How to make money blogging and financial metrics

How to make money blogging and financial metrics

This is Part 2 of the Metrics that matter for bloggers series. In this chapter, we will cover all the financial and conversion-related metrics you should be following as a blogger and how to make money blogging. Here we are:

Metrics that matter for bloggers

You can also download (1) the completely free eBook with all the seven chapters included and (2) a free Excel template for your monthly blogging metrics report and analysis. Plus, (3) a list of potential ways to make money blogging and (4) a list of 170+ affiliate programs and ad networks for bloggers.

Enjoy the files and please share them with other bloggers.

When you start your blog, there is an obvious painful thing. The traditional accounting part of your blogging and measuring your financial metrics is extremely simple. They’re all zero or close to zero. Your revenue, margins, free cash flow etc., they are either zero or incredibly low. And usually, they stay low for a long time; it can be months or even years. Some bloggers generate revenue pretty soon, but they’re usually from the industry (internet marketers, bloggers etc.).

So there are two important angles regarding financial metrics you have to be aware of when you start building your blog.

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The (1) first angle is, as already mentioned, that it usually takes a lot of time before you start making money online and it’s usually much tougher than it seems at the first glance. It’s not that easy to make money online. You shouldn’t believe people who are selling you infoproducts, claiming that they’ll teach you how to get rich by blogging overnight.

Consequently, making any accurate financial forecasts for how much money you’re going to make after you publish your first blog post doesn’t make any sense. Accurate forecasting requires a long and stable operating history. The longer and the more stable the history, the more accurate your forecasts can be. When you have your funnel set and you’re ready to scale, you can focus on traditional accounting measures.

The purpose of tracking financial metrics in your spreadsheet at all isn’t to forecast how much money you’re going to make with you blog, but to:

  • Force you to create paid products or, even better, MVPs as soon as possible in order to start learning what people are willing to buy from you. Seeing all the zeroes in revenue somehow hurts and it reminds you that your blogging isn’t a hobby.
  • You have an overview of your costs and how much money you’re investing in your blog. Usually, costs are much higher than you think and they start to pile up.
  • You have to know how much runway you have if you’re living out of your savings and don’t have any other income.

Even if revenue is quite a late phase in blog development (empathy, stickiness, virality, revenue, scale), it doesn’t mean you shouldn’t test what people are willing to buy from you from the very beginning. Revenue stage only means that you completely focus on maximizing revenue, once you’ve figured other things out.

As I mentioned, many experts will even recommend you to start building at the end of the funnel. Know your products and then build the blog around them. That can also be viable strategy, but it greatly depends on your creative ideas, domain knowledge, marketing skills, long-term goals, type of blog etc. I am only presenting you a framework, but it’s up to you what your strategy will be.

Now let’s focus on (2) the second angle about revenue. If the first angle is slightly discouraging and pessimistic, the second angle is full of optimism and shows that you can earn money with blogging.

30+ Income reports

Before anyone tries to convince you that there’s no way to make money blogging and you can’t live as a full-time blogger, look at these income reports I found online:

Blog Monthly Income Report – Dec 2015*
Entrepreneur on Fire $154,890
Smart Passive Income $71,757
A Little Slice of the Pie $58,009 (g)
Pinch of Yum $53,168
Becky & Paula $39,847 (g)
Making Sense of Cents $37,392 (g)
Authority Website Income $31,525
MatthewWoodward.co.uk $31,286
Fat Stacks Entrepreneur $28,198
So Over This $24,162
Just a Girl and Her Blog $17,427
JohnnyFD $16,741
Human Proof Design $14,811
Untemplater $13,361
Shout Me Loud $10,554
Digital Nomad Wannabe $8,725
Her Online World (removed) $8,120
BrendanMace $6,790
Single Moms Income $5,564 (g)
One Little Project $4,928
Miss Bizi Bee $3,421
Daniele Besana $3,258
True Valhalla $2,986 (g)
Gen Y Girl $2,416 (g)
Income Bully $1,981 (g)
Travel Blog Breakthrough $1,721
My Path to Passive Income $1,276
One Hour Professor $904
Income Mesh $845
Dumb Passive Income $562
Living Off Cloud $542
Kate Moving Forward $473
Eat Pray Run $388 (g)

* Numbers may not be completely accurate, because bloggers use different ways of reporting income (which costs are included etc.). Some of them report only gross income (g). In a few cases, the numbers are from a Nov 2015 income report or a few months older (but from H2 2015), because up-to-date data wasn’t available. For additional data of how income was made, please visit the links.

