As I have been trying to narrow in on my specific strategy to making a living from my online efforts, I keep coming up with this notion that bigger is not always better. On Monday, I mentioned that I keep building and buying more blogs. It was an addict’s first confession. I have bought into the belief that if I start a lot of projects now and continue to build them up over time, eventually my online income will take off like never before – and that’s saying a lot considering my most recent income report. Yet, even as I build up my online portfolio of blogs or empire (as many call it), I have a strong conviction that many are over-doing it. Here’s what I mean…
When Vision Comes with Lots of Overhead
For those who don’t know, I am a huge fan of Mike from The Financial Blogger. Mike has been around in the blogosphere for an eternity. He writes about his similar vision to build up a company of blogs while keeping his day job. I admire his ambition and he was part of the reason that I was convinced that I could be successful as a internet landlord (and am grateful). Just recently, he announced that he bought two more sites. While that is great for him, part of me disagrees with his approach to owning blogs.
Here’s what I mean. A few weeks before this, he posted about how someone could sell their site for 4x the annual income from it. At the time, I questioned the reason he would publicize this if he was still in the business of buying blogs. Why push up the price if you are a buyer, right? Well, in hindsight, it only makes sense – to a certain degree. Whether it was intentional or not, Mike probably landed these two quality sites as a result of his image as “internet landlord”. As I have talked about, having a professional image is important in any business.
While his status certainly gave him the advantage in buying these sites, it isn’t without a cost. He has signed a confidentiality clause, but I have reason to believe that he paid a pretty penny for these sites. If you follow Mike’s site (as I do), you would find out that he has a high tolerance for debt and even takes out loans to help his business grow.
The problem with Mike’s business model, as I see it, is that it comes with too much overhead costs. One of the best advantages of owning a blog as opposed to physical real estate is the low upfront or overhead costs. Instead, because of his commitment to his high-paying full-time job (understandably so), he is forced to pay a at least one virtual assistant and outsource many of the tasks. I am a firm believer in outsourcing some tasks in order to generate passive income, but we have to realize that it comes with the cost of a lower return rate. Mike’s ambitious business model and commitment to his day job forces him to pay a LOT of money in expenses. With his expenses at nearly 50% of his income, I often wonder if it would be better to reduce his debt, perform more of the responsibilities of himself, and bring in more direct income.
How My Smaller Scale MIGHT Outperform Mike’s
I thought there would be no better way than to compare our different models. I take on more direct responsibilities, pay far less for websites, and do not take out loans to build my online portfolio. Whose model is better? Let’s let the numbers say it all. I’ve gathered some stats from February and wanted to do a comparison. I would like to point out that since Mike has been at it longer than I have, he has a slight advantage and at this point, his income is more reliable/sustainable (but not for long 
). I have less income reports to use as data points. (Thus the reasoning for comparing only February – to try and level the playing field – yes, it is biased, but I am the one writing the post).
| Mike | Corey | |
| Personal Gross Income | 5346.275* | 5351.76 |
| Personal Expenses | 2000* | 1023.28 |
| Personal Net Income | 3346.275 | 4328.48 |
| Hours Invested | 60# | 120 |
| Hourly Rate | 55.77125 | 36.07067 |
Going just off of February’s income reports, it seems that I out-performed Mike in one area – net income (before taxes). Yet, as anyone can tell, it most likely results from my larger time commitment. I am probably investing 30 hours a week to blogging and my hourly rate does not compare to Mikes. This again speaks to how more established Mike is and how much I need to focus on scaling my business model. At the same time, I am only investing the free time that I have. It’s time that I am not doing other things anyways, so why not save a few extra bucks that I can then use to invest back into my empire. While my efforts do not beat out Mike on all fronts, I am going to take this as support for my smaller-scale business model and work on improving it’s scale.
What do you think is the better model?
*Mike shares his company with a business partner, so in order to compare the figures, I divided his gross income and expenses by 2 to have his share of both.
#Mike says that he only puts in 10 hours a week, but it sounds like he has been investing more time. 15 hours a week is just an estimate. I have no idea how accurate this is. 
You are right that it is never better to take out debt than to not take it out. But if you were to add day jobs into this equation then Mike would come out far ahead I think.
