to talk about is the last thing actually, is we met up with a group of WordPress developers here in Davao. We had a nice coffee with a girl that runs her team. It’s real interesting, having a team of people work on some of the development projects we have. We think might be a bit more effective than having solo developers.
When you get a team of developers together, they can solve problems a lot faster, a lot more efficiently. We’re able to play off each other. Someone has … “Oh, you just do this and this.” And it’s helpful.
Joe Magnotti: Yeah, I think it’s multi-advantages. Number one, they’re local. Number two, they’re a team, they’re a real company. They have 30 people. So it’s not going to be like, “Oh, Julie’s out today and you’re screwed for developers.” No, you’ve got a whole team to back that up.
Justin Cooke: Yeah, you were saying as an advantage they were like five minutes away. And Vincent said, “Well that’s pretty stalky. I’ll just go over to your office and harass you until you work on my project.” It is good to do some face to face time, right? They’ll have a better understanding, I think of what we need done.
So we’re going to test it out. We’re going to roll with it, and if it’s working out well, we’d be happy to share them as a resource. Something you can check out as well.
Alright, enough about that buddy, let’s get right into the heart of this week’s episode.
Speaker 1: This is the Empire Flippers Podcast.
Justin Cooke: Alright, so we’re going to be going over six different website profit models you can use to build out established and profitable websites. The first that I should mention at the top basically that some of these, obviously we have more experience with than others, but we do have experience with every single one of these. Either doing them ourselves, or working with clients use them and have sold them through our platform.
So we’re going to cover them as best that we know, and send you to some resources that have a bit more information.
Joe Magnotti: Yeah, we were going to add something like SAS Development, but we really don’t have any experience with that, so that’s why we stayed away from that.
Justin Cooke: I could send you over to someone for that, but that’s outside of our scope. So the first thing we’re going to talk about, the first one is AdSense sites. Obviously an advantage for AdSense sites is it’s one code to apply, right. So they give you all the AdSense codes, you simply plop them in and Google’s going to do all the matching of advertisers for you. That’s really helpful.
Joe Magnotti: I think that this is the biggest advantage of making AdSense sites. Is that-
Justin Cooke: There’s no optimization.
Joe Magnotti: Really, I guess where the ad units are, that’s definitely some optimization but there is some best practices you can follow, and then after that you’re talking about tenths of a percentage kind of change.
Justin Cooke: Google handles, I think, the major driver which is matching the right advertisers based on the content. And also they have based on interest. So they can target people. If you have a site and someone just went on a law site or something, they may click on the ad, you may get the $6 click because of the type of person you’re targeting.
Joe Magnotti: And because they have a huge amount of advertisers, they can match almost to any content out there, right?
Justin Cooke: Yeah. I think that’s really important too. Is that a lot of the other ad networks don’t have as many advertisers, so that’s one of the reasons you get stuck with lower CPC’s is because they just don’t have the advertisers that are competing for placement. So when you have advertisers competing, that’s helpful.
Another thing that’s helpful with AdSense is that you’re paid directly on the clicks, and it doesn’t require an actual purchase. Now this, I think, gets people in trouble too. They think, “Oh, I’m just getting paid for the clicks, I just get more clicks, I make more money.” And so you see people that are 18, 19, not just 50, but younger people they do it, and they get their AdSense account banned, and it’s banned forever.
But anyway, if you’re not doing that, if you’re not being sketchy, getting paid on clicks is a more short term but cash flow beneficial way to do it.
Joe Magnotti: It’s definitely the easiest. It’s closer to the money, right? All you have to do is convince the people to click on the ads in a method that gets some sort of feedback to the advertiser and some sort of conversion.
Justin Cooke: The other thing is that you know Google’s not going out of business.
Joe Magnotti: This is a big one too. Because some of these affiliate programs that we’ll talk about later that we’ve had experience with. They’re slow to pay. They pay you by check.
Justin Cooke: Or they’re fly by night. Who knows if they’ll be around in a couple of months? Google is going to be around. You’re going to get paid. And I say that with a little bit of salt. You’re going to get paid unless your account gets banned, and they don’t pay you for the previous month.
But the thing is you’re going to get paid as long as your account is in good standing. They’re going to continue to pay you, they’re happy to pay you. And that’s going to work out.
Joe Magnotti: They have a really nice dashboard. Everything’s online, obviously. You can access all that. You can get great reports. The AdSense system has really developed. You can add notes. You can add events. All kinds of testing you can do. So that is pretty functional. I don’t know of any affiliate program out there that even comes close to the AdSense dashboard.
Justin Cooke: Another thing is AdSense sites are very resellable on the low end. When you’re talking anywhere from $1000 up to $15,000, $20,000, AdSense sites are very resellable. People are looking of for them, they want to buy them. Because they’re a much more passive in nature.
Joe Magnotti: Yeah, that’s what I was going to say, Justin. Is that people look at AdSense as a passive income, and it really is. Maybe you need to add content to the site. But other than that, you don’t really need to do much.
Justin Cooke: You’re not handling a bunch of customer support, or anything like that. So anyone that is careful with their time. So they’ve got a job, they’re working 50 hours a week or whatever. They don’t want to put a whole ton of extra time on their sites. AdSense is a great option for them.
I’d also say though that AdSense sites, we talked about this before the show, but AdSense sites aren’t as sellable on the high end, but I’m not sure it’s because they’re AdSense sites. I just think that when you get into the upper ranges, 50,000 plus let’s say, is that AdSense is a lower form of monetization. So whoever has a site that’s earning at that level, generally is not using AdSense anymore. Because they’ve graduated or moved on.
Joe Magnotti: It’s an interesting argument, Justin. But I don’t know, I disagree. I think people that spend $100,000 on a site, they don’t want an AdSense site.
Justin Cooke: You think? Why?
Joe Magnotti: Yeah, they would prefer to have an automated e-commerce site that has a customer support team that takes care of everything. It may be passive as well, but they feel like it’s more of an established business. Whereas AdSense seems to be kind of low end for them.
Justin Cooke: Maybe. I think you’re putting your own thoughts into the issue. Coming from your perspective and thinking, “That’s how I feel about it, so I’m going to-
Joe Magnotti: It could be, but in talking to sellers, most sellers that want to spend a lot of money on a site, we’re talking six digits or more. These are guys that are generally not looking for AdSense.
Justin Cooke: Well another advantage I would say with an AdSense site is you can start multiple sites easily, right? So you can build out five sites, it depends on the size. But you can run multiple AdSense sites, and it’s not going to take up … it’s not like you have to be so deep into the niche. You don’t have to have this deep understanding of the niche that is required for other types of sites.
Joe Magnotti: And because the upkeep is relatively low, adding content you can get a VA to do that. You could have tens or hundreds of AdSense sites in your control. At one point we had thousands of websites under our control. And packaging those sites up for resale, that’s when you could definitely make a five, or even a six digit payday. Getting something like that over to a buyer.
Justin Cooke: So disadvantages of AdSense sites. Well, Google could shut down your account. We’ve seen this happen multiple instances where people have had their AdSense account shut down. They’re not really sure why. I think in many of the instances, there were some clear things. They had an AdSense account before were banned, and they tried to use their wife’s AdSense account. They have the same address, or something like that. So they’re trying to add different accounts, right? But they shouldn’t have had. They had sketchy traffic, or they ignored alerts and warnings in their AdSense account.
Joe Magnotti: I think that’s a big one. People ignore the notifications. Didn’t get the email, didn’t check the notification in AdSense. And maybe had a suspect picture up, which we’ll talk a little bit about later. Then they got their AdSense account banned.
But I have to say, Google does a very bad job of customer support. Everyone knows that. But in this case-
Justin Cooke: I know there are instances, I’m sure that, where they really don’t know what they did wrong. It wasn’t clear that they did anything wrong on their AdSense account got shut down. I’ve heard too many stories to believe that hasn’t happened some of the time.
