Not Reinvesting? You’re Killing Your Income Potential

With my January income report coming up later this week, I thought it would be appropriate to talk about something I don’t think I’ve ever explicitly discussed here before: reinvesting.  You often hear about “reinvesting” as it applies to large corporations.  For example, XYZ Manufacturing Inc. had a profit of $4 million in 2010 – instead of paying it out to its owners, the company reinvested the money by putting it toward additional research and development, to hopefully bring greater earnings in the future.

The same concept applies to us too – we can take our earnings, however large or small, and put it toward things that can help us expand our income potential.

What Are Some Ways to Reinvest?

There are a couple key ways to reinvest the money you make online, and they don’t have to be “big ticket” purchases by any means.

Outsourcing

This shouldn’t come as a surprise to you.  Outsourcing is one of the best ways to leverage your current earnings into greater future earnings.  As I wrote about in this article, there are a number of ways to outsource, so I’m not going to go into detail on how to do it.

I will, however, give a good example about how a little bit of earnings today can translate into huge earnings down the road.  Let’s take a look at two hypothetical scenarios (emphasis on hypothetical).  In both cases, the person begins with one niche site that earns $50 in month #1.

Scenario A – The Saver

The saver is conservative.  He believes he’s doing what’s best for his business by saving the money he makes.  It’s possible that he’s waiting to buy something significant – maybe a new computer for the business, or perhaps he’s saving it for something personal.  At an extreme, the saver might be trying to save for what he considers to be sufficient to leave his day job and become a full-time entrepreneur.

After the first month, the saver obviously hangs onto the $50 his site earned.  He continues working hard, adding backlinks, adding content, and getting his site into a position to earn more money.

Assume that his additional work allows the site’s earnings to increase 20% each month, until its earning potential reaches a maximum point at $100/month.

  • Month #1: $50
  • Month #2: $60
  • Month #3: $72
  • Month #4: $86
  • Month #5: $100
  • Month #6: $100
  • Month #7: $100
  • Month #8: $100
  • Month #9: $100
  • Month #10: $100
  • Month #11: $100
  • Month #12: $100

Total 1st year earnings = $1,068

This doesn’t seem so bad, and it doesn’t take into account the possibility that the saver might start a new site or two, and work on those as well.  He’s writing all the content and building all the backlinks himself, however, so he doesn’t exactly have enough time to manage more than a few sites in this way.

Scenario B – The Reinvestor

The reinvestor understands the power of money and leverage.  The reinvestor understands that $1 put back into the business today might turn into $10 a year from now (that’s a whopping 1000% return on investment, if it’s achievable).

The reinvestor doesn’t think about taking from his business – he thinks about the power of giving, and the growth potential it offers the business.

The reinvestor begins the same as the saver.  After month #1, he earns $50.  The difference is, he spends that money immediately.  Instead of spending the next month writing articles to publish additional content to the site, he pays a freelancer $40 to write 10 articles for the site.  Meanwhile, he buys a new domain with the other $10 and begins building site #2, which also earns $50 after its first month.

After month #2, the reinvestor earns $110 ($60 from site #1 and $50 from site #2).  Once again, he takes $40 out to add more content to site #2, and buys a new domain for site #3 for $10.  With the remaining $60 in earnings, he hires a new freelancer to build backlinks for sites #1 and #2.

Assume that each site’s earnings follow the same trend: 20% earnings growth each month, with a cap of $100/month.

After 12 months, the reinvestor has 12 niche sites established and enough earnings to have all content and backlinks created by freelancers.  To calculate the year 1 earnings, I needed a little help from Excel…

In this scenario, the reinvestor earns a whopping $6,354 in year one.  The key difference between the saver and the reinvestor, of course, is that the reinvestor was willing to put his earnings back into the business.

[Note: I’m well aware that these assumptions are not 100% accurate.  It’s possible that some sites won’t earn anything until month #4, and other sites will earn far more than $100/month after a year.  The purpose of these scenarios was to illustrate a simple point.]

Online Tools & Software

These are the tools I use on a daily basis when I’m not altogether neglecting my niche sites.  To make my point clear, I’ve also listed the cost of each product. (Yes, these are all affiliate links.)  It should come as no surprise that I use all of these in conjunction with the Ultimate Backlink Tracker.

Over the course of an entire year (assuming it’s the year I purchased Market Samurai and Bookmarking Demon) I spend a total of $1809.  I know, that’s a lot of money.  I have no problem doing it though, because I know the software will help me earn far more than what I spent on it.

