In Chapter Four we quantified the amount of Profit that you need to generate in order to work toward your Dream and reach your first Reward Goals.

Then in Chapter Five, we discussed the Ten Key Elements of Business.

In this Chapter, we will determine How To Build Your Business so that you can generate the Profits you desire.

Since we need to have an amount for the generation of Profit, for the purposes of illustration I am going to assume that the annual net amount you need to generate is $100,000.

Remember that we said that if you want to generate $100,000 in Net Profit, that we would divide by 4 and add that amount to the $100,000 to determine how much Gross Profit you need to generate.

Dividing $100,000 by 4, we come out with $25,000. Adding the $25,000 to the $100,000, we see that we need to generate $125,000 in Gross Profit in order to have approximately $100,000 Net Profit left to spend.

Based on an annual Gross Profit of $125,000, and dividing by 12 to determine the Monthly amount needed, this means that we need to generate at least $10,000 per month in Gross Profit for 12 months.

When we talk about the generation of “Gross Profit”, we mean that AFTER all EXPENSES have been paid, you will have generated $10,000 in PROFIT left over. A lot of times when a person is new in Business, they get excited about the amount of Gross INCOME that they generate. But Gross Income BEFORE EXPENSES has no correlation to the amount of PROFIT generated.

Let’s say that a business has Gross Sales of $1,000,000 for the year, and after all expenses are paid it cost $1,000,000 for all Acquisition Costs, Cost of Goods, and Operation Costs. This Business may have had a million dollars in Sales, but it generated ZERO Profits because one million dollars in Sales minus one million dollars in Expenses equals ZERO Profits.

Now let’s say another business has Gross Sales of $250,000 for the year, and expenses of $125,000. This leaves a Gross PROFIT before tax of $125,000.

As you can see, the first Example Company had four times the amount of Gross Sales, $1,000,000 as opposed to $250,000, but it generated NO Profit. When we build Your Company, we need to take into account not only how much it needs to Gross, but also exactly what all of the Expenses are expected to be. When we’re done, we will have built a Business Model that will generate the amount of Profits You Require!

One of the advantages of an Internet Business is that it operates 24 hours a day, seven days per week. This means that in order to generate $10,000 per month, dividing by 30 days, Your Business will need to generate $350 per day for 30 days in Gross Profit after expenses.

In a Conventional Business, you can expect your total expenses to be as much as 90% of the Gross Sales Amount. In an Internet Business, the percentage of expenses is considerably lower.

For an Internet Business, especially one that is Selling Information, the percentage of Expenses verses Gross Sales is generally about 50% if the Business is efficiently run. For illustrative purposes, we will build a model using 50% of the Gross Sales to cover all expenses.

There are several reasons why there is a Higher Percentage of Profit from an Internet Business than there is from a Conventional Business:

**NO employee expenses****NO separate office rent****NO cost of goods once your information is complete****NO vehicle expenses**

These are the major reasons why the overhead for an Internet Business is considerably less than for those of a Conventional Business.

Okay, so based on generating a Gross Profit of $350 per day, and based on having expenses of 50% of Gross Sales, you need to generate Sales of $700 per day based on 30 days per month.

See the following example:

“**INFORMATION” SALES PROJECTION**:

Dollar amount of Sales per Day: $700

Number of Days per Month x 30

—————————————————–

Gross Sales per Month $ 21,000

Total Percentage of Expenses 50%

Gross Sales per Month $21,000

Estimated Percentage of Expenses x 50%

—————————————————-

Gross Profit per Month $10,500

Gross Profit per Month $10,500

Number of Months for theYear x 12

—————————————————-

Gross Profit for the Year $126,000

Gross Profit for the Year $126,000

Estimated Tax Liability $ 26,000

—————————————————-

NET PROFIT GENERATED = $100,000

If you are planning on writing a Set of E-books or a Course on a specific topic that you are an expert in, and if the Net Profit that you want to generate is $100,000, then the Business Model above will work well for you.

If however you are selling a Product, the cost of that product needs to be added in to the model. For example, let’s say you are going to sell widgets. Widgets cost you $10 and you sell them for $30.

If this is the case, then for every $30 that you generate in sales, $10, or 33%, is your Cost of Goods. This means that in the example above of the Business Model that sells Information, you now have to add 33% for Cost of Goods to the 50% for Overhead and Operating Expenses.