Joe Magnotti: Especially my heart goes out to these people that are making $2000 a month, it’s their only source of income, and then Google just shuts them down.
Justin Cooke: That’s horrible man, horrible. One of the other problems with AdSense sites is that usually, not all the time but often, they’re single source traffic dependent. So they will be based on organic traffic.
Now that’s not always the case. You can have traffic via Pinterest or whatever, and you can diversify a particular site. But quite often AdSense sites are organic. You can use page traffic … let’s say you’re using Bing traffic or something. Which there isn’t anything in the rules that you … I think you can’t use Adwords but you can use Bing page traffic, or other sources of paid traffic.
The only thing though is that you can’t use some paid traffic that’s bots, or just random traffic that’s not related to the niche. Because ultimately you have to convert your visitors, the clickers, the people that click through on your ads. They have to convert for your advertisers.
If they’re not converting because you just sent a bazillion people to the page that are random, it’s not going to work for your advertisers. Again, you’re running a risk with Google.
Joe Magnotti: Yeah, I would say that one of the advantages of going with Google is that the front end is very nice. The dashboard that AdSense gives you is awesome. But I can only imagine the dashboard behind the scenes where they’re able to evaluate the clicks and see the traffic. And they know everything. So trying to hide something from Google, or pull the wool over their eyes, it’s just not going to work. That’s why you have to make sure that if you’re single source is only your single source, then make sure it’s a clean single source.
Justin Cooke: Yeah, that’s true. Another thing that seems to be true is that AdSense is generally a lower form of monetization. So your CPM’s or whatever are generally going to be a bit lower in that same nice than if you were selling a product that was obviously resonating well. Or you had the advertiser or whatever the advertiser is selling. If you were selling that directly, obviously you would be making more money. The only reason they’re paying you, and paying Google, and Google’s taking a piece is because hopefully they’re making enough money on the things that they’re making to make it profitable. And that’s generally the case.
Just clearly you’re losing out on some money there, potentially.
Joe Magnotti: Yeah, I mean, there’s just not much you can do about this I think.
Justin Cooke: It is what it is. For the other benefits, that’s the downside you got to take. Another thing is that some categories are just not going to be allowed. So anything related to guns, violence, sex, even … we had a bra or panty site or something and we had some questionable images. They weren’t questionable, they were totally legitimate images, but Google wasn’t happy. They gave us a message in our AdSense account saying, “Hey, questionable content.”
Joe Magnotti: It was about a certain size of bra. And it happened to be a very good site. It actually was a good earner for us. But I guess one of the pictures was a little bit too racy for AdSense and Google, and they made us take not only just the picture down, but take AdSense off the entire site.
So you’re definitely-
Justin Cooke: There’s some niches that if you’re after this niche and it happens to be a good one for you, you may just not be able to use AdSense. Let’s say you’re on the guns or ammo, or let’s say you have a site that’s a prepper site, or whatever. And you’re talking about different weapons you can use, or whatever. You’re just not going to be able to use AdSense on that site.
Joe Magnotti: Google’s, they’re just goody two shoes over there. You’re just not-
Justin Cooke: Goody two shoes, that’s a good way to put it.
Joe Magnotti: They’re just not going to go into those kind of questionable categories.
Justin Cooke: Another thing, and you eluded to this earlier is that they don’t disclose their pricing parameters. So they’re not telling you on the back end kind of what’s converting, what’s not. And it’s too bad. I totally understand why they don’t tell you which of your sites or your ads are converting better. Because maybe you’re going to try to get some sketchy traffic just so you don’t click there, whatever their issue.
But I want to know, because I want to create sites that are converting better for the advertiser. For the people that want to do the right thing, it sucks that I don’t know how well the traffic that I’m sending them is converting. It’s really unfortunate.
Joe Magnotti: Yeah. And we’ve heard rumors from very reliable sources that there are some publisher scores, or other scores that are kept on the backend of Google in order to evaluate your account. If your account overall doesn’t perform well, it can drive down your CPC’s and do other stuff.
Justin Cooke: So for example, let’s say that we have a lower publisher score based on the conversions that we’re getting, we’re going to get lower CPC’s on the traffic that we’re sending over. Or we sell the site, and someone can get bumped. If we have a better publisher score than somebody we saw too, they could be decreased for the same exact traffic. For the same exact clicks, they could be getting less money.
This is rumored, but we’ve heard from multiple sources that sounds pretty reliable.
Joe Magnotti: Yeah, and I just wish Google would address it, and tell us what’s going on. I don’t understand why they’re holding back so much on that kind of thing. Tell us there’s an internal score, and we’re not going to give it to you. At least we know.
Justin Cooke: Alright, so let’s talk about skill level. For AdSense sites, obviously it’s basic. It’s a great way, I think the best way to learn the fundamentals. So you’re going to learn keyword research. How to set up a site, put content on the site. How ad placement should be. It’s fantastic and we laid it all out on our guide, Building A Niche Site Empire. But it’s a great way to get started.
Joe Magnotti: If you’re making zero dollars online right now, this is the number one way for you to make the first buck.
Justin Cooke: Get a taste, get your beak wet, for sure. Tip or we’ll tell you to use is niche specific convertible traffic. So that generally means targeting organic traffic, but it can be other methods. We’re testing out some Pinterest traffic right now, and other things.
Joe Magnotti: I would also say my tip is go after the low hanging fruit here. You’re maybe not going to have a home run, but some singles and doubles in the AdSense category can give you some easy to make online money, and teach you some skills at the same time.
Justin Cooke: Don’t target DUI attorney’s in Los Angeles, that’s not your best first niche site. Some resources you can go to obviously us. We have a ton of content on building AdSense sites. You can also check out Spencer over at nichepursuits.com. Pat Flynn over at Smart Passive Income with Niche Site Duel.
It’s interesting with AdSense sites, they can go anywhere down from a $5 a month earner, we have up to our $200 or $300 a month earners. Spencer anywhere from $30 to $1000 a month. Pat Flynn, several thousand dollars a month. So there’s many different ways to skin a cat.
We did a podcast episode kind of debating the benefits of those three different AdSense approaches, which I’ll link to in the show notes. But there’s multiple ways you can go after this with lots of content, or minimal content. It just depends on your interests.
Alright buddy, so let’s get into a second one. We’re going to be talking about Amazon sites a little bit. Now here are some of the advantages of Amazon sites. So you’re generally going to have higher potential payouts.
Joe Magnotti: Yeah, probably this is the natural progression for people to come from AdSense sites, right? If you have an AdSense site that’s around a particular product, it’s easy to convert that into an Amazon site, and get higher payouts for that particular item.
Justin Cooke: Another great thing is Amazon is a very trusted partner. So if you have an Amazon site, and people are going to purchase something, and they’re buying from Amazon, they might have a better chance of buying from Amazon than if it was your own e-commerce store. Because if you’re a little mister niche e-commerce store, and they can buy through you, or they can go to Amazon, they may prefer to go to Amazon.
They already have an account, that one click purchase, it makes it relatively easy.
Joe Magnotti: This is me. I definitely, if I find something online that I like, I would rather buy from Amazon than from somebody that I don’t know.
Justin Cooke: Me too. I know that’s not always true, because people have very successful e-commerce sites, but in general, I would prefer to go with a safer supplier.
Joe Magnotti: Yeah. In the same gear as Google, the dashboard maybe is not as good as Google AdSense, but it’s pretty good. And you know that Amazon’s not going to go out of business, they’re going to pay you.
Justin Cooke: Absolutely. One thing that I really like about Amazon is they convert like champions. They do so much testing when it comes to conversion rate optimization. They go over to Amazon, they’re sucked into the Amazon funnel. They’ve got that down.
