Should I take the Plunge?

[thegraygoat]

Hi all. I am new here but have been familiar with Tim and the 4HWW for a couple of years. Currently my life is consumed with the mediocre 11-7 work schedule. I work for a thriving small business. The owner has contacted me to possibly purchase. The company brings in around 500,000 income per year and the products are in a field of interest. However the time to purchase will not be for another year at least. It is the kind of business that I typically avoid owning because it's ability to own you.

The second option is my own muse. It is a product that i personally came up with and have been quoted manufacturing costs. It a product I personally have a huge interest in and believe in 100%.The niche I have chosen only has one similar product which I have dramatically improved on. Research of this current product does reflect that it is in demand. I have been testing the product via adwords, facebook ads, cold calls, and visiting local stores that may be interested. So far the feedback has been fairly positive. I have a local store telling Me they will stock the item. I have been driving about 85 clicks per day via adwords and Facebook ads. Feedback via cold calls reflect some possible interest. On top of this I have about 5 abandoned carts per day on my site( the product shows temporarily out of stock).

My question is what to do? How much market research is necessay to see whether a product is going to sell? Manufacturing costs are approximately $5500 and each product is going to retail for 49.95. All product will be dropshipped. I would love to here your thoughts. Do I play it safe and stick to ownership of the local business of take the leap after my own muse?

[JG_]

What does the local small biz offer, in terms of services and products? Is the owner looking to sell you 100% of the company? If you don't mind me asking, what's the asking price? Just want to put the earnings multiple in perspective. Is there growth potential?

My thinking is that if you would own 100%, you're interested in the products, and there's growth potential... you could restructure the company so that it doesn't require your presence to operate, and implement growth strategies to make up for any additional costs that result from the restructuring (as well as speed up the return on your investment)...

Now you own the company, and you've set it up in a way that it can't possibly own you.

Another potential scenario: you've purchased an asset, restructured and grown that asset (in a way that makes it appealing to potential buyers/investors), and could sell it for a multiple of your purchase cost. If the return is high enough, put most of that cash in bonds and live off that income - you've freed time and automated income!


That outcome would be more appealing to me personally, but we're two different people with two different goals in life at two different stages in life. If your outcome is to live it up Tim Ferriss style and start traveling the world in say, 6 months, it may not be very appealing to you and the muse may be a better option...


On the topic of the muse, it's difficult to say without prying for data (which you may or may not be willing to share)...

Basically, do some math and if it looks good, take the leap. Look at the cost per unit, profit per unit (based on retail price), advertising costs to get 5 abandoned carts daily, potential monthly sales based on 5 abandoned carts, etc...

... you'll want to do those numbers for selling direct, but if you also want to enter retail stores then you'll need to calculate a whole new set of numbers to determine profit margins, etc.

Other than that, I'd recommend starting with a small test. See if you can negotiate fewer units to lower the upfront cost of $5,500.

Hope that helped!

[liam75005]

About your own muse your figures are not bad. Is that with paid advertisement or just natural SEO ? Take into account your cost of marketing but it does look good.

How much do you have for investment ? 5500 isn't bad, what is your margin on your product ?

With those information, I would recommend you to take the plunge about your muse, especially since you did the biggest effort which was to come out with a website, a product and a drop shipping structure.

[paulwbrowning]

i'm afraid you need to list the pros and cons and decide for yourself...it's your life. i've run a business and I'm afraid that many nights you will be crying yourself to sleep.

can't you develop e-products or membership sites? if not you need to follow tims company structure of outsourcing...the only way to test is to see if people will put their hand in their pockets

Paul

[Sven]

If you will go dropship and retail than the margin for dropship needs to be high. In the small numbers you mention at retail for 49.50 and buying in at 5500.-- it seems to me there is no room for retail.

The only real way to test is to actually sell it at the price it would be when you can get a good profit.

How many products do you get for this 5500.00?

[thegraygoat]

Thanks for your insight. You all bring up some very valid points. JG, you brought up a good perspective, as far staying in the current business with the potential of buying it.

I have worked in the natural health industry for the last 6 years, and currently am a manager at a nutritional store. I have had several side businesses with my own nutritional product throughout the years with only moderate success, but it was not until I read the 4 Hour Work Week, that I saw the pure potential of these custom formulation products. I have observed for the last year for the perfect niche product. Currently the natural health industry is exploding and is flooded with people trying to make there small fortunes from custom formulations. However, I have found a niche, in a key area of interest, with basically no competition. The niche has almost a cult-like following. I expect word of mouth advertising would spread quickly.

The cost per bottle is $6.69. I expect order fulfillment to run $3.00 per bottle. I am considering asking $49.95 per bottle. There is a company with product that is claimed to do the same thing, but does not even come close to comparing with the effectiveness of the product I have developed. (I have experimented with all of the ingredients in both formulas and researched the products for a while now.) This company is asking 74.95, and it does sell. So there is definitely room to ask more if necessary.

As far as SEO, I have not clue what I am doing, and I know it is fairly costly to have this professionally established. With the mark up that I have, I am hoping it is enough to have a fairly decent budget to get SEO established and a moderate marketing budget.

Thanks again for your great insight!