See the example below:

**“PRODUCT” SALES PROJECTION NUMBER ONE:**

Dollar amount of Sales per Day: $700

Number of Days per Month x 30

—————————————————–

Gross Sales per Month $ 21,000

Total Percentage of Expenses 50%

**Total Percentage of Cost of Goods 33%**

—————————————————–

TOTAL EXPENSES **83%**

Gross Sales per Month $21,000

Estimated Percentage of Profit x **17%**

—————————————————-

Gross Profit per Month (17%) **$ 3570 instead of $10,500 **

Gross Profit per Month $ 3,570

Number of Months for the Year x 12

—————————————————-

Gross Profit for the Year **$ 42,840 instead of $126,000 **

Gross Profit for the Year $ 42,840

Estimated Tax Liability $ 8,568

—————————————————-

NET PROFIT GENERATED = **$ 34,272 instead of $100,000**

As you can see, adding 33% in to the Business Model for the Cost of Goods took $65,728 out of our NET PROFIT GENERATED! ($100,000-$34,272)

Does this mean that you can only Sell information, or you can’t generate the Profit that you desire? ABSOLUTELY NOT!

What it DOES mean, however, is that we need to REVISE the Business Model so that we KNOW, based on ALL factors, to the VERY BEST of our ability, the EXACT DOLLAR AMOUNT your Gross Sales need to be on a Daily Basis. In so doing after All expenses, you will have generated the Desired Amount of Profit.

*Axiom Number Twenty-One* –** KNOW YOUR BUSINESS INTIMATELY**

**You need to know YOUR NUMBERS backwards, forwards and upside down.**

Let’s take another look at a Business Model that includes a 50% for Expenses, PLUS 33% for Cost of Goods, and with a Net Generated Profit of $100,000 for the year.

Remember that we said that we need to generate PROFIT of $350 per day in order to generate $10,500 per month, $126,000 per year, so that after $26,000 in estimated taxes, you generated $100,000 in Net Profit.

Assuming 50% for Acquisition Costs, Plus Overhead and Operating Costs, and 33% for Cost of Goods, adding these together, 83% of the Gross Sales covers expenses. In order to generate the same Profit of $350 per day with 83% for Expenses instead of 50% for Expenses, this increases the amount of Gross Sales that you need to make each day.

We need to determine the amount of Gross Sales you need for the day to generate $350 in Gross Profit based on 17% of the Gross Sales being the Profit generated after the expenses of 83%.

To do this, you would divide $350 by 17% and see that you need to generate $2058 per day in Sales in order to generate $350 in profit based on 83% for Expenses and 17% for Profit.

See the following example:

**“PRODUCT” SALES PROJECTION NUMBER TWO:**

Dollar amount of Sales per Day: **$2058 instead of $700**

Number of Days per Month x 30

—————————————————–

Gross Sales per Month **$ 61,740 instead of $21,000 **

Total Percentage of Expenses 50%

Total Percentage of Cost of Goods 33%

—————————————————–

TOTAL EXPENSES 83%

Gross Sales per Month **$61,740 instead of $21,000**

Estimated Percentage of Expenses x 83%

—————————————————-

Gross Profit per Month (17%) $10,500

Gross Profit per Month $ 10,500

Number of Months for theYear x12

—————————————————-

Gross Profit for the Year $126,000

Gross Profit for the Year $126,000

Estimated Tax Liability $ 26,000

—————————————————-

NET PROFIT GENERATED **= **$100,000

As you can see, adding 33% in to the Business Model for the Cost of Goods means that we need Gross Sales of $61,740 instead of $21,000 to Generate the same $100,000 for the Year in Net Profit!

**CONGRATULATIONS!**

**YOU NOW KNOW HOW TO CALCULATE THE GROSS AMOUNT OF SALES YOU NEED TO ACHIEVE BASED ON THE ESTIMATED AMOUNT OF EXPENSES IN ORDER TO GENERATE THE DESIRED PROFIT!**

**This is a MAJOR STEP toward developing a Working Model of YOUR BUSINESS so that you are SUCCESSFUL in your endeavor!**

As you can see, one reason why Information is better to sell in terms of Profit is because your Cost of Goods is eliminated except for the time that you spend writing. If you pay a ghostwriter, or if you purchase the Resell Rights to an Information Product, then you have a one-time Cost that is amortized over time. These are pretty insignificant costs by percentage over time that we will discuss later on.

