The NetProfit Report

There has been a lot of talk lately about a new tax reform bill referred to as the FairTax. If you haven't heard of it, or don't know what it's about, you can bring yourself up to speed at FairTax.org. There is also an excellent book available at Amazon by Congressman John Linder and radio talk show host Neal Boortz.

I do not profess to be an expert on the FairTax plan, but I do believe I have the basic idea down. If anyone notes an error or omission on my part, please let me know!
Here's the main details:

No more IRS, no more income taxes, no more payroll or FICA taxes. You, as an employee of your (or another's) business, would take home 100% of your paycheck. Instead, a 23% Federal retail sales tax would be instituted.

You would also receive a check each month from the government to offset the taxes you would pay on the "necessities of life" - the idea is if you are at or below the poverty level, you should not pay tax on your basic food, clothing, and shelter requirements. However, not just the poor would receive this check - every citizen would receive it. No one would be expected to pay the 23% sales tax on the basic necessities of life.

Here's my take on the whole proposal:

GOOD:
No more tiered taxation. As I've moved up in tax brackets due to my online success, I'm expected to pay more in income taxes. When I was in the Marine Corps, I was paying about 10%. Now that I've started a business, and been successful at it, I'm suddenly expected to pay 30% or more. Hey, I worked my ass off for that money - why do I suddenly have to give a bigger percentage to the government? I could have just stayed in the Corps, made much less money, and continued paying my 10%… it's like punishing success, and I'm not too fond of it.

No more taxation on income. If you get to take home 100% of your paycheck tax free, you have more to invest, or to use to better yourself. We'd no longer need tax shelters to protect our income from higher tax rates. You don't pay taxes until you spend the money, and until you spend the money, it's yours to do whatever you want with.

If you're paid $1,000, and you're in the 15% tax bracket, you'll pay $150 in income tax before you even see the check from your employer… in other words, you'll actually get $850 in your check. Assuming you don't have any bills or expenses, you will then be able to invest that $850 in stocks, real estate, or whatever. You'll then pay taxes on the income you receive from those investments - more income tax or capital gains.

Under the FairTax plan, you'll get the whole $1,000 up front, which you can then invest. You'll be free of income and capital gains taxes on income from those investments until you pull the money out and spend it. Think of it as a huge IRA, with no annual limits, and with no early withdrawl penalties

Because you'll have control of more of your money, you'll be able to invest more (tax free), and accumulate wealth faster.

But, wouldn't a 23% tax mean that your $100 grocery trip would now cost $123? According to the materials I've read, there are "embedded taxes" built into the retail price of all goods. For example, when you buy a loaf of bread, you're not just paying for the bread, but you're also paying for the payroll taxes of the employees of that bakery, and you're paying for the taxes that the bakery paid on its flour, eggs, and milk. And, you're paying for the payroll and FICA taxes for the grocery store where you bought the bread. Under the FairTax, all of those taxes that the bakery pays on its materials would no longer exist, so the bakery could then make its bread for less cost… so the potential is there for the bakery to charge the grocery store less. Additionally, the grocery store would not need to mark the price of the bread up as much, as it now has less taxes on its employees. What's more, both the bakery and the grocery store spend who knows how much money on accountants and internal auditors to ensure they are compying with the current tax code - with the FairTax in effect, these expenses would no longer be necessary. The end result, according to the materials I've read, is that prices would drop approximately 20% across the board.

Now, for those of you who believe that corporations are evil and are looking for any way they can to stick it to the consumer, you may be thinking to yourselves that the companies would not lower their prices - they'd take the higher profits instead. To you, I say that capitalism is a wonderful thing. If all this goes down, all it would take is one company in an industry to lower their prices, and the rest will follow suit, for fear of losing market share.

So, the end result would be more money in your pocket from your paycheck PLUS a check from Uncle Sam each month, 20% lower prices across the board, and a 23% sales tax (for a net price increase of about 3%)

Sounds like a winner, doesn't it? Perhaps not. Here's my opinion of the BAD:

If this bill passes, it's expected that Congress will work to abolish the 16th Amendment (which allows the government to tax income). But, what if they don't? If they don't abolish the 16th Amendment, the potential would exist for them to bring back the income tax later on down the line - most likely in the same way they got the 16th ratified in the first place - "We're going to reinstitute the income tax, but only on the very wealthy." If we're not very careful, we could end up 50 years from now with a 23% sales tax, PLUS a 15-30% income tax… the 16th Amendment has GOT to go if this passes.