There are hundreds of other bloggers who live from blogging and don’t publish income reports. So it can be done. It may not be easy, but it can be done. Encouraged and excited, lets now dive deeply into financial metrics.

  • Again, don't get too excited. Beginnings can be really hard, or at least mine were and still are. I don't know why I am the only blogger reporting loosing money. :)

Going through all the income reports, I found 170+ sources of how bloggers are making money besides having their own products (having your own products is far the best monetization strategy), and these sources are predominantly affiliate programs and ad networks.

I gathered all the sources in a document that’s available for you to download for free among other files. I hope the document will help you get additional ideas for how to make money with your blog. Now let’s systematically break down how bloggers are making money.

Revenue – how to make money blogging

As mentioned before, there are several ways for you to make money blogging. It’s simple math. You sum up the revenue for all the different monetization tactics you use and you have your total revenue.

Here are the main ways of how you can make money blogging:

  • Infoproducts (eBooks, Webinars etc.)
  • Advertising
  • Affiliate income
  • Services (consulting, freelancing …)
  • Sponsorships
  • Managing community and subscriptions
  • Selling physical products
  • Other ways

Below is a mindmap with all the ways of how you can make money as a blogger:

Below, you can download the mindmap, if you’d like to save it to your computer, and a database of ad networks and affiliate networks most bloggers use to make money:

Make Money Blogging

At this point, it may also be worth to mention a few other important facts regarding blogging revenue:

  • Don’t have all of your eggs in one basket (ways of monetizing and driving traffic)
  • Advertising requires a lot of traffic if you want to get decent income
  • With services, you can earn quick money, but they don’t scale
  • No matter your monetization options, your number one goal should be to build an audience
  • No matter your monetization option, you’ll have to become a leader in your niche if you want to make big money out of full-time blogging

For many of your own infoproducts, like webinars, you can separately track metrics based on the AARRR funnel to measure your success. Now you have the frameworks and you have to adjust and apply them so they work for the best.

Cash flow

One thing you may also pay attention to is the difference between revenue and cash flow. You make revenue when you send out an invoice. You get the cash in your bank when someone pays your invoice.

You want to make sure you’re working with partners that will pay your invoices in the agreed-upon timeframe. You may especially run into problems with bad affiliate partners or networks.

In the same way, some people will want their money back for your infoproducts (if you have money-back guarantees) and a percentage of the deals you make won’t be respected in some other ways.

Be prepared for that kind of misfortune and make sure you have a good strategy for managing accounts receivables and cancelations.

Cash is king. So put a smile on your face when you receive cash in your bank account and there are no more cash-back options, not when you send an invoice to your customer.

Other revenue related metrics you may follow:

  • Customer Lifetime Value (LTV)
  • Average Order Value
  • Number of Transactions
  • Average Length of Subscription etc.

Non-monetary value

You must also not forget about the non-monetary (indirect) value you get from blogging, especially if your name or business name appears on the blog.

Blogging is absolutely one of the best ways to build your personal and business brand. It’s hard to measure non-monetary value, but you must definitely consider it as one of the benefits of the efforts you invest in your blog.

One possible way to measure the non-monetary value you get from the blog is your Klout score. The other possibility is maybe to measure number of brand mentions.

Costs

On the other side of revenue, we have costs. You can definitely keep you costs extremely low when you start blogging. A domain name and cheap hosting will do. But as your blog grows, so do the costs.

With all the different tools you want to try out sooner or later (and you have to pay for all of them at some point), outsourcing some of the low-value work and technical optimization, costs do start to pile up.

