How to Start an Online Business — and Succeed

I have been creating online businesses or working with others to start them since the late 1980s.

Some of them have been intentionally small, like my current consulting and publishing business that has been doing just fine for nearly eight years. The reasons why will be clear later in this article.
Continue reading “How to Start an Online Business — and Succeed”

Financially Sound Sites Begin with Gross Profit

Online profitGross profit is a useful way of measuring the financial health of a Web site.

Yahoo Finance is a great Web site for investors. It also is a good tool for Web site publishers because of the financial data about the most successful Internet companies such as Google, Amazon and Ebay.

Note the 2012 income statement for Google showing a gross profit of $29.5 billion after “cost of revenue” is deducted from total revenue of $50.2 billion.

In other words, the cost of revenue was $20.7 billion or 41 percent of revenue.  Continue reading “Financially Sound Sites Begin with Gross Profit”

Paid Access Fails to Find Right Model

A recent series of articles revealed that has signed up only 35 paying subscribers since putting itself behind a pay wall several months ago. The results are not a surprise. has a rate of $5 a week for anyone who is not a subscriber of the Newsday print product or of the Long Island cable TV service, which is owned by Cablevision and which also owns Newsday.

The $5 a week rate is one of the highest ever attempted by a newspaper implementing paid access to its Web site. A more typical rate is $5 a month rather than $5 a week.

The great majority of online newspapers that have attempted paid access have failed at it and have reverted back to a free, advertising-supported model. A few reasons for these failures are consistent. Continue reading “Paid Access Fails to Find Right Model”

Business Structure Impacts Web Site Profit

Independent Web site publishers consisting of a single employee have a far different view of profit than the way it is handled by larger companies.

The major difference lies with payroll and the type of business entity, such as C corporation, S corporation and Limited Liability Company.

Large publishers tend to be incorporated and usually have employees with hourly or salary pay.

Those wages are the same and are paid regardless of the profit and revenue fluctuations month to month (unless a major economic or business decline leads to the painful step of pay cuts).

Independent publishers often are set up as sole proprietorship limited liability companies.

Many of these LLCs consist of a lone employee. As a result of the LLC structure, the “profit” consists of all expenses except for the labor of that publisher.

Imagine an online publishing company with $1 million a year in revenue. It has $500,000 a year in wages and $400,000 in other expenses for a profit of $100,000. The profit margin is 10 percent (profit divided by revenue).

An independent publisher has $100,000 in revenue. She has $40,000 in other expenses such as hosting, advertising and contracting.

According to Schedule C in her tax return, that leaves her with $60,000 in profit or a margin of 60 percent.

A margin of 60 percent sounds great, but she is no better off than the large publisher. The large publisher spends 50 percent of its revenue on wages.

If the sole proprietor rewarded herself with 50 percent of her revenue as a wage, she would be left with a true profit margin of 10 percent, the exact same level as the larger company.

Independent publishers will find that targeting what seems like an exceptionally high profit margin  is essential in building an effective business and earning a livable wage.

They also will find that operating on their own, especially if working out of a home office, creates exceptionally low expenses.

As a result, a revenue goal that may seem low in a corporate environment can be quite healthy in a single-person LLC.