The IMPORTANT thing to realize is this:

*Axiom Number Twenty Two* –** BUSINESS IS A SCIENCE**

So often people go into business without knowing the FIRST THING ABOUT BUSINESS. As you are starting to see, there is more to Business than having a Business License and a checking account.

Most of the Courses available on the Internet today focus on whether you should start with a Free Hosting Site, or whether you should learn to do your own Web Site. But the CRITICAL INFORMATION ABOUT BUSINESS was no where to be found. That’s why I decided to take the time to put this Course together. For you, this Information will prove to be the difference between Success and Failure!

Okay now that we have done our Overview in which we have seen how the Gross Sales that we need to generate each day in order to meet our Goals, now we need to figure out the following:

**How many sales per day****Of which items****At what cost and****To whom are we going to sell**

To meet our projection.

Let’s go back to the first projection:

“**INFORMATION” SALES PROJECTION**:

Dollar amount of Sales per Day: $700

Number of Days per Month x 30

—————————————————–

Gross Sales per Month $ 21,000

Total Percentage of Expenses 50%

Gross Sales per Month $21,000

Estimated Percentage of Expenses x 50%

—————————————————-

Gross Profit per Month $10,500

Gross Profit per Month $10,500

Number of Months for theYear x 12

—————————————————-

Gross Profit for the Year $126,000

Gross Profit for the Year $126,000

Estimated Tax Liability $ 26,000

—————————————————-

NET PROFIT GENERATED = $100,000

According to this projection, we need to achieve Gross Sales of $700 per day and maintain a 50% Cost of Expenses in order to earn $350 per day, which is the number we need in this example in order to generate the profit we desire.

Okay, so now we need to generate $700 per day, which means that based on what we are Selling, $700 divided by the Sales Price of the item we are Selling equals the number of Sales we need to make.

Of course, by the time we are done you will have more than one product, but for now let’s concentrate on having an Information product to Sell and determining how many we need to Sell to achieve our Gross Sales Goal.

If you are Selling Information, say an E-book set that you have written on “How To Whatever”, you need to determine how much people would be willing to pay for that book. The best way to get an idea is to see what competitors charge for similar information. This is simple but effective “Market Research.” **You want to** **determine the price that your market will pay for your information. **

You WILL need something SPECIAL to differentiate you from the others, but price does NOT need to be the special factor. You do not have to be the cheapest. When we talk about Marketing later, we will talk about lots of different ways to make your offer SPECIAL.

Let’s say that you determine that you can sell your Information for $98. Well, obviously, if you divide the $700 that your business needs per day by the $98 per sale, you’d see that you need 7.4 sales per day to achieve your target of $700.

If however, you can only price your information at $49, then $700 divided by $49 equals 14.6 sales per day to Gross $700 in Sales.

As you will see when we get to Your Business Plan in PART THREE of this Course, you will want the Profit – whether it is an E-Book Set, an E-Book Course, or a Product or Service of any kind, to be about $98 as a minimum. There are exceptions to every rule, of course.

However, it is a FACT that the LOWER the Profit, the MORE SALES you will have to make to reach Your Goal. When we discuss driving Traffic to Your Site, Visitors, Prospects, and Sales Ratios, you will see that it may be easier to achieve Your Desired Profit with a minimum Profit of $98 per Sale.

Ultimately, the BEST PRICE to charge for an item is something that will require TESTING. Once you have determined the amount that you would LIKE to charge for Your Offer, at some point you will need to TEST that Price. We will talk about Testing in detail later, but for now the point needs to be made that Testing requires making ONLY ONE CHANGE AT A TIME. If you are Testing the Price, that would be the ONLY CHANGE you would make, and then you would track the results.

Look at the following illustration, which demonstrates this point:

*Axiom Number Twenty-Three*** – TESTING YOUR SALES PRICE**

Let’s say that you were making:

5 sales per day at $ 98 which equals $490 or

10 sales per day at $ 89 which equals $890

Which is the BETTER PRICE for you to charge?

Obviously, since Electronic Information costs nothing to deliver, the more Gross Sales you generate, and the more Customers you have, the more Profitable you are. So charging $89 is a much better choice.

We need to discuss a lot more information in order to complete a sound Business Plan. When we get to Part Two of this Course, we will go into detail regarding many different ways of adding PROFIT CENTERS to your Site. For now, I just want you to be familiar with the concept of Testing to find your best Sales Price.

