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Choosing a method to earn money online

As I understand it, whether it’s online or offline, there are basically just a few basic ways to earn an income: selling a product, selling a service, or selling information. All of them share things in common. At the end of the day, though, no matter which path I choose, I still have to provide something of value.

That implies a group of people–customers–that have needs. That need can either be something that already exists, like needing to eat, or something that is more or less manufactured, like the need to have an iPod. The good news is that just as before iPods existed, people didn’t realize they needed them, other types of needs can be created as well.

I’m going to consider the different ways to earn money online before choosing one to pursue initially. I’ll probably try them all at some point, but for now I need to sort out where to start.

Earning money online by selling a product

This one seems obvious, and of course it has the potential to be successful. Just look at Amazon.com. A good friend of mine from college has done just this on a much smaller scale for a number of years, and is doing quite well. He has very low overhead, and has pretty much outsourced everything. He has all of his products drop shipped directly from distributors, so he doesn’t even have to deal with the costs and hassles of carrying an inventory. It seems like a pretty good strategy.

As I see it, though, there are a lot of downsides, the chief among them the logistical issues of shipping a physical product to the four corners of the world. And of course there’s customer service and support. One aspect of my friend’s business that I don’t envy is he is quite literally chained to it pretty much every single day. He’s a small business owner, and without him, the business doesn’t function. From a lifestyle perspective, I’m not sure this would be the best fit for what I’m trying to accomplish.

Earning money online by selling a service

The flip side of selling a product is selling a service, a key distinction of course being that shipping, inventory and other things related to handling a physical product are no longer a worry. Ebay is a great example (looking at it from their perspective, not that of its customers). In the past I’ve been involved as both a buyer and seller of online services, and the business model can be pretty compelling. Especially with the ability to outsource work to lower cost parts of the world, a great deal of can be accomplished for a relatively low cost. From what I can tell, it seems a lot of folks are pursuing this method.

The negative of course is that there is still very much a business that needs to be run. Customer disputes need to be resolved. Assuming the business isn’t a one person show, the people performing the work need to be managed. uAndnless the service is pretty much cookie cutter, spitting out exactly the same thing time after time, then you also have to get into negotiating price, scope and delivery dates for each and every job. This method isn’t one I would like to pursue.

Earning money online by selling information

The final method is to sell information online, the business model pursued by the online edition of The Wall Street Journal. I actually subscribe to it, and while it costs about $100 a year, I find I read it almost every day and really learn a lot from it. I have no idea how many active subscribers they have, but I’d be surprised if they weren’t profitable.

A twist on this model involves providing the information for free, but having some alternate means to make money. The free newspapers available in cities around the world survive solely on their ad revenue. Judging by the popularity of online advertising on a lot of the sites I visit regularly, this is a popular approach.

The downside of this approach is that you actually have to create original content. For lots of people that wouldn’t be very attractive. As I actually enjoy writing, though, it seems like a good fit. Of course like all of the other methods, earning money online by providing free information subsidized by ad revenue will require ongoing effort. As my grandmother was fond of saying, there’s no free lunch!

Setting goals to make money online

I think it’s important to have concrete goals. To even have the option of leaving my day job, I need to understand exactly how much income I’m going to have to replace. Answering that question actually drifts closer to financial or retirement planning than to developing a profitable online business. As luck would have it, though, I’ve spent a fair amount of time studying these areas. And while I’m certainly no expert, I’m comfortable with the basics.

How should I proceed? Traditional financial planning focuses on maintaining a certain percent of your income, even though a person usually has far greater control over their expenses than their income. As a result, the more important factor to consider is my expenses.

Estimating living expenses

So the first step is to estimate my normal living expenses. I’ve been using Quicken for years so getting that number takes all of a few clicks. Barring that, I could also have looked at my credit cards and my checking account to figure out a rough annual approximation.

Income shouldn’t be totally ignored, of course. Especially if I expect to maintain other sources of income, I can use those amounts to offset the money I’ll need to earn online.

Setting a concrete long term goal

Without going into gory details, the final number I came up with was $60K a year, or $5k a month. Starting from zero, I can tell you that seems like a pretty large amount! This would be a pretty short story, though, if I walked away at this point. To make that target more manageable, I’ll break it into smaller chunks.

As there’s a lot I need to learn, I imagine it will take me a while to get that first dollar in the door. Afterwards, hopefully I will have figured out the basics and will have discovered some ways to accelerate the process. Ideally I’d like to hit my $5k per month target in a year.

Break the long term goal into intermediate milestones

Being the corporate type, I’m used to thinking in financial quarters, so I’ll structure the goal around those milestones. To make things simple, I’ve set the following monthly goals: $5 at the end of 2Q07, $50 at the end of 3Q07, $500 at the end of 4Q07, and $5000 at the end of 1Q08.

Are these targets realistic? I haven’t a clue! But it’s a start, and at this point, a stake in the ground seems like a good first step.

And so it begins!

I need to answer one question: Is it possible for me to earn enough online to leave my day job?

I know it’s possible. You can’t stumble around the web these days without finding tales of people that are making a decent living online. But can I do it? That’s the million dollar question. No pun intended!

So where am I starting from? Well, to be honest, that’s part of the problem. I have a comfortable corporate job, working with decent people on meaningful projects. I’ve been living the corporate life for nearly ten years, though, and from time to time my mind drifts to possibilities of what I might accomplish should I choose to invest the time and effort.

In the weeks and months ahead I intend to document my progress on investigating online opportunities. I plan to share my goals and track my progress towards achieving them. And I plan to answer that lingering question once and for all that’s been bouncing around in my brain for far too long.

Oh, and if anyone happens to have comments or suggestions, please don’t be shy in sharing them!