The most typical costs for bloggers are:

  • IT infrastructural costs: Domain, Hosting, CDN, Theme and Plugins
  • Content production: Proofreading, Copyediting, Translations, Ghost writing, Stock Photos
  • Tools and software: Email Marketing Service, Social Media Management Tools, Accounting tools, Link building tools, Writing tools, and all other different kinds of tools
  • Marketing: PPC Advertising, Social Media Advertising, Banner advertising, Affiliates etc.
  • Competencies development: Online courses, webinars, books etc.
  • Services and Staff: Assistants, Designers, Tech support etc.
  • Administrative costs: Accounting, Mobile phone, Coworking space, Transaction fees (Paypal, Gumroad etc.)
  • Other costs: Taxes, Legal costs, etc.

Costs are easy math. When you sum up all the types of costs, you get total (monthly) costs for your blogging. An important advice is to track your costs from day one.

Profit – Net income

After deducting the costs from revenue, you get your net income (profit or loss). Don’t forget to track your cash flow statement in addition to your P&L (Profit and Loss Statement). If you deduct all cash outflows from cash inflows, you get net cash that is (almost) left to you.

There are many different accounting solutions out there that can do all the math instead of you, when your blog grows and there are simply too many numbers to deal with. But in the beginning, it may make sense to enter everything manually into an Excel spreadsheet, in order to really understand the business aspect of blogging in depth.

Now of course net income is usually not what you’ve earned. You also have to pay all the different taxes. You may not be the sole owner of the blog and you have to share the income. Your corporation may be the official owner of the blog, so you pay yourself a salary and income separately etc. But that is additional math that you have to do yourself based on the country you live in and the legal and tax structure you established for your blogging business.

Profit Loss

Hours spent on your blog

It’s a non-financial metric, but here’s the best place for it. One metric that you definitely should follow is how much time you spend on your blog. Much like you may be surprised how your blogging costs can start to pile up, so do the hours you spend on your blog.

Of course in the beginning, you have to view your blog as an investment, but time is the most important asset you have in life, so you must manage it wisely.

There are many tools you can use to track the time spent on your blog. I suggest you follow different types of activities that you’re doing, besides tracking the number of hours you spend on your blog, so you will really have a clear picture of whether you’re following the strategy you set for your blog development.

Here is one suggestion for categorizing your hours:

  • Content production – Writing, editing, brainstorming ideas etc.
  • Content administration – Finding stock photos, WordPress editing, linking etc.
  • Marketing and distribution – General blog marketing, content distribution, partnerships, time spent on distribution channels etc.
  • IT Infrastructure – Hosting, domain, CDNs, technical issues and updates etc.
  • Competencies development – Acquiring new knowledge and skills
  • Administration – Paperwork and all other administration
  • Other – All other costs

Probably the most important piece of data you get from tracking your time is: are you spending enough time on content distribution. As the most successful bloggers suggest, you should spend at least 50 % of your time on marketing and distribution channels promoting your content. In the right kind of way, of course.

For example, a time-tracking app may not only show that you don’t spend enough time on marketing. Your tracking solution may also clearly show that you’re spending a little time on five different distribution channels, instead of spending it on the one that you decided to really focus on; that can easily happen, because it’s much easier to be an amateur on ten different channels than the master of one.

Here are the most popular time tracking solutions for freelancers and bloggers:

Most of the listed time trackers above have free plans you can use as a freelancer. If you don’t want to use another app in the flood of apps you’re already using, track your time in Excel or on paper.

But trust me, tracking your time will show you the honest truth of whether you’re following your strategy. We often do things differently than we plan and say.

Dividing your profit/loss by the number of hours you had spent on your blog gives you a nice overview of how much you’ve earned with your blog per hour. At this point, I would like to emphasize the long-term view. You are building an asset with your blog, and that usually takes a bigger investment in the beginning.

Dashboard harvest

Source: Harvest

Opportunity cost

At the end, you mustn’t forget about opportunity costs as well. Opportunity costs show the loss of potential gain from other alternatives when one alternative is chosen. So you’ve decided to blog. What would be your next best alternative?