Whereas if you’ve got just a small affiliate at that maybe more of a risk, because they haven’t tested through their conversions as well. Maybe they’re not tracking your clicks through as well as Amazon is with a smaller affiliate. So that may be more problematic, and that’s not going to be a problem with Amazon.
Joe Magnotti: Amazon’s email market is just awesome. The way they figure out the other stuff that I want, and then send me emails and say, “You might be interested in this.” Is just, it’s kind of crazy.
Justin Cooke: The other thing I do like, I don’t know how this exactly an advantage, but it’s an item or a product based business. So you’re not just selling software. They got a physical thing in their hand. So if you are someone who likes to sell physical product. Like something where they buy it, they can feel it, they can touch it. But you’re not really sure about getting a shipping container from China. That sounds a little scary. You might want to try out Amazon to start. You’re actually selling physical products, as an affiliate, but you’re selling physical products, none the less.
Another benefit with Amazon is that you’re getting paid out of the entire cart. So if I’m selling I don’t know, cheap watches, let’s say $40 watches or something. And someone goes on there and buys this amazing stereo system for $1200, I’m getting paid on that as well. So it’s not just the item you’re sending them over for, it’s the other things too.
Joe Magnotti: Yeah, this is the really cool one, right? So I think the cookie lasts for how long Justin?
Justin Cooke: The what?
Joe Magnotti: Seven days or something-
Justin Cooke: Oh yeah, seven day cookie. Which I think is actually pretty low, but-
Joe Magnotti: Right, but for anything that a person buys within the seven days in the shopping cart, you’re going to get paid out for that. Which is a nice little bonus, and definitely can lead to some real home runs.
Justin Cooke: Just like AdSense sites, you can start multiple Amazon sites easily. It’s not that you need to know the niche extremely well, or be well reversed and really deep diving into it. You can start off with a few different Amazon sites, and get them up and running simultaneously. Which I think is a real advantage, especially when you’re starting out.
E-commerce, you’re going to really want to … and we’re going to talk about this in a bit, but you’re going to really want to focus in on that niche. It’s not so important when you’re selling Amazon products.
Let’s talk about some of the disadvantages for Amazon sites. Google doesn’t love them necessarily. So you’ll see situations where Spencer [inaudible 00:22:17] was doing an Amazon site, and he had too many ads above the folder, or too many links. And so Google, or organic, or an [inaudible 00:22:25] got knocked until he dropped the links and the ads he had placed, and then he went back up in the surp so-
Joe Magnotti: Yeah, I think what happens is a lot of people that make Amazon affiliate sites, tend to make them content thin, and more image based. And obviously those images are Amazon affiliate ads, actually. And Google used to like those and say, “Okay, they’re good.” And now doesn’t like them as much. So now a lot of those sites got penalized.
Justin Cooke: Another disadvantage, is I’d say that the copy has a bit more sales, or review oriented. So it can’t just be content, kind of around the topic or idea. It needs to actually be promoting particular products, or heading in a specific direction with your content.
Joe Magnotti: Look, you can still outsource the content. You’re just going to have to be a little bit more choosy about the writer that you pick.
Justin Cooke: Yeah, the content is a bit different than AdSense sites. And that’s where I think AdSense sites aren’t always as easily convertible to Amazon sites as Amazon is to drop shipping, or whatever.
Another problem I think with Amazon sites is that generally I think this is generally the case … so there’s no long term brand recognition. So you’re building a site, you’re not building a loyal audience. You’re basically building a site that for lack of a better word, it’s a gateway site. So you’re basically sending people over to Amazon, but you’re not building your own brand, your own email list, that kind of thing.
Joe Magnotti: Let’s take Spencer’s example. His survival knife site. Once I find one of the survival knife sites that I like, I’m not going to go back to his survival knife site … I’m not going to do it. I’m just going to go directly to Amazon, buy a new knife, and that’s it.
Justin Cooke: We talked about the short cookie, we should also mention the lower margins. So we’re talking some really low margin stuff. Most people are going to fall under the 10%. It’s based on how many products or items you’ve sold. But most people that do it, are under the 10%. Unless you’re kind of crushing it.
Skill level is basic. It’s very similar to AdSense sites. The only difference really is that you have to write more review or sales copy. Again, you can get much more, I think, intricate and it probably does make sense. If you can build better sites that are higher quality and have more information than your competitors, that’s a great thing.
So you can get as detailed, or as interesting with a site as you want, similar with AdSense sites, but yeah, the skill level’s really not that difficult.
Joe Magnotti: The code may be a little bit more interesting to work with than Google AdSense. You might have to be a little more careful about your images when doing an Amazon site. But in general, yeah, very basic skill level needed.
Justin Cooke: So here’s a tip that we heard, someone was telling us about this. I think it’s pretty interesting. Is to use both cheap and expensive Amazon products to boost your sales, and get a higher percentage for your top dollar items.
So if you have some Amazon sites, they’re selling $800 to $1000 items, when you send people over to Amazon, that’s great. But if that’s all you’re focusing on, it’s going to take a hell of a lot of sales to get you those higher tiers. Where if you have some Amazon sites that are selling $20, $30 items, you can sell a lot more of those and easily hit your higher commissionable tiers to boost your Amazon earnings. That obviously makes a bigger difference when you get into the higher dollar items.
Joe Magnotti: The Amazon sites that we’ve seen sold on our marketplace, that has been one of the key things. Is making sure you’re in the top tier.
Justin Cooke: So for resources, if you want to read more on Amazon sites, obviously you can check out nichepursuits.com, he’s done some stuff on Amazon sites that’s helpful. I’d really check out Tung Tran’s Cloud Living. He also now has a membership site, which we just joined up, and are chatting in there. But cloudliving.com is a great resource for Amazon sites as well.
Alright, third one we’re going to get into are affiliate sites. So let’s talk about some of the advantages of affiliate sites. Well first, let’s talk about what an affiliate site is. So it could be a host gate or review site, it could be a blue host review site, these types of things. It could be click bank product reviews.
Joe Magnotti: It could be from a very individualized affiliate like something we had experience with early on. A replacement window affiliate. There are affiliates out there that do one thing only. Like an offshoot of their current company. Maybe they’re actually an e-commerce site and they have an affiliate program.
Justin Cooke: It could be one specific toolbox supplier and they offer an affiliate commission, or something, that’s helpful. They’re all over the place. It doesn’t necessarily have to be software. It can be physical goods as well.
The advantage is though, is that they can be highly profitable if you’re on the right nice.
Joe Magnotti: Yeah, especially because you don’t have a lot of costs associated with this. It’s basically like running and AdSense or an Amazon site-
Justin Cooke: But you’re getting a bigger piece. The other thing with affiliate sites is you can target buying keywords. Visitors that are ready to buy. You can do that with AdSense as well, but again, you’re not getting as big of a piece of it.
So if you’re targeting buyers for these things that are looking for these particular products, or services, you can target them right away and get paid more.
Another advantage, and you mentioned this Joe, is that affiliates are often more open about what is allowed and what isn’t.
Joe Magnotti: There is an affiliate program out there for anything you can imagine. Don’t go to the dark side, but they are out there.
Justin Cooke: And they’re very clear about what kind of traffic you can use. Whether you can use the brand name in them or not. Much more clear than Google for example, their AdSense program where they have this secret black box.
Joe Magnotti: Yeah, and they’re willing to work with you a lot of times. Like we’ve worked with affiliate programs-
Justin Cooke: They’ll give you more, right? If you’re delivering enough traffic, they’ll give you special deals and promotions that you can use. They’ll give you special images, all kinds of stuff.
Joe Magnotti: Yeah, you can call up and like ask questions, and talk to John who runs the affiliate program for the entire site. And he will, like you said Justin, they’ll make custom images for you. They’ll make custom ads for you, that kind of stuff. So it’s pretty interesting.
