So, you’ve decided to go into business for yourself online. That’s great. Maybe you’ve already purchased your domain, set up your web hosting, designed your website, and nabbed all of the important social media handles. Maybe you’ve already converted on your first affiliate offer too. Or maybe you’ve converted on your 50th affiliate offer. That’s all terrific.
Now that your online business is generating some positive cash flow, you may be tempted to go out and treat yourself to something nice. Maybe you want to take your significant other out for a fancy seafood dinner or maybe you want to splurge on that big screen TV you’ve been eyeing. You deserve it, right?
Even if we were to ignore the profound pitfalls of lifestyle inflation for just a moment, we’re already sweeping right past a much more important lesson to learn. The profits that your online business are not yours, at least not entirely. If you want to continue to grow that business and if you want to continue increasing your bottom line year over year, you need to reinvest back into your business.
Would it be at all reasonable if John’s blog continued to operate on the lowest level of shared hosting? Would it be at all reasonable if he used a default WordPress theme and relied only on himself to write all the posts that appear on this site? Of course not. He was able to grow his business, because he was willing to reinvest those profits back into the business.
Don’t get me wrong. It can certainly fill you up with a sense of pride when you see your bank account balance continue to increase month after month. It can feel awfully rewarding and motivating when you see that your online business is “working” and that you’re really start to bring in some real money. That’s good. But simply having the money sit there doesn’t do you much good (you should set aside an emergency fund, but that’s another discussion for another day) and splurging on all sorts of unnecessary purchases won’t move your business forward either.
You need to reinvest.
When you reinvest some of your profits back into your business, you give your business a much better chance at moving up to the next level. It’s all about scale. If you spend $100 in an AdWords campaign and it nets you $1,000 in profit, you can theoretically spend $200 in AdWords next month and net $2,000. It’s never quite so simple, of course, but that’s the fundamental idea.
What’s more, when you reinvest those earnings back into your business, you make it far easier for you to plan for growing expenses moving forward, which can then lead to different income expectations in the future too. It takes money to make money, they say, and you want to make sure your money continues to work for you.
How you choose to reinvest that profit is up to you and it’ll depend on your individual circumstances. Maybe you want to move from shared hosting to a virtual private server. Maybe you want to invest in some software to streamline your workflow. Maybe you want to invest in a service so you can better optimize your campaigns. Maybe you want to hire a freelance to write excellent copy for you or to help you develop a better optimized website theme.
These all cost money, but they all have the potential for tremendous return on investment (ROI). These kinds of growth projects are what will ensure the future success of your business. They may reduce your take-home pay today, but they will help you earn more money over the long term.
Just as having all of your cash sit in a checking account that earns zero interest is probably not the best idea (you should consider all sorts of other investment vehicles for far better returns), you shouldn’t just “cash out” all the profits of your business and reap the immediate rewards of your hard work. Put that money back in and it’ll come back several times over.