Let’s say the highest paid job. Now calculate how much you would earn if you did full-time paid work instead of blogging. Or paid work on an hourly basis for all the time you spent blogging. If you subtract how much you made with blogging, you now roughly know your opportunity costs. It’s actually hard to calculate them exactly, since it’s impossible to live parallel lives and you never know what kind of opportunities other options would lead you to. But you have to be aware of the opportunity costs.

If you already exceeded that with your blog income, congrats. There is probably no opportunity cost. If not, again, mind your blog as an investment. And there are many other benefits to a blogging lifestyle, and so on. I’m not trying to discourage you from blogging, I’m just trying to show you the whole picture of costs related to blogging (and consider them when you’re calculating your ROIs).

Developing your competences

There is another important value added of blogging. The side-effect of your blogging should always be developing your competences. With blogging, you should become more familiar with technologies, your writing and language skills should improve, you should become an even greater master in the industry you’re covering and you should become an outstanding internet marketer.

These are all the competencies that have big value, besides building your personal brand with your blog. One way to learn the most is by teaching others, because you have to structure the knowledge and present it in the most appealing and understandable way. That means that you really have to master the topic and do extensive research behind it. If you’re writing quality content, of course.

So every month, don’t forget to write down what you learned and which new skills you developed.

Non-financial metrics

The main purpose of all the non-financial metrics is to help you find your way to the right paid products and market segments before your money runs out. In other words, non-financial metrics should help you make the right decisions that will lead you to a bright financial future. If the right data can help you find a match between a product and a market segment (the so-called product/market fit), you can enjoy high growth and high demand that also result in high revenue.

Non-financial metrics for bloggers are divided into the following categories:

  • Conversions
  • Website metrics
  • Search Engine Optimization metrics
  • Email marketing metrics
  • Social media metrics
  • Validated learning (Split Testing etc.)

Let’s start with conversions, since they’re directly correlated to the revenue you’re making.

Conversion rate

Conversions

Number of conversions directly correlates with revenue you make. Conversion rate is the percentage of people who achieve a specific goal on your blog. Conversion (conversion rate, number of conversions etc.) therefore refers to the ultimate metrics that show how successful your blog really is.

We know micro and macro conversions. Micro conversions should lead to macro conversions sooner or later. They’re the important first step of someone showing trust and interest in what you do, either by giving you their email, contacting you, downloading your free material and reviewing it, or in many other ways. Macro conversions are all different kind of sales you make.

Micro conversions are usually associated with activation, retention and referral, and macro conversions are directly related to revenue. You can set different conversion goals in most analytics software, like in Google Analytics for example.

Here’s some simple math that shows how important good conversion rates really are and why you should put a lot of effort into conversion optimization, especially when you have your own products. If you increase macro conversion rates from 1 % to 2 %, your profit doubles.

Here is a table showing different kind of micro and macro conversions, categorized by the conversion funnel stages:

Activation/Retention/Engagement Referral Revenue
Subscribing to your newsletter Social Media Sharing Clicking on an ad
Subscribing to a social media channel “Invite a friend” type mechanics Buying your infoproduct
Bookmarking your page Word-of-mouth Clicking on affiliate link and buying
Downloading a digital asset Forwards Sending a request for consulting
Subscribing to RSS Sending a request for sponsorship
Sending you an email
Creating an account on a forum
Comments
Reviews
Micro-conversions Micro-conversions Macro-conversions

If you want conversions to happen, you must have your conversion funnel completely developed together with different monetization strategies.

Here are a few things you can measure regarding conversions:

  • Number of ads on your site and their performance (in connection with size and position and other factors)
  • Number of infoproducts you offer to your readers and how many of them you sell
  • Number of affiliate links (and number of clicks on affiliate links and number of conversions)
  • Number of inquiries (consulting, freelancing, sponsorships) you turn into business
  • Conversion rates (the percentage of your visitors who actually click on links and buy)

The summed-up number of conversions and the revenue you get per conversion give you your total revenue. It’ probably the most exciting and fun part of blogging metrics. Because that’s how you make money blogging. Now you know.

It's time to move on to the next chapter Website analytics for bloggers.

Back-Metrics-Theory

Next-Website-Analytics

 

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