Justin Cooke: It’s also, I think easy to separate yourself from the crappier sites. So we were talking about Amazon for a second. A lot of the Amazon sites are going to have similar images because they’re always using Amazon images. They all kind of look the same. There’s a whole bunch of spammy affiliate sites out there.
So it’s easy to separate yourself from those spammy affiliate sites and actually provide more value. Because it’s niche that a bunch of spammers get into. Because it’s highly profitable so they spam the hell out of these sites with crappy spun content or whatever. And you can smoke them by being a real resource.
Joe Magnotti: I also think a lot of people skip the first two steps. They don’t do AdSense or Amazon sites and learn the fundamentals because they say, “Oh, .60 a click. I’m not going to do that. I’m going to do $50 a sale.” Then they set up this crappy little site that doesn’t make anything because no one is ever going to click through on it. And obviously you’re going to be able to beat them.
Justin Cooke: Yeah, or they spam the back links. It’s a short term solution for them. So they spam back links and they make a bit of money for a couple of months. Then the site disappears.
Some disadvantages of affiliate sites, it’s hard to find the right offer. So unlike AdSense where you simply put the code up, and Google does all the magical behind the scenes work. You have to actually test out different offers to make sure it’s matching the right audience for the keywords they’re finding you for.
Joe Magnotti: So this was my nightmare. In 2011 when we really started expanding ads in sites, I tested through individual affiliate programs. My nightmare was finding one that would match up with more than one site. So you have a site about blue ski boots, and a site about red firetrucks, you have to find an affiliate program for each individual site.
If you’re creating hundreds of sites, it’s just not going to work.
Justin Cooke: Yeah, unless you’re just targeting the highest site. I think sites can be converted to affiliate sites. But I really think it’s probably better to start off with a particular target in mind when it comes to affiliate sites.
You’re specifically targeting that affiliate program. So you find the supplier and go about ways of finding a targeting site to that affiliate offer. Basically you’re having to test these different offers. Another problem too, it depends on the affiliate that you’re working with. But a lot of the smaller ones can come and go, right? Not a total fly by night company, but maybe. So the company may up and disappear three months, four months after you build the site and now you’re stuck looking for another supplier.
Joe Magnotti: Yeah, we had an affiliate program that used to pay us by check. And the check used to come in late. And then one day they just shut down. No one was answering the phone anymore. So these small affiliates, I don’t know if I would base my whole business around that.
Justin Cooke: A lot of people have, and have trouble with it. Similar to their AdSense account being shut down. They have their affiliate site screwed. Another big one is that even the major affiliates will change their program. They go, “You know what? Not selling that anymore. We’re canceling our affiliate program and you’re just shit out of luck at that point, right?
So I know this has happened to some of the people we know. I know people who were making thousands of dollars with some hosting sites that they just shut down the affiliate program, and they got screwed on the deal.
Joe Magnotti: This especially happens with recurring type commissions. Where you were basing your numbers on getting $5 extra a month, every month, infinium. All of a sudden they said, “Nope, we’re not doing that anymore. We’re using the line item to cancel that, and will no longer be paying your recurring commission only and upfront.”
Justin Cooke: Another problem is that you don’t own the product delivery, the service, the conversions. You don’t have any say in that. So if they’re doing horrible customer service in the back end, it could potentially reflect bad on you. You don’t get to control the experience for the customer.
So if you want to change the product, or make it better, you just don’t have the option to do that.
Joe Magnotti: Hey, it’s an advantage and a disadvantage, right? You don’t have the cost of that customer service or product development. But the huge disadvantage is you don’t have any control over those qualities.
Justin Cooke: Yes. Skill level for affiliate sites I’d say is moderate. It comes down to being a bit more difficult to find the affiliates. Then having to match the right affiliate offers to your site. In a way that it will convert well, and do well for the site. So that becomes a bit more difficult.
You also have to understand a bunch of different affiliate programs. So it’s quite often if you want to get the best deal, you’re going to be shopping some kind of random affiliate programs. And they all have different back ends. And trying to understand how this one works, versus that one, can be a bit confusing. So if you’re new to the game, that can be a bit more challenging.
You also have to balance sales copy with information. So it needs to be informational, but you basically have to be writing some sales copy. Probably even more so than the Amazon sites.
Joe Magnotti: Look, affiliate programs, they’re not that hard. But I do think that you shouldn’t start here.
Justin Cooke: Our tip for this, by the way is get away from ClickBank.
Joe Magnotti: I hate ClickBank.
Justin Cooke: Everyone just goes to ClickBank, high gravity scores, I’m going to target the affiliate programs there. A lot of times, they’re not actually testing the product, they don’t even buy the product. They’re just setting up affiliate sites, like sniper sites around a ClickBank product. And that just seems pretty low ball to me, right? It’s better to look for good payouts on software that you’re using yourself. So if you’re using, for example, Lead Pages, or something like that that has recurring … specifically the affiliate payout is recurring, hosting companies that you use. I think that’s a great way to do it. I just avoid the ClickBank stuff. That’s pretty short lived, and I just don’t think it’s a great path to take.
Joe Magnotti: Agreed.
Justin Cooke: You can also convert AdSense sites to affiliate offers, I think, and make a bit more money. It’s a bit more complicated. You’re going to have to change the copy around a bit. But it is convertible. So you can do an AdSense site to affiliate site.
Joe Magnotti: If you definitely have an AdSense site that’s making a couple hundred bucks in AdSense, that is a prime target to make it to an affiliate site. You’ve probably been contacted by an affiliate program.
Justin Cooke: So here are some resources you can check out. Some of the old school ones. John Chow dot com has been talking about affiliate sites for a very long time. He’s got some content on there. I’ll link to that in the show notes. You can also check out [Yarrow Stark 00:34:09] from entrepreneurialsjourney.com, he’s done a lot of stuff. Or talked a lot about affiliate sites and how to make money with them.
A great example of the kind of stuff that I’m talking about is we have been working with Office Autopilot. We’ve been trying to decide between Office Autopilot and Infusion Soft. I looked around, and I looked around. And there’s all these kind of crappy YouTube videos where someone shows me, they actually showed me the back end of Office Autopilot Ontraport, but they’re showing me an empty back end. So they basically just are using a free account or something, and kind of showing you what it looks like, with no actual data in there. It’s not helpful. They have no system built out, or anything.
Then you have this guy over at 50em.com, he was really the only one I could find that did a great comparison. He does like a side by side comparison Infusion Soft, versus Office Autopilot with real data. Gives you the real information on which one’s better in what situation. So I know that it’s legitimate.
Now, at least he’s using affiliate links for both. So whether you buy Ontraport, or Infusion Soft, he’s going to get a commission on you, but that’s reason for him to be more … at least maybe he’s promoting them both, but he’ll definitely tell you the right differences between the two with video, and great write ups. So if you’re looking for a great model for affiliate sites, check out 50em.com.
So the third topic that we’re going to talk about is drop shipping sites. So let’s talk about some of the advantages of drop shipping sites, Joe. Clearly there’s a much lower upfront cost when it comes to drop shipping.
Joe Magnotti: Yeah, more cost than AdSense or Amazon, or even an affiliate site probably.
Justin Cooke: But you’re not buying shipping containers, and shipping them from China and buying in bulk, hoping you can sell the product.
Joe Magnotti: Yeah, you probably don’t need a hell of a lot of staff. I mean, it can be done relatively cheaply.
Justin Cooke: And end up with like 1000 red pullovers and no one wants to buy my red pullovers, scary. You don’t have to do that. Drop shipping is basically where you’re white labeling sales. So they’re shipping from the manufacturer under your brand name. They take care of all the inventory and everything. Basically you just pay them for the ones that they’re actually shipping out. So you’re just pushing the cash flow through.
No inventory is nice. You don’t have to deal with inventory and the warehouse, and are you in stock. You let them deal with that. They’ve got a ton of products available, generally. You don’t have to keep up on what’s available, and what’s not. Because obviously they’re going to have inventory problems at times. But it would be a hell of a lot better than you trying to do it yourself. You’re much more likely to run into inventory problems then they are.
