Does it really matter if your blog is profitable?
This is an interesting question. And I bet 99.99% of people who blog don’t think about this.
Most people who start a blog do it to make money. Usually, it’s with the goal of quitting their jobs and working online full time. For them, making money is the #1 goal.
And that’s fine. But from a growth standpoint, taking all the profits out of your blog as your own income may not always be the best option.
Making money vs being profitable
This is one of the biggest differences between personal blogs and media companies. People who run personal blogs usually take over 50% of the blog’s profits and pay themselves as personal income. Usually, it’s more like 80% all the way to 100%.
People who run media companies don’t care about taking money out of the business. They care more about growth. To them, more profit equals more money to spend on growing their blog.
There are many bloggers who take 100% of their profits out as personal income. And again, that’s fine. If that’s the kind of business you want, you’re free to do so. In some cases, they may need to take it out for living expenses. If the blog is paying for your rent, groceries, and lifestyle then you have no choice but to take the money out.
Let’s consider a scenario
Let’s say that we have 2 blogs. They were both started by a single person and they have no employees.
After 6 months, they both make $2000/month.
Blog A takes out $1800 each month for their own income. They used the remaining $200/month for mandatory expenses like web hosting, and email marketing tools.
Blog B takes out nothing and reinvests all $2000 back into the business. They have 10x the money to work with in order to grow their blog.
After a year, Blog A grew naturally and now makes $4000/month. This is just from blogging regularly, growing their email list, and writing a few guest posts here and there. Remember, they took out $1800/month as income so they took out $21,600 from the business.
Blog B on the other hand, reinvested all profits each month. No money was taken out as income.
They hired 2 writers, quadrupled their content production, and the owner moved away from content writing and moved to an editing role instead. While Blog A was writing 4 articles per month, Blog B was writing 16 without writing any articles themselves.
Because the writing was taken care of, Blog B could now focus on marketing and other growth related activities. They networked with other blog owners, negotiated ad placements in other bloggers’ websites and email newsletters. They landed guest post opportunities which resulted in backlinks. They also spent money on getting a professional design and branding done since their blog was now a heavy cashflow business.
At then end of year 1, Blog B is still making $0 in profit. Some months, they even went over budget on marketing and lost money.
However, after a year, Blog B is now getting 5x the search traffic as Blog A. Because of their traffic growth, they are also accepted into larger, more exclusive ad networks that pay more. They’re even approached by companies to advertise directly on their site, which results in an additional 5-figures on revenue.
They have produced 4x more articles and are ranking for more hundreds of more keywords than Blog A.
And while the blog makes $0 in profit, that doesn’t mean it doesn’t make money. With all the additional traffic, the site now makes $20,000.
With that money Blog B hired a full time editor, 3 more writers to push their monthly content production volume to 40 articles per month, and hired an SEO firm to build them 20-30 white hat backlinks each month.
Now let’s fast forward to 5 years later.
Blog A is still running the blog alone. No employees. Over the years, they’ve grown to a healthy $100,000/year business. Not bad for a single person to do. But it took 5 years to get there. The site also gets around 200,000 pageviews per month. Not shabby at all.
Expenses have grown as well (such as more tools, and more expensive hosting plan) but profits are still around 80% – giving the owner $80,000 in profit. All of which they take out as personal income.
Blog B has grown much larger. They crossed $100,000 in profit in year 3. In year 5, they’re now making $800,000.
The owner now takes out $80,000/year in salary but reinvests all the additional profits into growing the blog even further.
NOTE: That’s the same amount of money that Blog A took out as well. But for Blog B, it only accounts for 10% of their profits.
They’ve hired 5 full time employees to help with operations, they have 15 freelance writers, and they’ve even acquired a competitor’s blog in order to capture more of the market. They’ve created 5 online courses, invested $50,000/month on paid traffic, and that strategy now makes up over 50% of their revenue each year.
Also, Blog B now gets over 2 million pageviews per month organically.
Let’s take a break and talk about what happened here.
That was a lot to follow I’m sure.
And obviously, Blog B was a perfect scenario. Not everyone who reinvests profits back into their blog will experience that kind of growth. But it’s been done. I’ve seen this exact scenario play out myself many times with my clients. My client being Blog B who reinvests back into their business, and Blog A being other bloggers in their industry who don’t seem to invest any money into growth.
Blog A is still a great business. Let’s not forget that. It’s a single person business with a high profit margin and it pays for a great life for them and their family.
Valuation differences: What happens when they both sell their blogs?
However, now let’s talk about valuations.
Blog A decides that after 5 years, it’s time to sell the blog and move onto bigger and better things.
Remember, it now makes $100,000/year. Blogs of this size are usually given valuations of 3x yearly profits.
Blog A sells for $300,000, which is a nice chunk of money for the founder to live comfortably until they find their next venture.
After 5 years, Blog B makes $800,000. However, they receive a larger valuation than the standard 3x yearly profits because they have a huge email list of 100,000 people, they have a very strong link profile, and they show consisten growth. Also, the employees have agreed to stay on with the new owner.
As a result, they sell for 3.5x yearly profits.
That results in a $2,800,000 sale.
The owner can now retire if they want to. However, they use it to invest in property, stocks, other startups, and fund their next business.
This example illustrates the differences in goals and mindsets of two different bloggers.
Blog A was 100% focused on the income. They just wanted to make money from their blog.
Blog B was 100% focused on GROWING THE VALUATION OF THE BLOG. And it payed off in the end. Blog B sold for over 9x of what Blog A sold for.
I know that taking the road of Blog B isn’t always possible with most people. But if you’re growing a business, and growth is what you’re after, it’s what it takes to build a multi-million dollar blog. It’s why some founders leave their homes, move back in with their parents, and spend everything they can in growing their blogs.
For me, I always advise people to take less money as income if they can, and use more of it to reinvest into growth. It can result in being exponentially bigger than if you just take all profits out of the business.
A common mistake bloggers make is quitting their jobs too early. As soon as the blog makes enough money to replace the income they make from their day job, they quit.
Why spend time at a job when you can just work full-time on your blog? Wouldn’t this allow me to grow the blog faster?
What they don’t consider is that now they’re left no choice but to take all the money the blog makes as income.
If they had just waited another year and used more of that profit as growth cash, they could have still quit their job and have a larger blogging business when they did.
Hope you enjoyed this example 🙂