It bothers me when people aren’t willing to invest $97 in a remarkable piece of software like Market Samurai.  If you aren’t willing to spend the money on software that gives you a serious advantage when it comes to building profitable niche sites, I don’t believe you’re serious about making money online.

The good thing is, that’s okay.  Making money online isn’t for everyone. It takes a lot of hard work, even though some people make it look easy (I certainly I am not one of them).

The Bottom Line

Overall, this is the point I’m trying to get across:  You don’t need to spend money to make money, but once you’re making money, you need to be willing to reinvest it into your business if you are serious about growing and reaching your earning potential.

It’s tempting to have an awesome month, and spend the money on something fun, like a new plasma TV or a trip to Las Vegas.  Don’t get me wrong – it’s okay to have fun spend some money on yourself from time to time.  Just make sure you don’t lose sight of your goals, and the fact that putting your success back into your business will accelerate your growth far beyond what you’ve ever imagined.

What do you think?  Are you a saver or a reinvestor?  Can you think of any other benefits or drawbacks to either approach?

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38 Responses to “Not Reinvesting? You’re Killing Your Income Potential”

  1. Well i invested $300 in one of my blog. This is earning some money as if now. I think i can further fuel it growth. This will surely make $50 month in next few months.
    Rahul recently posted… Traffic Analysis Of Successful Blogspot and Hubpages

    [Reply]

    Eric G. Reply:

    That’s great, Rahul. Hopefully the $300 will pay off and lead your site to better earnings growth.

    [Reply]

    Rahul Reply:

    Yes initially it takes time. But when site grows too big. It will be easy to get more traffic. My site is 500 pages indexed. Wanted to grow 5k pages and trying to build few more sites.
    On the other hand i have many niche sites. They are just babies on 2-5 pages. I like to know how you track the amazon earning from individual sites?
    Rahul recently posted… January Monthly Income Report

    [Reply]

    Eric G. Reply:

    Amazon allows you to create custom tracking IDs. I like to create a new tracking ID for each site that I have. Read more about it here:

    https://affiliate-program.amazon.com/gp/associates/help/t1/a8?ie=UTF8&pf_rd_t=501&ref_=amb_link_126306_1&pf_rd_m=ATVPDKIKX0DER&pf_rd_p=&pf_rd_s=assoc-center-2&pf_rd_r=&pf_rd_i=assoc_help_t10

  2. Great post and so true! You will reach your goals faster if you take the money you earn and put it right back into growing your income. Especially putting the money into backlinks!
    Lisa recently posted… Snow Blower PLR Articles

    [Reply]

    Eric G. Reply:

    Absolutely. Thanks for the comment, Lisa!

    [Reply]

  3. Great post! You just need to know when to stop reinvesting and when to take money off the table. I reinvested 100+% of my profits in 2010 and now I’m becoming a saver in 2011 and taking money off the table. However, without reinvesting I would have never reached this scale. Very helpful advice!

    [Reply]

    Eric G. Reply:

    Awesome point, Ian. There’s definitely a point where it’s time to start saving, and you’re a perfect example. You built a HUGE passive income “empire” in 2010, so it definitely makes sense that you’re saving this year.

    Can’t wait to hear more about how your sites do in 2011 – I know you have a lot!

    [Reply]

  4. That is a very true point; I think so far this year I have earned about £490 from private ad revenue and the such (non replicable income for some time) spent about £1k on designs / new domains software etc.

    Though I hope by the end of this quarter to recoop all of that money and planned expenditures (£100 a month or so).

    Money in doesn’t always mean profit, but a good plan and money in could mean a healthy profit.

    [Reply]

    Eric G. Reply:

    Sounds good – that’d be great to recoup all your expenses by the end of the quarter, and make your way “in the black.”

    Good point too that money doesn’t always mean profit. :)

    [Reply]

  5. No doubt, I am the re-investor. I plan on doing exactly what you mention in this post for 2011 and my niche sites.

    My plan is to have 25 by the end of the year, although the first one I started is way above my earning projections and ranking #1 for my targeted keyword.

    The profits from my early niche sites will be directly re-invested into the later niche sites–and I have a plan to outsource 100% of the work needed to create 5 of the 25 niche sites to ‘experts’ as a mini-experiment in and of it’s own.

