So first off, I’ve decided to follow the lead of the bloggers I respect, and be completely transparent about my earnings from passive income.

Trouble is, it’s easier said-than-done.

A lot of my “expenses” were for experiments in business, and many don’t itemize super clearly – for instance advertising charges that may have been for 80/20 Drummer, private drum lessons, and Shoe Gogo (my as-yet back-burnered import idea), and as such are difficult to represent purely as expenses related to 80/20 Drummer. In the end I decided to put myself in the shoes of a reader deciding what the cost-of-entry is, and represent things as intellectually honestly as possible.

First, the good news:

Earnings – 80/20 Drummer – $277.92 so far

I’m happy to report that 80/20 Drummer has earned me a total of $277.92 since its partial launch in December. That’s $105.99 in December, $171.93 in January. That’s modest, but considering that I launched with half-a-product in December, and now have 3/5 of a product that I’m still discounting, I expect earnings to pick up in future months.

Now, the mixed news:

Total Advertising Costs for everything – $595.56

Here are the caveats – this includes advertising for other things besides the 80/20 Drummer, and it includes advertising for the “test” phase of launch, which can be shortened significantly. (Ads began running in late September, but the product didn’t launch until December.) Below, I’ll detail how much you would probably need to spend to follow in my footsteps, learning from my mistakes.

Total Website Hosting Costs – $40

That’s four months of Squarespace at $10-a-month.

Net Profit to-date – 357.64 in-the-hole

If 80/20 Drummer earns that amount, it will have paid for the entire experiment, including advertising testing other ideas that didn’t pan out.

You may be wondering – what about commissions from the sales-hosting site, Gumroad? Gumroad takes a small percentage, but that’s already deducted from the “earnings.”

Here’s the more important part – even if 80/20 Drummer earned only a modest $170-a-month, the apparatus is cash-flow-positive, and by a big margin. Advertising costs are about $52-a-month, and hosting is $10, so that’s $108 – or 63% of earnings –  profit. Obviously, I intend for it to earn far more than that, but it’s a useful illustration, because I could go on a polar expedition tomorrow, and 80/20 Drummer, unless demand dropped off sharply, would continue to profit-in-perpetuity.

Here’s what’s hamstrung my earnings so far.

Far and away the biggest albatross on the enterprise is the partiality. As soon as I put a contact form on the site and asked customers for feedback, the fact that they couldn’t get the entire series in a single swoop was the biggest complaint. As soon as I uploaded the third chapter of five, orders picked up. Actually, if orders continue at the rate they’ve come in since the third chapter went up, February’s earnings should be a lot better than January’s. But the other factor is once all five chapters are up, the price resets to full price from the “pre order” price, which should increase earnings still more even if the fact that people can finally download all five chapters as an “impulse buy” doesn’t increase the number of orders.

Even so, if I’m completely honest, I’ll admit I’m not 100% sure of the testing process. True, I validated a product then built it and now it’s selling, but it’s a bit of a “black box” to me. How do I know, for instance, that I didn’t just get lucky, and that orders won’t simply dry up forever? (Does that have something to do with sample size and statistical significance?) Or that the entire market for The 80/20 Drummer isn’t finite, and once I reach all the people who need a copy that orders won’t dry up? Or that demand isn’t cyclical – waxing in the months before college auditions, for instance, before waning in other months. I have no idea about that, and it truly won’t be until I’ve been in business for a year and seen earnings climb to a satisfactory level then either level off or average out without nosediving that I’ll be able to say with confidence that 80/20 Drummer was a “success” and not just a “fluke”.

How To Learn From Me

But here’s what I can already tell you, if, say, you were making an instructional video series about something you were good at. (Pottery, for instance, or test-prep.)

1) If you can test something and get it to-market in 3 months, you can probably do it for around $180 investment – $50-a-month on Facebook ads (knowing what I know now I wouldn’t have wasted any time on Adwords and I wouldn’t have spent more than $2-a-day on ads until I had the best ad in place and the product launched) and $10-a-month on Squarespace.

2) Test the same product you’re going to launch – the minimum viable product. Meaning, work out how much product you need to build in the testing phase, rather than deciding arbitrarily how much, then struggling to “catch up”. The reason? You manage your customers’ expectations. Say you’re making an instructional video for pottery, just as a hypothetical. I would test short, medium, and long incarnations at various price points (for instance $59.99 for two 15-minute chapters, then $49.99 for two, then $49.99 for three – changing only one variable at-a-time), and as soon as you’ve located the minimum viable product, launch. You can add bells and whistles in beta, then charge a premium for them. If this sounds unscrupulous, just remember: your customers are telling you what they want. In this type of marketplace, the minimum viable product is by definition the incarnation people want the most. (And, for those of us who enjoy the process, and want to give people more than they paid for, there’s no reason we can’t be already selling product while we add in the labor-of-love stuff.)

3) Test ads and conversion strategies diligently and continuously during and after your prelaunch process. That means start with a Facebook ad. Leave if for a week. Try a different ad with only one variable changed. Etc. The same goes for landing pages. (Here’s my latest landing page.) Once you’ve found an optimal price and minimum viable product, change the copy one element-at-a-time. (This, by the way, is where Squarespace earns its $10/month. You can change page designs as easily as if you’re playing with post-its on a bulletin board, with no knowledge of code. No, I don’t have an affiliate relationship with Squarespace, but, Squarespace? Call me.)

Had I followed the above strategy instead of making the mistakes I made, I would be $97.92 in the black, to say nothing of what the minimum viable product and shorter launch timeline would have saved. But live-and-learn.

So there it is. Putting it on the line for my peeps. I’ll be posting plenty between now-and-then, but I’ll be back March 1 with another earnings report.

Peace,

Nate