Business expenses tax exemptions - I'll admit, this is an area of the FairTax I don't yet fully understand. Right now, because I run an online business, and because I am a corporation, a number of my business expenses are paid with pre-tax dollars. For example, my office space, employee payroll, and internet connections are all business expenses, and I pay those before I even calculate my taxes. Will those exemptions still exist? Will I have to start paying a 23% tax on my business internet service, or on my office space rent, or on my business phone line? I'll need to research this more.

Now, here's the big one, that particularly affects us as online entreprenuers - we'll have to start collecting the federal sales tax and sending it to the Federal government. Right now, we're only responsible for collecting sales tax from our customers who reside in the same state as we do. If someone from Louisiana buys one of my ebooks, I'm supposed to collect sales tax and send it to the state of Louisiana each month. Since so few of my customers are from Louisiana, it's not really a big deal. However, if the FairTax goes into effect, you, me, and everyone else with an online business (including ebook sales, online auctions, software, you name it) will have to start charging an additional 23% to ALL of our customers. That means you would have to start charging $57.81 for your $47 ebook in order for you to pocket the same amount of each sale. Granted, you'd no longer have to pay income tax on that profit, but what will happen to your sales volume if you pass the $10.81 sales tax on to your customers? On the flip side, what if you decide to eat the sales tax for your customers? Your sales volume would likely stay the same, but now you'll be paying $10.81 in sales tax on behalf of your customers… what would that do to your bottom line?

In summary, I'm very excited about the potential of the FairTax - I believe our current system makes it very hard for those less fortunate to pull themselves up by their bootstraps, and I think the FairTax will allow more people to more easily become at least semi-wealthy (or, at least much better off than they are today)… but I cringe at the thought of what it could possibly do to the online economy… would all of the collective research we've done as internet marketers become null and void? Would we need to research everything again from scratch? Only time will tell, but if this bill passes, we're in for one really exciting ride.

In my continuing search for virtual support personnel, I've come across a number of issues regarding exactly how to pay these folks. There are really only three ways to pay support people.

• Hourly - your support person keeps track of his or her hours worked, and then bills you based on those hours.
   
• Per-Ticket - your support person tracks the number of tickets answered and charges you a fixed fee per ticket.
   
• Fixed Salary - regardless of how much support work is needed, the support person earns a fixed weekly or monthly fee.
   

Of course, you can have an arrangement based on a blend of the above options, but that's another story

So, what's the best way to pay your support personnel? At first glance, hourly or per-ticket seem like the best ways. After all, you only want to pay for actual work done, right? If you have an arrangement to pay someone $200 per week for support tasks, and there are only 3 or 4 tickets one week, it doesn't make sense to pay them the whole $200, does it?

Wrongo. Paying support personnel a fixed amount per week or per month is the only way to align the support person's goals with your own goals. Let me explain:

When you pay someone hourly to perform support, the more tickets there are, and the more work there is to be done, the more your support person gets paid. Your support staff will be praying for more and more tickets, so that they can earn more. There is absolutely no incentive for them to do anything to try to decrease the support burden.

When you pay someone on a per-ticket basis, the same situation is in place. The more tickets there are, the more your support person gets paid. Once again, your support rep is hoping for more and more tickets, so he can make more money.

In these two situations, you'll find yourself competing with your support reps, trying to make more Camtasia videos, more documentation, more tutorials, to try and stave off support requests. This creates extra work for you which, if you remember from my previous posts, is exactly what you are trying to avoid.

As you increase documentation and tutorials, and do other things to try and reduce the support burden, you are reducing your support rep's earning power. If you do too good of a job in this effort, you may find yourself once again without a support rep. After all, if you've reduced your support rep's ability to earn money to only a few dollars a day, there is no longer incentive for him to check tickets or answer emails in a timely fashion - you've just made it so that he is not even earning enough to justify checking tickets twice a day.

However, when you pay someone a fixed rate for support, and interesting thing happens, assuming that your support rep is an enterprising person. He will look at the current support situation, and attempt to do things to reduce the amount of work that needs to be done in order to get paid the same amount.