    Nice to see this post as it relates to some of my 2011 goals!
    Brendon | Internet State University recently posted… ISU Goals- Dreams- &amp Aspirations for 2011

    [Reply]

    Eric G. Reply:

    Hey Brendon, that’s awesome to hear that one site is already way above earning projections – it’s always fun when that happens. :)

    Sounds like you have a nice place in place – best of luck in 2011!

    [Reply]

  6. What I do, Eric, is every month I’ll take a percentage of my online income and put it toward a tool that will help me grow my projects and business.

    I generally go with what syncs with the projects I’m currently working on and will only pick up those items which are proven to be great – generally software.

    This next purchase I may be getting is either MS (finally) or perhaps investing in a VA.

    [Reply]

    Eric G. Reply:

    That’s a good strategy. It’s about time you get MS! 😛

    [Reply]

  7. I agree, you have to reinvest.
    Over the past year or so I’ve bought some items that made it easier.

    The market Samurai has been one of the best purchases I’ve made. The bookmarking demon was the most expensive but what can you do.

    Next up will be an article spinner but just don’t know which one. Heard a lot about the UAW and not so much on the other one.

    Eric, (and fellow commentors) any advice?

    [Reply]

    Eric G. Reply:

    For article spinning, “The Best Spinner” is by far the best (like the name indicates).

    UAW is more for mass article submission (i.e. lots of backlinks) – you’d still want a spinner separate from that.

    [Reply]

    Ralph Kooi Reply:

    aha, gotcha.
    Got those items confused.

    Great job on the website mate, enjoy reading the topics.

    [Reply]

    Eric G. Reply:

    Thanks Ralph!

  8. I think of Sir Richard Branson here, how we reinvested the profits from one business to form another business. Rinse, repeat, and he’s now one of England’s most successful entrepreneurs.

    Reinvestment is something that even I realise, me of little business knowledge! It serves to bolster your growth, maintain your foundations, and push you forward into more and more success. Who can argue with that?
    Stuart recently posted… The Lion By The River

    [Reply]

    Eric G. Reply:

    Well said, Stuart. Thanks for the comment.

    [Reply]

  9. It is also wise to set aside money earned from taxes. I am not an LLC or any other type of corporation yet, so when I start earning income I will treat it like freelance income and set aside about 30% for taxes. I am hoping that this is an overestimation of my tax liabilities, so that money set aside for taxes becomes a de-facto savings account as well.
    Lonnie @ My Income Lab recently posted… My First Ever Income Report! – January 2011

    [Reply]

    Ralph Kooi Reply:

    Lonnie,

    I just tried to comment on your first Income Report but some weird stuff was happening.

    Didn’t get the captcha to work so could comment.
    Perhaps a WordPress blog is something to consider?

    Anyway my comment was that I am in the same boat.
    I’m on zero too so I wouldn’t worry about it. Its a 6 month plan at least to get started so I am just trying to focus on content on my own and one of my affiliate sites.

    Just keep going!

    Good luck!

    [Reply]

    Lonnie @ My Income Lab Reply:

    That’s strange because blogspot hosted blogs don’t even require captcha when commenting (I thought at least). Thanks for trying though, I appreciate the support!
    Lonnie @ My Income Lab recently posted… My First Ever Income Report! – January 2011

    [Reply]

  10. A key success factor for any business is to keep overheads down. You could save yourself $67 a month by not using Unique Article Wizard, it really isn’t worth the money. I tried using it a couple of weeks ago and their list of submission sites was terrible. Over half the sites didn’t even accept article submissions. They obviously haven’t cleaned the list for a long time and add any old junk sites to it. They rely on people not checking the list of sites they claim to have submitted to.

    In the end I cancelled my subscription, demanded my money back and bought a copy of Article Marketing Robot instead. It is a one off $97 payment and much better than UAW.

    Mass article submission is a very ineffective way of building back-links though. You can submit articles to the top few article sites manually and then move on to more effective back-linking methods. No software needed, especially not worth $67 a month.

    [Reply]

    Eric G. Reply:

    Hi Chris – I’m sorry to hear you had a poor experience with UAW. So far, I’ve been pleased with the service, so I’ll probably continue using it unless I get to the point where it’s no longer helping.

    I haven’t heard much about Article Marketing Robot, but I’ll check that out too and see if it’s worth trying over UAW.

    Mass article submission may not be the best way to build backlinks to your main site, but it’s an effective way to build up the backlink “juice” to your main article directory sites that link to your main site. In this situation, the article directory sites (e.g. eZine Articles) act as a funnel, so that it doesn’t seem like you’re hitting your main site with too many lower quality backlinks at once.