In addition, we need to briefly discuss an overview of the concepts of **THE TWO CRITICAL RATIOS** that determine how many Front-end Sales your Site will have. Combined with your Sales Price, this determines the PROFIT you will generate from your initial sales.

*Axiom Number Twenty-Four –*** THE TWO CRITICAL RATIOS ARE THE PROSPECT-TO-VISITOR RATIO AND THE SALES-TO-PROSPECT RATIO.**

Your PROSPECT-TO-VISITOR RATIO separates the total amount of people that click on your Site with those that you determine are actually at least remotely interested in your Information. In order to get an accurate accounting of the number of Legitimate Prospects so you can see what your actual Sales-To-Prospect Ratio is, there needs to be some way for you to determine this.

We will discuss this in more detail in a later Chapter, but in reality, whether it’s due to the advertising, or the keywords, the site, or circumstance, a certain percentage of your Visitors will not be legitimate Prospects.

Let’s say for illustration purposes that you draw 100 Visitors per day to Your Site. And let’s say that of those 100 Visitors, 90 get far enough into the Site for you to count them as a “legitimate prospect”.

Your Prospect-To-Visitor Ratio would then look like this:

**90 Prospects out of 100 Visitors equals 90/100 which equals 90%**

This means that for every 100 Visitors to your Site, you have 90 QUALIFIED Visitors, or Prospects. The ratio of how many of those Visitors are Prospects will in part determine your total number of First-Time Sales.

Now let’s take a look at the SALE-TO-PROSPECT Ratio. Let’s say that for every 45 Prospects that look at your offer, 1 makes a purchase. This means that if you have 90 prospects, then you would make 2 sales per day. This calculates as follows:

Based on having 90 Prospects, of which 1-in-45 purchase your information, divide the 90 by 45 and you will see that 90 divided by 45 is 2.

This means that if you have 100 Visitors per day to your Site,

and 90 of those Visitors are legitimate Prospects, and

One out of every 45 Prospects becomes an immediate Sale,

Then you will have 2 sales out of 90 Prospects.

This means that for every 100 Visitors, you will have 2 sales. If your Sales Price is $98, then your immediate Gross Sales would be $98 times 2 sales, which means you generated $196 in Gross Sales through first time buyers.

Now, before you panic, this is only meant to be the FOUNDATION for your Business Plan! You need only to see the general factors right now. As we learn more, we will work on making the necessary adjustments in order to determine the profitability of Your Business. At that point we will discuss the options that we have available in order to increase the Profitability to Desired Levels.

But first, let’s take a look at the illustration below to demonstrate the fundamentals of the details that we discussed thus far in this Chapter.

We determined that in order to generate a Net Profit of $100,000 for the year, we needed to have Gross Sales of $700 per day. We are now determining how much of that $700 per day will be earned based upon the price of the item that we are selling, the Prospect-To-Visitor Ratio and the Sale-To-Prospect Ratio.

Take a look at the following table:

Sale-To- Number $ Sales Goal

Price Visitors Prospects Prospect of Sales Generated Amt +/-

$29.99 100 90 1/45 2 $ 59.98 $700 -$640.02

$39.99 100 90 1/45 2 $ 79.98 $700 -$620.02

$49.99 100 90 1/45 2 $ 99.98 $700 -$600.02

$79.99 100 90 1/45 2 $159.98 $700 -$540.02

$99.99 100 90 1/45 2 $199.98 $700 -$500.02

As you can see, even at $99.99 per sale, based on 90 Prospects and a 1/45 Sales Ratio, and based on ONE product only, Sales Dollar Volume is $199.98, leaving the Site $500.02 short of the Projection of $700 for the day.

Now to compare, let’s see what the numbers look like if there’s 500 Visitors per day with the same 90% of the Visitors also being Prospects and the same 1/45 Sale-To-Prospect Ratio.

Sale-To- Number $ Sales Goal

Price Visitors Prospects Prospect of Sales Generated Amt +/-

$29.99 500 450 1/45 10 $299.90 $700 -$400.10

$39.99 500 450 1/45 10 $399.90 $700 -$300.10

$49.99 500 450 1/45 10 $499.90 $700 -$200.10

$79.99 500 450 1/45 10 $799.90 $700 **+$ 99.90**

$99.99 500 450 1/45 10 $999.90 $700 **+$299.90**

Well, what a DIFFERENCE the number of Visitors makes, all other factors remaining equal!