For example, put yourself in a support rep's shoes. On an average week, let's say you spend 20 hours working for your boss doing support, and that you have a fixed salary of $400 per week. Knowing that you are on a fixed salary, wouldn't you want to make up additional documentation, FAQ pages, and even video tutorials to reduce the support burden? Doing so may diminish the number of hours you have to work to 10 or less per work, thanks to the existance of the new support content that you have created.

Using this payment system, you've created a symbiotic relationship between yourself and your support rep. Instead of the two of you fighting over support burden (you as the business owner trying to reduce it, and the hourly or per-ticket support rep fighting for more), you both have an incentive to reduce the support burden. The support rep creates additional support content in order to reduce the number of tickets submitted, which reduces his workload. If he has an assurance that his salary will not diminish because of this, the intelligent support rep will be all for building your support content for you.

The end result is happy customers - they are happy because they will be able to find answers to their questions before they even have to submit a support ticket. They'll praise you for having such a comprehensive support system in place. And your support rep will love his job because, after having put forth the effort up front, he is able to do minimal work and maintain a very nice payment for so little work.

This, in turn, frees up your support persons time and allows him to support a new product. After you launch this new product, the same cycle happens again - the support person creates new support content for the new product, thereby reducing his workload, and freeing his time up again.

Another benefit of this method is for bugeting purposes. At a fixed rate, you know what your expenses for support will be up front - there will be no suprises at the end of the week.

The trick to this system is to get a support person who "gets it". Explain to prospective hires what your plan is, and tell them up front that if they create additional support content in order to reduce the number of tickets submitted, they'll still get paid the same amount as their workload decreases. This is a huge incentive and, when you launch your next product, they will likely be more than willing to do support for the new product as well. Just add on an additional 20 or 30 % to their normal salary for this new product, and you can end up having one person handle all your support, while getting paid very well for the minimal amount of actual work that needs to be done.

Here's a sample progression:

Product 1 - you hire Bob to do support at a rate of $200 per week. Initially, he's working 20 hours per week, but he starts creating additional support content that answers people's questions before they have to submit a ticket. After a month, he's only putting in 5 hours per week for that $200.

Product 2 - you launch product 2, and agree to pay Bob an additional $100 per week. This new product generates 20 hours per week of support. Bob creates additional support content over the next month and reduces his workload to 5 hours per week for product 2. He is now doing 10 hours per week of work, and being paid $300 per week.

Product 3 launches, and you repeat the process. After another month, Bob is now working 15 hours per week for $400 per week. Along the way, he is likely finding innovative ways to reduce his workload for products 1 and 2 even further (after all, he wants to maximize his pay while minimizing his workload - the same thing that you are trying to do).

Along the way, customers are finding answers to their questions, and are generally very happy, reducing refunds and increasing your bottom line… well worth the $400 you are paying Bob each week. The end result is that you are Bob are working as a team, with the common goal of making things as easy as possible for your customers… and who doesn't want happy customers?

Marc

Well, now I'm in a pickle! Now that I am actually forcing myself to do everything that I'm supposed to do each day, according to my own daily list, suddenly I have no more time!

I'm sure you're familiar with the old adage "Time is money", right?

BULL!

That phrase implies that time is equal to money, and nothing could be further from the truth. Here's the skinny - you have a finite amount of time in this world. If you waste an hour, that's an hour you can never get back. However, if you "waste" $100, you can easily earn another $100 to replace it.

The fact is, time is worth about 10 times the value of money, if not more. Let's try a little exercise, shall we?

How much do you earn per hour at your job? If you're full-time online, make a best guess as to what you are "worth" per hour. Now write that number down. Before I went full time online, I was getting paid $25 per hour, so I'll use that.

Next, estimate how much time you spend on tasks for your business that *could* be done by someone else (virtual assistants, contract writers or programmers, etc) - I'm talking about anything that's on your daily list (remember that from earlier in the week?) that doesn't ABSOLUTELY have to be done by you. Let's take a look at my list…

1. Check and answer emails
I spend about 3 hours a day doing this.

2. Check and answer support requests
I have support staff in place for most of my products, so this is just for people that either don't know about, or choose to ignore my online ticket system. Probably about an hour a day.

3. Write new content
This is something I'm really working hard on - I'm easily in for 2 hours per day on this one

4. Work on old projects (software that is already released, but I have upgrades planned for)
About 4 hours per day

5. Work on new projects
About 4 hours per day

6. Spy on friends and competetors
About an hour per day

7. Spend time with my family
About 2 hours per day

Whoa now - that's about 17 hours per day. And that's just about right. Now, out of those tasks, what could possibly be done by someone else?