[JG_]

On the topic of SEO, there are two chunks: on-page optimization (your code, meta tags, the content, etc) and off-page optimization (building links on relevant websites, etc).

Marketing firms like to charge crazy upfront fees for unnecessary reports of the changes they would make, then they'll get you to upgrade (another one-time fee) to where they actually make those on-page changes, then they'll try and get you to upgrade to a monthly service for off-page optimization...

Can't really blame them, their business model only scales with increased people (therefore increased payroll/overhead). Have to increase the margins somehow, right?

If your website isn't super-complex and you don't use some proprietary content management system, I've used a guy who can handle on-page optimization for a one-time fee of about $200. I can hook you up with his contact info if you're interested.

Then all you have to do is hire someone in the Philippines (generally better English skills, both written and oral, than people in India) to handle off-page optimization. A lot of them have automated software, too. You can find someone fully trained in SEO, and get them full-time, for about $500 per month ($200-$400 range on a good day).

If they're not trained, just buy them an info product (preferably digital, save shipping costs) and tell them to go through it and write up a report of how they would use the information for your company. Then you can collaborate, make suggestions, clear up any confusion, and eventually approve it and then let them go to town. Can manage that whole process using something like Basecamp: http://www.basecamphq.com/

To find the Philippines peeps, go here: http://bestjobs.ph/em-cvs.htm

In the keywords box, just type "SEO" and you'll get a massive list of resumes. Includes salary expectations, education (many have a Bachelor's degree), experience, etc.

Crazy SEO fees begone!

Hope that helped!

[thegraygoat]

Nice info. I appreciate the info, JG. It does sound like you have found a way around the 2,000- 4,000 dollar quotes that I have gotten for SEO. Thanks I will check into these sites further.

[Bishop81]

The post above recommends bestjobs.ph, but you can only sign up for that if you're not in the US, or not a part of ReplaceMyself.com. There's another great job board for Filipino's called http://www.onlinejobs.ph. It's owned by the guy who runs ReplaceMyself, but you can sign up for the site on its own, around $50 a month or something.

I agree with everything that JG said. Once you learn your own SEO stuff (or have some materials that somebody could learn from) you can easily hire a Filipino employee for decent money. They're great workers (my 2 are so far) and do a great job. If you're having them submit articles to article directories, you can simply have them sign up for the site with their own profile and start writing.

I have my writer write a small article each day about anything she wants, and then submit it to EzineArticles with backlinks in the bio section. This gets me a couple natural backlinks each day, from a strong site, with completely unique content. This is on top of the other work that she does for me. For under $200 each month, it's a heck of a deal.

[FrozenCanuck]

Guys - I think I can help here. I've been doing and outsourcing my own SEO for a couple of years or more now. It isn't that complicated. If money is tight spend a few days learning the basics of on page and off page SEO. It boils down to keyword research, page optimization and back links.

You need to know what keywords you are after.

Outsourcing: I paid for a permanent membership at Replace Myself. I'm also an affiliate for John. His program, or should I say his processes, have really helped me. He has applied Tim's thinking to the business of running websites.

See my replace myself review site (http://replace-myself-bonus/blog.com) for lots of posts about outsourcing. This stuff MATTERS.

For the muse in question, sounds like you have at least one year before you can buy the business anyway. So build your product in the meantime!

Also, if your competitor is charging 75 bucks you need to be at that level or nobody will believe yours is better. It is all psychology. Don't undercut them. Perhaps charge 5 bucks more!

[thegraygoat]

I appreciate your thoughts on the SEO issues. Does anyone have any suggestions or advice on these numbers...

The cost per bottle is $6.69. I expect order fulfillment to run $3.00 per bottle. I am considering asking $49.95 per bottle. There is a company with product that is claimed to do the same thing, but does not even come close to comparing with the effectiveness of the product I have developed. (I have experimented with all of the ingredients in both formulas and researched the products for a while now.) This company is asking 74.95, and it does sell. So there is definitely room to ask more if necessary.

[JG_]

What, specifically, are you looking for help with? I think you may have all of the data you need to make a decision.

Total cost per unit = $9.69.
Retail price per unit = $49.95.
Total profit per unit = $40.26 (80% of retail price is profit).

So you now know that you can spend up to $40.26 to acquire a customer and break even. If the CPA is less than $40.26, you're making a profit...

... and even if you break even on the front end, you can continue to sell to those leads/customers in the future and make a profit (if you're smart about your marketing). Supplements are consumables, so if the product produces the result they want, they'll come back for more.


Other info, based on the data provided:

$5,500 manufacturing costs / $9.69 per unit = 567 units on launch day.

567 units / 5 abandoned carts per day (assuming they all buy) = 113 days before you're sold out and need to reorder (about 4 months).

567 sold in about 4 months x $49.95 retail price = $28,321.65 in revenue in about 4 months (roughly $7,000 per month).

Profit will depend on the CPA (i.e. costs to achieve the 5 abandoned carts) and other related costs. You'll have to do that math on your own.

Hope that helped, and goodluck!

[thegraygoat]

Thanks JG. I did come up with similar numbers, and they do look good on paper. I always like to run it passed other people to get feedback and make sure I am not missing something. Thanks for the help there.