Joe Magnotti: Hey, we run into inventory problems on websites. I can’t imagine if we were making little red widgets on inventory problems we would have.
Justin Cooke: Generally drop shipping is considered better monetization. You’re actually shipping a product in your name. It’s going to be better off than AdSense where you’re sending that traffic off to someone else who’s making the money. You’re actually making the money.
Again, like Amazon, it’s physical goods, which is kind of cool. So if you like to sell physical goods, you don’t want to sell the software. This is a route you can take.
The other thing is that if there’s any tech support for the products that you’re shipping, generally that’s going to be held under the manufacturer’s warranty. So you’re not going to have to be dealing with that.
Joe Magnotti: Yeah. On the sales end, you’ll still have some sales support. But obviously on the back end, operating that tech support, that kind of stuff, that will be handled by the manufacturer.
Justin Cooke: Another great thing, I think for drop shipping sites, it’s a great way to test out a nice. So if you were wondering if you want to build an e-commerce site, drop shipping is a great way to go. Because you can relatively easily convert a drop shipping site, to an e-commerce site without putting all the upfront money. So you don’t want to end up with all those red pullovers. You can start selling drop ship red pullovers until you’ve proven the market. Then you know exactly how many you need to buy, and ship over from China, or whatever.
A disadvantage for drop shipping is that … and I’ve done some drop shipping. I did this back in college by the way. I was doing some Ebay drop shipping. Yeah, the Ebay days. So yeah, I was drop shipping back then. I had a website, but I was doing it mostly via Ebay.
Anyway, so one of the disadvantages is that it’s hard to find legitimate drop shippers. That was the problem back then. Is that there’s a gazillion middle men. So they call themselves drop shippers. And they present themselves as drop shippers. But they’re selling the same products to everyone, and they’re already marked up. So you may have two or three middle men in the way sometimes. And you’re not actually dealing with the manufacturer, you’re dealing with this person who’s in the middle, who’s marked up the product. Who marked it up from someone else.
Joe Magnotti: Yeah, you see that a lot. Especially in the less well known drop shipping schools, or online courses. Some of these courses say, “Oh, we’ll give you a list of 1000 drop shippers.” Yeah, but you find out that those drop shippers aren’t really the drop shippers. Like you said, they’re just middle men and stuff like that. And you wind up calling them and going through this whole process. And trying to get the best pricing. You’re not really working with a real drop shipper.
Justin Cooke: The problem is that these middle men too, they focus on people that want to get into drop shipping as a model. So you want to get in on drop shipping as a model? Great, we are a drop shipper, and we will have all these products. The only problem is that they might be crappier products that have been marked up a bunch. And you’re going to have a gazillion other newbie drop shippers out there competing with you, trying to sell the same exact products that aren’t terribly good to start with. So finding the suppliers can be a bit of a bitch when it comes to drop shipping and finding the real suppliers.
There’s also, as you mentioned Joe, a tougher approval process. Legitimately you’re going to have to have a real business. You’re going to have to have an EIN. That’s not the worst thing in the world. You can set up a corporation and get that, but it’s not just that. They may not approve you if you don’t have a website. So you’re going to have to go in like you own the joint, and talk very authoritative on what you’re going to be able to deliver, and how much business are you going to be able to send them.
Joe Magnotti: Especially legitimate drop shippers, just don’t want to work with any old yokel that calls them up and says, “Look, I want to drop ship your website.” There’s a lot that goes into it. In terms of coordinating your drop ship site with their inventory, and spreadsheets, and what not.
They don’t want to work with you if they don’t think you have any value.
Justin Cooke: You’re not worth their time, yeah. Because they talk to a bunch of strokers that are out there kind of like, “Oh, I’m going to do so much business with you, and they’re like, yeah, yeah, yeah. Sure, show me man. Show me the money.”
So I mean … and the ones that will just approve you willy nilly right? Those are the ones, those are probably middle men. That’s part of the problem breaking into drop shipping. The resources we give you will show you actual ways you can connect with these suppliers, and find the real suppliers as opposed to the fake suppliers. We’ll mention them in a bit.
The other thing with drop shipping sites is you’re really looking at lower margins, right? It’s not uncommon for a drop shipping site to have 15% margins, 20% margins. That’s not uncommon. Part of the problem with having lower margins when you don’t own it, beginning to end, is that it can make paid traffic really difficult with a drop shipping site.
It can work, and you can have profitable pay traffic, but you’re going to have to find those drop shippers, and those products in those niches that have better margins, or you just won’t have it.
Joe Magnotti: Good drop shippers are going to have locked in pricing. So they’re going to say, “Yes, you’re approved, but you can only offer this product at this price.” That’s actually a benefit, but it does make it very difficult to compete in the niche because-
Justin Cooke: But I don’t want to compete on price. You were going to say so you don’t have to compete on price. But you don’t want to compete on price anyway.
Joe Magnotti: That just takes price out of the game.
Justin Cooke: I think that’s an advantage, not a disadvantage.
Joe Magnotti: I understand what you’re saying, but if you’re tied with someone one content. He’s number one, and you’re number two in the search results. And you just can’t beat the guy. Well, you can’t beat him on rice either.
Justin Cooke: Here’s lots of keywords. I don’t know man, one thing I know is a disadvantage legitimately and we’ll all agree on this one. Is that you have to be quite a bit more knowledgeable about the product. So you’re going to have to know the niche a lot better than if it’s just an Amazon site, or AdSense site, or affiliate site. Because there are going to be a lot more questions, right? You’re going to have to separate yourself from the competition. You’re going to know the niche, and be able to explain the products quite a bit better.
Joe Magnotti: Expect to get a lot of those pre sales emails, or maybe even phone calls if you run a bigger drop ship site where you’re going to have to talk about the product. Expect to have to buy some of the products. If you’re in a high end drop ship, where you’re only offer a couple of products, and they’re high end. You probably want to have hands on experience with those.
Justin Cooke: And again, it’s get scary … so you don’t want good pictures and stuff. So you’re going to want to buy them some of the products, or at least get them to send you some. So you can take really good photos, and separating myself. But with your low margins, if your handling phone calls and customer service like presales stuff. Again, you really have to look at your cost there and be careful.
Another one that we have written down her is we’re going to have to adopt or just as the niche changes. So the niche’s are going to take, this falls out of fashion, and this one’s in fashion. So you’re going to have to deal with a lot of projects that you don’t have to deal with some of the other [crosstalk 00:43:03].
Joe Magnotti: I don’t know how the furniture people deal with this. At least the fashion people there’s people kind of like old school clothes and stuff.
Justin Cooke: Yeah, 20 years later.
Joe Magnotti: But I think the furniture thing is worse. I don’t know how they deal with that. Furniture changes so quickly, and it goes out of style so quickly that you see people have this kind of issue all the time.
Justin Cooke: Another problem with drop shipping is that you don’t own the product and you’re not in control of the quality of the shipping. So if your supplier is shipping broken goods, that may happen. You don’t know until you kind of get into it. Then you find out that your supplier is shipping bad goods. Or they’re really slow to ship. They say it’s in stock, but really they’re just waiting for that container to get in, because it’s not there. You’re right into that.
Joe Magnotti: Or if you have some sort of technical product and you find out that the post sale support is just not up to snuff. And people are so mad that they start asking for refunds, and you get caught in the middle. That kind of stuff can really happen to you with drop shipping things.