1. Emails - yep, someone else could do them.

2. Check and answer support requests - yes, someone else could do this.

3. Write new content - yes, I could hire a ghostwriter for most of my articles and blog posts (except this one, of course)

4. Work on old projects - someone else *could* do this, but it would be much quicker if I did it myself - I know the code, understand what needs to be done. But, we'll say yes to this as well.

5. Work on new projects - yes… if I could find a couple more programmers that I trusted.

6. Spy on friends and competetors - yes, if I were to train someone properly, he or she could do this for me

7. Spend time with my family - nope, I'm the only one who could do this.

So, adding everything up, that's 15 hours per day I'm doing things that *could* be done by other people.

Now, let's multiply that by my theoretical hourly worth… 15 x $25 = $375 per day I am "wasting" doing things that I could hire other people to do.

If I work 6 days per week, then over the course of a month that's $9000 of "wasted" time (don't misunderstand me here - the things on my list are things that *must* be done to support a growing business… when I say "wasted time", I'm referring to the fact that I am doing it myself instead of paying someone else to do it.)

Ok, look at your numbers (you HAVE been participating in this excerise, haven't you?!?). Take a look at the monthly value of your time. Would you be willing to pay that much in order to free up your time? Time that can be spent with your family, or developing new products, or working out new JVs?

In my case, would I be willing to pay $9000 per month to two or three people in order to free up my time? You're gosh darn right I would! If I could concentrate solely on developing new products and services, I could easily make enough to pay for the hired guns, and then some.

I believe that this is the hallmark of an internet marketing "newbie" - wanting to do everything themselves because then it won't cost anything…. these folks end up wasting their time (once again, "wasting" in the same context) doing menial tasks when they could be doing much more productive things.

Yes, you can design your website yourself for free… but why, when you can slide a few Franklins to Dave Mizrachi and end up with a killer website design? Is the $300-$500 Dave charges worth the hours you DON'T have to spend designing it yourself? What else could you be doing while Dave is designing your website? You could be tweaking your sales letter, working on one or more JV deals, developing a new product…

Now, I'm not so far removed from the "real world" to understand that there are plenty of people who are doing their best to bootstrap themselves with as little money as possible… what I've been writing about does not apply to you folks. For you, I say do what you need to do to start getting some monthly cash flow coming in. But be prepared to reinvest your profits in outsourcing as soon as you can. Here's an example:

Say you build your business up part time so that it is making a pretty steady $3000 per month. You're wanting to get away from your full time job as soon as possible, but $3000 just isn't really enough to make that happen yet. What if you were to hire people to take care of your business for you, and pay them $2000 per month to do it? You'd be left with $1000 positive cash flow each month, with almost no need to do work for that $3000 per month business. Since you no longer have that work to do, you can *do it again*! Build up another $3000 per month business, and then pay someone else $2000 per month to take care of it for you. Now you have a $2000 positive cash flow each month… and you're free to repeat it over and over until you're in a solid position to quit your job.

Is this strategy easy? Of course not - if this stuff were easy, everyone would be doing it. But, it definately works.

Time is not equal to money - time is infinitely more valuable than money, because if you use your time wisely, you can leverage it to make more and more money.

So, with all that said… I have a few openings available

Seriously, I'm going to try and outsource as much of the stuff I have listed above as I can. If you happen to be a writer, a programmer, or a virtual assistant, and you would like to help me out, fire me an email at marc AT profitstudios.com

Respectfully,
Marc

Ok, so here I am on Monday morning, with a stack of notes (only somewhat organized), and a bunch of plans in my head as to how to proceed implementing what I've learned.

First up: organization and planning. As they say, you can't get to your destination without a roadmap, and currently I only have a vision of the final goal. What I need to do to reach that goal is break everything up into bit-sized chunks; create a roadmap to my desired goal filled with milestones.

For today, I'm going to work on my daily list. My daily list is what I need to do each day to support and grow my current business. You see, when I first started working from home full time, the thing that I loved the most was the freedom of it - I can do what I want, when I want, with no boss breathing over my shoulder, nor yelling at me when I am 5 minutes late after a 45 minute commute. So, unfortunately, I tend to do my day-to-day work with the same sort of spirit of freedom. Every morning when I get up, I know what certain things I need to do that day, which projects I need to work on, etc. However, I may not feel like checking support tickets first thing when I wake up, so I'll go hang out in the forums for an hour or so while I drink my morning coffee. The end result is a few hours of wasted time

Unfortunately, that hour tends to become two hours, then three, and the next thing I know, I've spent the whole morning browsing forums, talking to people on instant messenger, and surfing the web in search of an answer to a question.