To demonstrate this point further, let’s take a look at what the numbers look like if there’s 500 Visitors per day with the same 90% of the Visitors also being Prospects and the same but the Sale-To-Prospect Ratio improves from 1/45 to 1/30.

Sale-To- Number $ Sales Goal

Price Visitors Prospects Prospect of Sales Generated Amt +/-

$29.99 500 450 1/30 15 $449.85 $700 -$250.15

$39.99 500 450 1/30 15 $599.85 $700 -$100.15

$49.99 500 450 1/30 15 $749.85 $700 **+$ 49.85**

$79.99 500 450 1/30 15 $1199.85 $700 **+$499.85**

$99.99 500 450 1/30 15 $1499.85 $700 **+$799.85**

As you can CLEARLY see, these three factors play a CRITICAL ROLE in the PROFIT you ultimately generate. There is much more to learn, and many more factors to consider. But for now, we have learned three CRITICAL FACTORS.

- The
**SALES PRICE**of your information and how to test to maximize**PROFITABILITY** - The
**PROSPECT-TO-VISITOR RATIO**and its effect on**PROFITABILITY** - The
**SALES-TO-PROSPECT RATIO**and its effect on**PROFITABILITY**

There’s a LOT of things you can do to improve upon the amount of PROFIT that you generate. These include:

**Merchandising****Front-end Upsells****Back-end Sales****Autoresponder E-mail Sales****Affiliates Sales****Affiliate programs, and****Duplication**.

**We will discuss each of these and determine how they affect you and YOUR BUSINESS. **

**When we are done with this Course, you will have:**

**A Business Plan of EXACTLY what do to,****Direction as to EXACTLY what adjustments to make,****An understanding of EXACTLY what it Costs to go into your Business before you start and****An understanding of EXACTLY what you can expect Your NET PROFIT to be.**

**And You will know:**

**How to Market,****How to Sell,****What adjustments to make****How to identify a Target Market,****How to cater to that Market,****How to Automate your Site,****How to duplicate your efforts,****How to Maximize your Sales-to-Prospect Ratio,****How to charge the best price,****How to Merchandise,****How to sell products aside from your own,****How to have other Sites make sales for you,****How to set up your business,****How to track your ads,****How to manage the profits,****How to file your taxes,****How to manage your growth, and****How to exit the business when you are ready.**

**It is IMPORTANT that you understand that you are learning a SCIENCE.**

I hope you feel that you are GAINING CONFIDENCE as you proceed through this Course!

__CHAPTER SIX REVIEW:__

In this Chapter we learned Three Important Axioms:

*Axiom Number Twenty-Two* –__ BUSINESS IS A SCIENCE__

By identifying all of the factors that affect Your Business, accounting for them and making the appropriate adjustments, You control to the greatest extent possible the PROFIT GENERATION of Your Business.

*Axiom Number Twenty-Three* –__ TESTING YOUR SALES PRICE__

We discussed the fact that it takes testing to determine what your most PROFITABLE price point is. 10 Sales at $89 yields more PROFIT than 5 sales at $98.

*Axiom Number Twenty-Four* –** THE TWO CRITICAL RATIOS ARE THE PROSPECT-TO-VISITOR RATIO AND THE SALES-TO-PROSPECT RATIO.**

The two **CRITICAL RATIOS** when building the Foundation of Your Business Plan are:

**The PROSPECT-TO-VISITOR RATIO****The SALES-TO-PROSPECT RATIO**

**We learned how changes in each of these three variables: The Price, The Prospect-To-Visitor Ratio, and the Sales-To-Prospect Ratio DRAMATICALLY affect the PROFIT Your Business Generates**.

In this Chapter we discussed the Foundation for what will eventually be Your Business Plan.

We learned how to arrive at the amount of PROFIT we want to generate based in part on the anticipated percentage of Expenses.

We learned that if you are Selling a product other than Information, that adding the percentage of the Cost of Goods lowers your percentage of Profit and requires you to have a larger Gross Sales Volume in order to generate the required PROFIT.

We learned that there were **THREE CRITICAL ELEMENTS** that make up the Foundation of the Sales Presentation.

These Three Elements are:

**The Price of the item you are selling****The Prospect-To-Visitor Ratio****The Sales-To-Prospect Ratio**

We will explore each of these in Great Detail as we work toward Creating A Business Plan which will Include a WORKING MODEL that demonstrates how the Profit of Your Business is Affected when one or more of these Three Critical Elements are Positively or Negatively changed.