Justin Cooke: Skill level for drop shipping is definitely moderate plus. It’s a bit more complicated. So you’re going to be dealing with trying to find the right suppliers, making sure you’re not getting scammed as suppliers. Making sure they’re delivering the products on time, and they work, and they’re effective. You’re dealing with low margins, so you’re going to have to be careful there. Paid traffic may or may not be an option. It’s a little more-
Joe Magnotti: You have some experience in drop shipping, and I took a drop shipping course but really … and we said we’re going to open a drop shipping site, we’re going to do it, we’re going to make one, but we haven’t. So we’ve been doing this for a while, and we still don’t have a drop shipping site that’s our own.
Justin Cooke: That’s a whole another conversation though, based on where our focus should be. You and I have gone back and forth, and this is our last strategy meeting. One of the big questions was should we because focusing on moving up the value chain, and creating our own sites. We talked about doing a competition between you and I where you do one [inaudible 00:44:57] site, I do a different [inaudible 00:44:57] site, and Vincent does one. It’s great content. I think some of our audience, both our readers and listeners would love to hear about that. But is that where the biggest value for us is? Or is it building out the marketplace and focusing on that?
You only have so many hours in the day. So that’s something we got to get figured out, and we’re still talking about. We haven’t figured that out yet.
Joe Magnotti: It just goes back to show you that drop shipping is not as simple as find a drop shipper, slap up a site, and wait for the money to roll in.
Justin Cooke: Yeah, we’d have to put a lot of time into it. So where is our time best spent for us going forward? But that’s a totally other topic, but interesting. The tip we have for this one, and we got this from other people, look for products that are $200 or more. With the lower margins, you really want to focus on higher valued goods. There will be more questions, but at least when they ask the questions, it’s somewhat worth your while. If you’re selling $40 drop shipped items, and they have any questions, and you do any emails or phone calls for that, boop there goes all your profit on every product. So that can be problematic.
Great resources for drop shipping. The guy you talk to, and we’ve talked to him a bit. Cool Cat, I think he lives up in … well, he’s in Chiang Mai, he’s in South America I think. But his name’s Anton and he runs a site over at dropshiplifestyle.com. I know you’ve checked out the course you’ve been through, and he has a course for a few hundred bucks, I think $500 or something he sells. But he’s built a bunch of successful drop shipping sites.
One of his students, which is a really small world, but Johnny over at johnnyfd.com, he normally blogs more about the lifestyle. He’s traveling around. He’s in Chiang Mai. Talks about lifestyle, but he’s been doing some e-commerce stuff that he learned from Anton, and doing really well. I forget the exact dollar amount, but he’s doing well. He’s picked up in less than a year.
So he’s got some interesting stuff going on over there as well. Some of our e-commerce recommendations also talk about drop shipping, and we’ll get to them in a minute.
So the next type of site, the fifth type of site we want to talk about are straight up e-commerce sites. These are sites where you’re actually supplying the product. And you either have a warehouse yourself, or you are renting a-
Joe Magnotti: Yeah, and you probably have designed the product, and this is a fairly unique product of your own creation, or your designers creation.
Justin Cooke: Doesn’t have to be, but-
Joe Magnotti: Doesn’t have to be but it could be, it could be.
Justin Cooke: So let’s talk about the advantages of a straight up traditional e-commerce site, that’s defensible, right? So you’re building a site that’s not easy to replicate. So you’ll see sometimes the sites that become a much bigger brand, that are much more, I think, kind of long shore folks. They have the potential to be million dollar businesses are generally e-commerce sites. And you can build a major brand around it.
So we had on the podcast a while back, Drew Sinokki who sold their business for mid seven figures. And that was based on brand loyalty, and customers that they built up. You’re really able to do that with these types of sites. There’s a bigger moat around the castle.
Joe Magnotti: Yeah, I mean absolutely. Somebody who’s just getting online, or somebody who has some good SCO skills, they’re not going to fly to China and find a factory, and start making a product. No, they want to go after the lower hanging fruit.
Justin Cooke: Generally e-commerce sites are going to have better margins, because you own it front to end. So you might have 30, 40, maybe even 50% margins or better. So your margins generally out to be better with e-commerce sites than it is with drop shipping sites.
So that obviously gives you a better opportunity to do paid traffic, and find some success. The advantage of paid traffic is that’s completely, and easily scalable. Scalable today, and no through six months from now when your content marketing starts to kick in, and your SCO.
So it’s something that you can turn the faucet on to fire hose of traffic. So it’s nice to be able to have paid traffic as an option.
The other thing is if you own the product quality start to finish, of course that’s good and bad. But you can really differentiates yourself by the actual product. So you can have a product that’s simply better than the others in your nice. My cat furniture is better than so and so’s cat furniture.
Joe Magnotti: Yeah, and you can deliver great post sales support, and really understand where your customers needs are. It makes it easy for you to take feedback from your customers, and make the next iteration of the products. So if you own that whole supply chain, it becomes a lot easier.
Justin Cooke: Id also say too when you get above $50,000 generally e-commerce sites are more attractive. A lot of people want e-commerce sites right now, and we talked about this a bit, but people are worried about organic traffic. And generally an e-commerce site is a bit more diversified overall in its traffic strategy. Maybe you have some paid, some social media, some organic. So the site itself is diversified.
Now for a portfolio in investor they may just buy some AdSense sites. They may buy some paid traffic e-commerce sites to diversify themselves. But these sites themselves are generally more diversified.
Joe Magnotti: Getting the best multiples, it’s just the high end people really want e-commerce sites. Because they know they can expand it in different ways. Either by different forms of paid traffic, or by finding different customers. Like the e-commerce site that we sold, the buyer was able to go out to the government, and find a new way of selling items directly to the government.
Justin Cooke: One of the things that Drew Snokki mentioned as I was talking to him is that e-commerce sites are generally getting better multiples. And also at the higher end they’re more attractive. Whereas some of the AdSense are just content based sites, are getting lower multiples, are less attractive. And that was his argument for if you have an e-commerce site, you should sell. E-commerce is hot right now. People are scared of the organic traffic. So sell your e-commerce sites.
In fact, it may be an opportunity to buy content based sites because you can get them at lower multiples, or people are little more scared of them right now. So that was interesting. It doesn’t matter for us, because we’re at 20X net. But it’s interesting if you’re buying at different multiples.
Disadvantages of the e-commerce sites, well one of the big ones is you’re living in Amazon’s shadow, right? So Amazon casts a pretty big shadow, because they’re a pretty big company. So whenever you’re competing directly with Amazon. It’s like, why wouldn’t people just go to Amazon and buy what you’re offering? If you do have something that’s differentiated from Amazon, you know the niche better or something. It’s still always scary that Amazon will open up a new category, and really start competing with you directly.
Joe Magnotti: Yeah, I just don’t know how e-commerce got its sleep at night when they know that can happen at any time. Especially if they don’t offer a very unique product. Like if they just offer a simple variation of a current product. And Amazon goes into that, or a supplier at Amazon goes into that. All of a sudden you’re just going to get crushed.
Justin Cooke: One of the things that most of the e-commerce guys talk about when you’re competing with Amazon. So they say, compete with them based on information. So you’re selling products in e-commerce that are complimentary. And you’re the best one because you understand the niche so well. You’re the best one at kind of putting those two or three pieces together. There’s no one at Amazon. They’re great at selling at a very high level, and selling individual products.
But when you’re talking about which one to pick, or which one to choose. Or how do you know if this one goes with that one? That’s a great niche to compete with Amazon. Because you know the niche, and you’re going to be able to smoke them when it comes to putting this and that together.
Joe Magnotti: Yeah, Amazon’s getting better at that though. One of these days, they’re going to-
Justin Cooke: Yeah, you’re right.
Joe Magnotti: They’re going to be able to have better feedback from suppliers on there. And you’ll be able to communicate with suppliers more directly. It’s getting interesting.
Justin Cooke: Amazon casts a big shadow, that’s for sure. So some people will say, “I don’t know how you can sleep at night with the ads and stuff.” But it just depends which boat you’re end. You always have someone cast a shadow, someone scaring you. So the other thing is they’re going to have upfront costs when it comes to e-commerce sites.