    Thanks for the comment!

    [Reply]

  11. Hi Eric,

    Great strategies and excellent article. I am successfully using the A Scenario – The Saver. I always earn money, 80% reinvest and 20% keep. Thank you very much for sharing this excellent article, I also learned a few things from it. Cogratulations and keep up the good work!

    Best regards,

    Maria
    Maria Pavel recently posted… How To Become A CNA Instructor

    [Reply]

    Eric G. Reply:

    Hi Maria – Thanks for the comment! Reinvesting 80% and saving 20% is a nice way to make sure you’re saving a little, without inhibiting the growth of your business. I hope it’s working out well for you.

    [Reply]

  12. I’m neither a saver nor a re-investor, mainly because I haven’t earned any money online yet. It was a big leap for me in June to purchase the domain and hosting package. I figured if I did something free (like hosting on WordPress.com), I wouldn’t take the work as seriously. So the initial investment is relatively cheap, and I’ve invested a lot of time into the content and design, but haven’t purchased any other software yet. For 2011, I want to take the next step and purchase some software to start adding fuel to the fire and start making money online.

    [Reply]

    Eric G. Reply:

    Sounds great, James – I think it was smart to purchase hosting and a domain. If you’re serious about making money online, this is the way to go in the long-run. If you went with a free option, you either wouldn’t take it as seriously (like you said) or you’d just wind up needing to eventually transfer everything over to a paid host/domain, which could be somewhat annoying, depending on how developed the site is.

    Best of luck to you in 2011!

    [Reply]

  13. I’m more of a saver type. I’m pretty afraid to reinvest, especially when I don’t have to…
    Ali Mujtaba recently posted… Causes Of Tinnitus

    [Reply]

    Eric G. Reply:

    That works too, but don’t be afraid to reinvest! You can definitely start small, and gradually build it up as you feel comfortable.

    [Reply]

  14. Because I’m just starting out, I believe there are a couple of steps before reinvesting can occur… and that is investing and re-allocating.

    1. Investing: Buying software, hosting etc to help out with daily tasks.

    2. Re-allocating: Finding the funds to invest in the products mentioned above.

    When it comes to the investment part for me, I just signed up for Aweber last week to start an email marketing on my main website. For re-allocation, I’m dropping my Netflix account to the $9/month plan. And this is the hard one… cut down on eating out at lunch which accounts for about $60/month.

    This leads to my next investments which will be the backlinking/spinning software you mention in your post.

    And here’s some breaking news… when I first starting writing this commment, I was making $0 online. But I just checked my Amazon Affiliate stats which made me jump out of my chair! My earnings for this month so far is $54.81. I just signed up for the Associates program at the beginning of Feb! Imagine my surprise! This is only 2 weeks after monetizing my main website. I have the rest of Feb to look forward to. If this continues, I’ll become a reinvestor soon.

    [Reply]

    Eric G. Reply:

    Congrats on the recent success, Harlan, that’s fantastic. I really like your plan, and it sounds like you’re headed to bigger and better things very soon.

    [Reply]

  15. Hey Eric,

    You make a good point, and I love the charts you created to use as examples.

    Truthfully, I’m also guilty of saving my money and later spending it to satisfy personal goals. I have thought of reinvesting some of it, though I never got around to actually doing it.

    This post inspired me to kick things into gear and actually start outsourcing. From now on, I’m going to put some money aside each month specifically for reinvesting my business. Thanks for the encouragement!

    Christina
    Christina Crowe recently posted… Understanding Link Wheels and Avoiding Sandboxes- The Beginner’s Guide

    [Reply]

    Eric G. Reply:

    Glad this post inspired you, Christina. As I’ve already emphasized, reinvesting is key to sustained growth, so hopefully you’ll be seeing big things in the future. I have no doubt you will! :)

    [Reply]

  16. Reinvesting is necessary, my doubts are about the quantity you reinvest. And for how long? Sure, you ca take Microsoft as an example and reinvest till you get to become a multinational company, but if all you need is a cozy income every month, and the time to enjoy your money, reinvestment is not a priority.
    Antonia recently posted… Mistakes in Building a Connection

    [Reply]

  17. Reinvesting means, for someone new in the business, spending money on something they don’t get to see. And we all want to get money to spend when we’re new in business. It difficult to reinvest for a profit that may or may not come in a certain future.
    Amit recently posted… All Terrain Forklift Training and Certification

    [Reply]

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