Business Structure Impacts Website Profit

Independent websites with a single employee business structure have a far different view of profit than larger companies.

One major difference lies with how they handle payroll and some of the most basic expenses.

Large publishers are often incorporated and 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.)

These large publishers also have to buy office space to house their employees.

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

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

Quite a few lone wolf publishers work out of their homes and have a major expense benefit as a result.

Publisher Profit Examples

Imagine an online publishing company with $1 million a year in revenue and about 10 employees. 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).

With online competition sky high these days, that margin is pretty good.

The owner or owners either pocket the $100,000 or pay back investors.

A smaller 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 simple tax return, that leaves her with $60,000 in profit or a margin of 60 percent. That profit is her wage.

A margin of 60 percent sounds great, but she is really no better off than the large publisher. For the large publisher, the combination of wages and profit also equals 60 percent.

It benefits the small publisher to look on that $60,000 in “profit” as actually $50,000 in wages and $10,000 in profit.

Small publishers in the online business are more likely to survive if they put that “profit” into savings for downturns or reinvest it in the business.

Low Revenue, High Margin

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 and boosts the margin.

The end result for a small publisher is low revenue with a high margin if filing as a partnership or sole proprietorship. A revenue goal that may seem low in a corporate environment can be quite healthy in a single-person LLC or partnership.

Now the Downside

The downside for such a small business comes in the form of isolation. A lone publisher who works from home will not have a healthy amount of contact with people.

The lack of contact leads to several downsides. The first is the emotional benefit of working with good people. The second is the lack of access to the knowledge, skills and aptitudes that other people can bring to a business.

In the long run, an online business structure that starts with one or two people will have an expense benefit in the beginning. But it behooves entrepreneurs to grow enough over time to the point where they can hire help.

Ideally, those early days of low expenses and having to wear multiple hats will offer critical abilities to the entrepreneurs that they can use for years to come.