So you’re shipping half a container of X, Y, or Z over from … we keep saying China, but you can get it from anywhere. But you’re buying in bulk, and that gets pretty expensive.
We know a bunch of people that are … especially when they’re starting off, they go deep into debt with credit cards, friends and family so that they can buy their goods.
Joe Magnotti: Yeah. You talk to the people at e-commerce in the forum, and I would say not only the costs monetarily but also the cost of time, effort, energy. A lot of these people when they set up e-commerce sites-
Justin Cooke: You’re all in, you’re devoted to this. This your baby for at least the next year.
Joe Magnotti: Yeah, you really got to know the niche well. You got to know the product well. You got to be able to explain to people on the phone. More highly than some drop shipping site where you can just read the pamphlets or order the thing from them. This has got to be something that you intrinsically understand.
Justin Cooke: Drop shopping you have to know a bit, but if you’re sourcing your own product, it’s even more so, you’re right. Aside from the heavy cost up front, the supplier and inventory headaches. A lot of times they’ll send over a product and the base is messed up, or a wheel, or a particular gadget on the product is messed up. Because of specification problems, or manufacturing problems. So you can deal with the whole container of things that suck.
We talked to someone, e-commerce guy that they shipped it with the wrong … it had like kilos instead of pounds.
Joe Magnotti: Oh yeah, it was the weight, the scale or something like that. I don’t remember exactly what it was-
Justin Cooke: Peter was his name.
Joe Magnotti: No, the refrigerator, that’s what it was. It was in Celsius instead of Fahrenheit.
Justin Cooke: That’s right.
Joe Magnotti: And they turned it into a branding win by like saying-
Justin Cooke: It’s European right? They were saying it’s a European Sub Zero fridge or something and they had to play it off. That was funny. So you’re going to deal with these kind of hassles. Luckily they found a unique, interesting way out of it, but yeah you can have issues.
It’s also tougher to start and run e-commerce sites at the same time. Like you were saying before, you were just all in on this. And I’ll tell you, that’s an advantage to some people. They actually prefer to just double down, triple down on the one thing that they’re going to deliver.
Actually, I know you’re shaking your head, I like it. I get that and I think it’s kind of fun.
Joe Magnotti: I hear you, but just not to start.
Justin Cooke: Yeah, deeply. I’m going into debt, I’m spending all this money and then I’m all in on this one site. Especially as a newbie, I think that’s frightening. Again, that’s why there’s a moat. That’s why it’s more difficult to get into this industry.
We’re talking about this too, lots of changes to products. So you’re going to have a bunch of different SKU’s and this one’s going to start selling slower. So there’s always having inventory problems. Let’s say you spent a ton of money on credit, or your own savings to get those items. Then one sells out, but the other couple of products, you have a ton of inventory for, you need to order more of these, and you don’t have the cash yet. That can be a bit of a mess.
Another thing is that your support costs are generally going to be heavier when you have an e-commerce site yourself. So you’re going to have to understand that you’re going to have more support cost. And the higher price the product is, the more likely you’re going to have some pre sales you’re going to have to do.
Joe Magnotti: Yeah, and I would say a phone number is a must these days. If you’re going to make yourself different than Amazon, a phone number.
Justin Cooke: That’s our tip for e-commerce sites, right? Is that you’re going to want to have a phone number, top right at the site. That helps differentiate you. And a lot of the e-commerce guys that we know, they’re saying that significantly improves their sales. Especially when your competitor doesn’t have that. Because some people are just phone people. They want to do business in person, or over the phone at the very least. And talk to someone real about their questions. If they can give you a call, they might be more willing to do business with you. But it’s a pain in your butt.
Joe Magnotti: I saw a great post on e-commerce fuel that had numbers to back it up where he put the phone number on his site, and his sales increased. But not phone sales. His on site sales increased without the phone calls. So-
Justin Cooke: It’s an authority thing.
Joe Magnotti: It’s an authority thing. It’s a trust thing, you just need to have it.
Justin Cooke: So skill level for e-commerce sites, man definitely advance plus. This isn’t a newbies game. Some newbies do, they get into it, but it’s pretty risky. And it’s probably not the best place to start. If you’re staying with an AdSense site, or Amazon site, you can really focus on keyword research. And kind of get the basics down. But I think that’s going to be a much more effective way to start, and you’re not all in on this crazy container from China.
Joe Magnotti: I really just think that newbies are unfortunately not going to be able to go this way. Even moderate people, if you have a few successes under your wing, wait until you have that war chest before you go into e-commerce, because the spend especially is going to be that. I’m going to want you to have some sort of passive income earner so that in case things don’t go well, you can switch back to your passive income.
Justin Cooke: Now I think you’ve done some drop shipping. You got maybe a couple of drop shipping sites, or a successful drop shipping site under your belt. Maybe it is time to start looking into that. Maybe you can start sourcing some of your own products for that particular site. Or start getting into it on the side. I think that’s a better route to take. Some of the resources for e-commerce sites, these guys also deal with drop shipping sites, but their information for e-commerce is fantastic too. You can check out Andrew over at ecommercefuel.com, we mentioned him already. Also check out Dave over at storecoach.com. That’s someone that’s relatively new to it, but we’re digging his stuff.
So the last site type we’re going to be talking about today is the product ties service site. And these are really interesting. This is kind of a newer thing that we’ve heard a lot about in our niche, or I guess in our community. Where people are building out these typical service based sites, but they are manufacturing. So they’re offering a set fee for a service that they offer, but it’s productizing, that’s not the best way to describe it.
Joe Magnotti: Yeah, I would drop the word manufacturing, maybe from that. Like manufacturing and informational service. These are actually my favorite type of sites. Where you take something normally maybe that you would do as a service, and have them pay up front for it.
Justin Cooke: So let’s say that it’s podcast editing for example. Where you might hire an editor at $15 an hour, $20 an hour, whoever it is, whatever it is. Instead, if you want to do one podcast a week, they’ll charge you $4.99 a month, and they’ll do your one podcast a week for you. It’s a set fee that can be recurring or one time, depending on the particular product that they’re offering.
But it’s basically, there’s a whole bunch of advantages I think to productize services. It can be defensible based on your skill set. So it’s going to allow you to get really, really good at that particular product. So it’s relatively easy to get into if you have the skillset. But it’s also defensible because not everyone can do it, or not everyone can do it as well as you.
Joe Magnotti: Yeah, from my perspective, I think it’s much easier to start a productized service site then a drop ship, or an e-commerce site. Maybe that’s just my bias, but I think it’s easier for me to wrap my head around these kind of things.
Justin Cooke: I think it’s also interesting that you’re going to get much higher margins that service directly. Where you might only be able to charge, I don’t know, $25 an hour for that service but because you’re able to be more efficient and do a better job, you’re ultimately pulling in 40, 50, $60 an hour. And your customers are happy about it, because they don’t care about your hourly, they care more about the quality of the product being delivered. And making sure that they have reliable costs.
So you got to think about it from your customers perspective. Yes, I can pay this kind of sliding hourly scale or whatever for you. Or I can have a guaranteed, I know my costs are $495 a month. Sometimes that’s just better. For developers for example, you’re paying an hourly fee and maybe they stretch it out, maybe it takes longer. Whereas if it’s a set fee, a project based fee, it’s better.
So I think to supply the productized services as well. It’s also an easy add on when you already have a real business, or you have business elsewhere. You can add on products or services, or productized services based on real client feedback. So you’re going to have, when you have a business, you have people asking you for things, “Hey, I wish you did this.” Or, “This would be really interesting.” You start hearing that enough, and you can just throw in a product for that, that your customers are already asking for.
Joe Magnotti: Yeah. Or if you have some sort of internal process that you do really well, offering that as a product or service. That’s something that we’ve done before, and it’s just worked out very well for us.