Don't laugh - you know you do it too!

I've got this cool piece of software that lets me track to-do lists, milestones, and goals that I am going to start putting to use. The funny thing is, I've had it for years and never utilized it - it's called Microsoft Outlook. I'm still playing around with it, and I'll let you know how it goes (sidebar: I spent almost 3 hours this morning surfing the web for scheduling software to do what Outlook already does… more wasted time)

So here's a little sample of what my daily to-do list looks like:

1. Check and answer emails
2. Check and answer support requests
3. Write new content (this can be blog posts for blogs other than this one, articles for submission to the article directories, or content for any of my websites)
4. Work on old projects (software that is already released, but I have upgrades planned for)
5. Work on new projects
6. Spy on friends and competetors
7. Spend time with my family

Emails: I've learned over the past few months that I HAVE to check my email every day. If I skip even one day, then the next day I'll have two days worth to deal with (and I get a lot of emails).

Support: Most of my support is outsourced now (thank God), but some people still email me directly for help. And, occasionally, my support staff cannot answer a question in the ticket system.

Content: I've been experimenting with content for a few months now, and I believe that content will get you whatever you desire on the internet. Content-based sites to wrap around Adsense, articles to point back to your money sites, blog posts to foster discussion and build a sense of trust with prospective customers… I'm shooting to write a new piece of content each day. Over the next 6 months, that will mean about 180 pieces of content floating around on the internet working to bring me traffic.

Old Projects: I get so excited about the new projects I am working on, it's hard for me to stop working on them to go back and add new features to older products. This is on my daily list simply to remind me that it's something that needs to be done.

New Projects: After the last big seminar, I WAY over-extended myself. I had something like 12 JVs based on the success of RSS Equalizer and Directory Generator. And wouldn't you know, Armand told me ahead of time that a lot of people would approach me at the Big Seminar, and he warned me that this would happen… Anyway, my new principle is to only work on one new project at a time, and only have 1 "in the chamber". The rest I do nothing with until I'm done with the current one.

Spy on others: John Reese taught me this. The best way to learn more is to observe what others who are successful are doing, and duplicate it. I'm now in the habit of researching good websites that appear to be making money. I'll see what they are doing with regards to layout, structure, inbound links, and advertising. I'll also examine the sales letter. So, if I see a really good sales letter, I'll spend some time chopping it up and looking closely at it.

Spend time with the family: I'm sort of a workaholic. I can sit down at my computer at 7 am and not get up until midnight (except for calls of nature and so forth If I don't add family time to my daily plan, I'll tend to go the whole day without really spending any time with my kids. And the whole reason I decided to take the plunge and work from home in the first place was to be with my kids more.

So, if you want to play along, why don't you make a daily list? Come on, seriously! Just think of the things that you *have* to do each day to support and grow your business, and write them down somewhere. Each of those things you write on that list are small steps to ultimate success, and you should treat them as such.

That's it for today - it's now time to take my kids to the park

Marc

So what now? The next Big Seminar is 6 months away (the first weekend in November in Los Angeles, in case you were wondering)… so what do we do between now and then?

Last time, I just let this blog go quiet for six months - hardly an SEO-friendly thing to do. So, now that I have my notes all organized, and I have a plan, it's time to take ACTION.

You see, ACTION is what differentiates successful marketers from not-so-successful ones. John Reese tried to tell us all that over a year ago, when he released his CRAP article, and the speakers at the Big Seminar told us this over and over. Remember, it doesn't have to be perfect, it just has to be done! You cannot ever sell a product that you don't launch. And finally, when you first launch a product, that's the WORST it's ever going to be. You will slowly improve it, thanks to customer feedback. You will also slowly improve your sales process, as long as you test, test, and test some more.

So, let's move forward from this point. I'm going to document what I do between now and the next big seminar on this blog, and let's see what I learned and what it means to my bottom line.

So, add this blog to your bookmarks, or add the RSS feed to your reader. I'm about to give you a six-month long inside look at my business.

Marc