His higher expenses and lower net income are due to his lower time commitment and more outsourced tasks like you said. But with time he could be working on the blogs he is getting paid employment. If he were to shift to more time on the blogs I am sure he could greatly lower his expenses and increase his net income.
But you both are on a great path, so keep up the good work.
Indeed you are right – but then he would beat me on all fronts and I wouldn’t have a post to write.
In all seriousness, hourly rate is really important. As much as I wanted to question his business model, he has increased his profit potential rapidly in a short period of time and has been part of the inspiration for most of my efforts.
Hey Corey
You need to review the number of hours spent on the blog
.
I’ve spent more time when I was on paternity leaves but during my regular week (as of right now), I spend 10 hours a week (mind you, in my expense, I have also a dividend paid to me because I work 1 full day (6 hours) on my blog).
The reason why my expenses are so high is because I don’t spend much time on my sites. I spend about 4-5 hours in writing, 2-3 hours in emails and comments and that’s about it. those are my “unpaid” hours
.
Your business model is pretty solid. However, you can’t really scale it. What is your plan to increase your income from 5K to 10K? this is where the cost structure we have will come into play. I’m pretty confident to increase my revenue to 15K (so 7,5K each) with the same costs. I’m just in a “in-between” phase
.
cheers,
Mike.
Mike – haha – I know. It’s an addiction that I am trying to handle. The truth is that I am trying to play catch up with some of the pro’s that have the edge of a few more years of experience and content.
Perhaps the irony is that I wrote this post a couple weeks ago, before the most recent series of events. As a result of the past couple weeks, I am starting to think that spending more money on a blog that is established for years is a much safer investment because of its stability in times like these -I’m sure you know what I mean.
You are right – I definitely need to work on how I plan to scale it. The truth is that you are doing well with the income sources that you are using. That makes a lot of sense with the in-between stage.
I really want to start generating affiliate income because I see that as the easiest way for me to scale my income while also keeping my expenses down. I’ve started to have very low level of success with it, but I now have an idea of how to generate affiliate income. Now, I just need to amplify that success and I should turn it into a huge success.
It’s very tough to generate affiliate income. it takes years to build enough trust to make it happen.
I’d say that if my income level doesn’t jump to 15K at the end of 2012, I will definitely cut on my expenses. The bulk of my expenses are toward new projects and expansion. If I fail, I’ll just be happy to make 5K/month (each) with a 1K or so expenses!
you’re growing fast, keep it up!
@Poor student,
you are right, if I was working full time on my sites, I could drop my expenses to roughly $500/month I think
Mike’s comments about scale are right on the money. You can invest time or money, but there are only so many hours that you can personally invest. In order to get more done, then purchasing other people’s time becomes imperative. Smaller is not better. Look at Lowe’s vs your local hardware store. Scale brings wealth.
Corey, you are definitely hustling buddy, and I’m glad to see your making cash, but Mike is always playing a bigger game when it comes to expanding his empire. To me, by throwing that post out there so blatantly, he established himself as the THE MAN to go to if you want to sell out. Who wouldn’t at least approach him if they were looking to sell? It basically made his reputation. Also, if you think your bidding against him (like you might potentially be at some point) then he has likely already scared off most of his competition. His recent posts on rental income vs blogging income illustrate why borrowing money to invest in his blogs is almost assuredly going to work out well for him.
I love the discusion here. This is what all business people must figure out at some point in their lifecycle. There is a always a sweet spot! There is also always a point of diminished returns. Finding the first one and avoiding the second one is what any MBA will tell you it’s all about.
This is fascinating.. creation of value. Love it!
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120 hours on the site? Not bad considering the income you were able to derive, but I think the ultimate driver will be dollars per hour. At some point you’ll probably fix on a number (say $50 / hour for arguments sake) and base your plan around it. Actually, that might not be a bad strategy with how fast you’re growing your earnings…
Also, I’m still seeing a falloff in March. Echoes on your end?
Technically it is 120 hours for the month on several sites and my freelance work. I’m much more efficient in areas, but some processes are in the works of improving. Yes, $50 per hour would be some serious money, especially if I could scale it and make it sustainable.
March has had a little drop off.
I couldn’t imagine taking loans out to pay for blogs, that’s one of the best things (it can be done really inexpensively) about blogging. I guess we’ll just have to wait and see how things turn out.
Investing in international dividend stocks are good as well. I’m seeing some pretty good returns on international stocks.