Justin Cooke: You may have a longer, complicated process that you do internally. It’s a six, seven step thing, and you realize though that a lot of people are asking for step two in the seven step process. So maybe your ultimate price is like $3000 for that seven step process. Instead you offer step two for $450, or whatever. And you have your team banging out. Because you’re doing it all the time anyway.
Some disadvantages of productized services is that can require a skill set. So you got to do something, you have to be good at something. It has to be something that people are willing to pay for. Generally we’re talking about service based stuff.
It’s also a bit of a hustle to get started. You can wait around for content marketing to happen. Hopefully you’ve got another job, or some kind of revenue streams. Because if you just wait around for content marketing, it will take you three, six months before you start getting some traction.
Joe Magnotti: Yeah, I think this is the main problem. Probably you’re not going to be able to go out there, and buy a whole bunch of traffic. Because there might not be any traffic to buy. And people get-
Justin Cooke: They may not look for it the way that you’re hoping they will. It may be a bit different, and you have to get on the phone with people. So you’re going to have to start connecting. You’re going to have to get in communities where people are looking or discussing those different products and services. So let’s say I have a product that’s specifically for bookkeepers and accountants. I need to go for a forum where bookkeepers and accountants are talking. And basically introduce my product to them. Get on the phone, take free consultation calls. So that I can sell my product and get it out there.
Joe Magnotti: Join masterminds, you need to do this kind of thing and really network, and really get out there. And make sure that you’re hustling up the business. Because it’s just not going to come to you.
Justin Cooke: It’s great word of mouth. So I think it can get rolling after a certain point. You can hit a critical mass. And I think content marketing can work for productized services. But you’re going to have to hustle in the beginning. But it’s also going to require people in process. If you’re not a people and process type person, it’s going to require … otherwise you’re going to be a semi-consultant. You can be a consultant that charges a fee that’s a productized service based fee. But you’re eventually going to cap out. So even though you’re getting a better per hour when you break it down, you’re also hustling on the sales side. So you’re doing the sales and the delivery, which gets difficult. So you’re going to want to bring people in that can handle the delivery, and eventually the sales.
Joe Magnotti: Yeah, I was thinking about this before the show, and I didn’t mention it Justin. But I really do think if you have no management experience, and you don’t consider yourself a good people person, this is not the way for you to go. Because you’re going to need to deal with internal employees. You’re going to need to deal with customers. You’re just really going to need to direct.
Justin Cooke: I’d say the skill level for productized service sites, it’s moderate, moderate plus. So you’re going to have to have a particular skill set. You’re going to have to know how to hustle. How to put yourself out there, how to connect with people, and get it done.
Joe Magnotti: And you’re going to have to select a good niche. That’s going to tie back into what you know. But yeah, that’s going to make it a little more difficult in the fact that you can’t just do some keyword research, and find something that works.
Justin Cooke: That’s magically going to happen [inaudible 01:04:17]. Or if it does, it will be six months before you get any customers through there. So you’re going to have hustle it up. A tip, and you brought this tip up Joe, when we were talking pre show. You mentioned you’re going to have to track your cost, right?
Joe Magnotti: This is so true. Because I think it’s really easy with productized services to misevaluate your margins. You think, “Oh, well I’m paying people X amount of dollars to do it, and I’m charging Y amount of dollars, that’s my margin.” Well, you forgot about the software cost-
Justin Cooke: Scope creep.
Joe Magnotti: … hosting, and the scope creep, and your time and all this other stuff. And all of a sudden, you were charging 100% more, that’s just not enough of a margin for it to be worth it.
Justin Cooke: Yeah, that’s a good point. It’s much easier to track costs against sold when you have a physical product you’re buying from a manufacturer, you know what it is. Whereas this, it can be kind of time. And that’s beneficial if your people are more efficient, or you are more efficient, and you get better and faster at it. You’re going to make more money, but it is important, I think, to attract cost a little bit differently, or a little bit more closely than you might otherwise.
So some of the people talking about productized services, and definitely I think some good resources for you. Us, we talk about productized services a lot. We have a bunch of podcast episodes on it. We should do a blog post on it too. Another one, obviously is Dan and Ian over at tropicalnba.com. They just did a couple of shows, podcast episodes, I think with Damien Thompson about productized services.
Speaking of Damien, I think he’s a really good example of someone who’s doing that with Linchpin where he does Ontraport or Office Autopilot and Infusion Soft services, and there are other people out there doing that as well. But that’s a great example of productized services. Again, you can look at our productized services in the nice site creation space. I think we’ve done a pretty good job of delivering on those.
So, okay, buddy last business model we’re going to talk about is SAS, but we’re not talking about it. We really don’t have the most experience with SAS businesses. If you do want some good resources for SAS, I would check out Dan Norris. I think he’s at thedannorris.com. Him and his business partner own wpcurve.com. And they’re doing some interesting things in that space.
Joe Magnotti: I think, I love SAS, I-
Justin Cooke: Another one, Start Ups For The Rest of Us. Those guys run some SAS, are very familiar with the SAS model.
Joe Magnotti: I love the SAS model, but it’s not something to be approached lightly. Dan had a big failure before he had a success. So I would say that’s something that you really need to know before you get into it, and check out those resources before going down that route.
Justin Cooke: I will say you can get some big wins there too. Because if you get a SAS company up and rolling, at the upper end of that [inaudible 01:06:55] you’re talking crazy multiples because of that predictable, recurring revenue. Anyway, something to check out.
Anyway, enough of that buddy, let’s get into our tips, tricks, and plans for the future.
Speaker 1: You’re listening to the Empire Flippers Podcast, with Justin and Joe.
Justin Cooke: So we have got an interesting tip for you, or trick for you this week. Specifically when you’re talking about e-commerce and having to put up front all that cash. Or go into credit card debt. Or asking friends and family for money. Joe found some interesting resources. He’s been looking for credit cards. We have a lot of things we’re paying for, advertisements and stuff. Along with some software that we’re paying for on a monthly basis. We should get some miles out of this. So, we’ve been both looking for credit cards that we can get better mileage programs. And also, like small to medium sized business loans.
Joe Magnotti: I was just interested in business credit. We have a couple of friends that were looking at utilizing their personal credit for business needs. I was thinking to myself, “That doesn’t make a lot of sense.” You’re not taking advantage of the use of your corporation, and all that kind of separating those things is what you do when you go into business, right? You’re putting the risk on the business.
So one of the things you can do if you do have a moderately successful small to medium sized business, is there are two online programs now. One called ondeck.com, and the other called kabbage.com-
Justin Cooke: With a K.
Joe Magnotti: … with a K. And they’re really geared towards small and medium sized businesses getting loans for people from $20,000 to $150,000. And the approval process is pretty simple. I’ve never gotten approved, so I don’t really know. But apparently all you have to do is send bank statements, and show a couple of things about your company. Then they go ahead and transfer the money to your account. Then you pay them a daily level. So yes, you have to pay a fairly high interest rate, 17, or 20%. But you pay it back on a daily level over the course of a year. And it can be very affordable for guys who do need that kind of small bridge loan.
Justin Cooke: It’s great for purchase orders or something. I got purchase orders in, I need to deliver for this large retailer. They’re sending me money, I need the money. So if you’re struggling with banks or if your friends and family are out, I think this is a pretty good option for you.
So if you’re in the e-commerce space, and you’re looking for cash, I think this might be a great way for you to expand and grow your business.
Well that’s it for episode 84, the Empire Flippers Podcast. Thanks for being with us, hope you really enjoy this show. Make sure to check us out on Twitter, @empireflippers, and we’ll see you next week.
Joe Magnotti: Bye-bye, everybody.
Speaker 1: You’ve been listening to the Empire Flippers Podcast with Justin and Joe. Be sure to hit up empireflippers.com for more. That’s empireflippers.com. Thanks for listening.
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