How ClickBank Affiliate Program Works

ClickBank Affiliate Program is almost the first online affiliate system that we know.

Affiliate marketing or affiliate program is something that you hear quite often these days.

In fact, it would not be wrong to say that this is one of the top online armories to promote a product or initiative.

The effectiveness and reach of these programs make it popular.

In fact, the ClickBank affiliate program enables you to sell your products digitally.

It also helps you make money while you are promoting someone else’s product digitally.

But this ClickBank affiliate marketing is a two-way street.

As a vendor, you have to make sure you are paying commission to those who are promoting your product.

Simultaneously as an affiliate hub like ClickBank, it is imperative to make sure you provide your associates with the best rates.

Simultaneously if you are the one who is placing all these affiliate ads on your web page, you have the additional responsibility of creating content that can attract eyeballs and also promote products that you have selected.

Your earnings are directly dependent on the overall products that you are able to promote and the total number of clicks that translate into buys.

Yes, the total number of buys converts the clicks into potential earnings.

This is the basic foundation upon which organizations like ClickBank are based upon and run so effectively.

In simple terms, this is also the moving mantra for any affiliate marketing initiative.

Making Money with ClickBank Affiliate Program

ClickBank Affiliate ProgramHowever getting started with ClickBank does not come so simply.

More often than not, once you sign up for ClickBank, you end up looking at some sub-standard products and then wonder how you can make money out of it?

Sometimes it happens that you keep trying for months together and are able to make barely $100-200.

The challenge most times with the ClickBank affiliate program is how to make it profitable.

The website gives you details about potential traffic, yearly earnings and overall popularity.

But are you wondering why you are not able to translate them into profit like the website claims?

Well, the fact is that ClickBank affiliate marketing is not as simple as it appears.

While on the one hand, you need to gain practice and hone your skills, on the other, you also have to be very shrewd in your product selection.

In the absence of the right and appropriate products to promote, your entire initiative would fall flat.

Therefore, if you are looking to initiate the ClickBank program to generate an alternate source of making money, it is necessary to chalk out a well thought out strategy.

Not only is it important to understand the implications of the program properly, but also how effectively you should be running it to maximize your gains.

You must undertake an in-depth study of the various provisions of the affiliate program and explore the possibilities of using it to optimize the gains and maximize the earnings from this.

You must remember that the content of the website you are placing these ads also make a huge difference.

So getting started with ClickBank is a multi-pronged strategy that aims to bring out a balance between the vendor’s target, the buyer’s aspirations and your targets.

Therefore it becomes important to keep in mind some basic ground rules.

1. Choose The Right Product

For ClickBank to click for you, it becomes immensely important to choose the right type of products.

This will always enhance the clicks that you get for the ads that you place on your site.

For example, if you have a blog about recipes and cooking, it will make sense to put ads about cooking related products.

Those who are exploring the site for relevant recipes or cooking styles would get interested in the ads that you might place for interesting cookware or spice mix or even ready-made food.

Given the wide range of products that ClickBank has, it often becomes very important to choose correctly.

This is of particular importance as the list of options also has some sub-standard and not so great products.

A wrong selection can quite easily drive down the wrong impression.

It can also deter the visitors to your site to revisit later.

2. Balance of Ads & Content

It is never sufficient to simply sign up for ClickBank and put the relevant ads in place.

You have to look at achieving the right type of balance as well.

Too many ads would mean that your viewers would soon get tired of dealing with endless cookies that get generated.

On the other side, if you put too few of them, it would mean that you will not get sufficient clicks to translate into a reasonably strong earnings for you over the longer term.

The whole ClickBank affiliate marketing initiative would fall flat if you are not able to convert them into the required number of earnings.

3. Do Your Own Research

Another key step in getting started with ClickBank effectively is to do some legwork on your own.

Do not just rely on what others have to tell you about the affiliate program.

It always makes sense to do some research and in-depth study on your own.

This will help you to actually convert this online e-commerce giant into a significantly large contributor to your monthly earnings.

At the same time, it could also help you explore newer means of raising money from the same source.

Need To Develop Appropriate Understanding

Another fundamental factor in making ClickBank a profitable alternative for you would be to understand the payment schemes properly.

When you have sufficient sales volumes, the basic fees that you have to pay do not really pinch.

However, at the initial level, when you have rather small sales number, every dollar counts and that point the ClickBank charges could pinch significantly.

So before you get started, understand the overall fee implications clearly.

This will make sure that your earnings do not get crimped by these charges and you are able to maintain a steady inflow of earnings.

Ways to Pick Right Products on ClickBank Marketplace

Well, by now you have understood it pretty clearly that the best way to get the most out of the ClickBank affiliate program is to choose the right kind of product.

But the basic question that often bothers you is how to end up getting the right product mix and maximize your earnings potential.

Industry experts say that in this context, you must first set up your own sales parameters like the amount of sales you want to achieve, the kind of money you would want to earn and the share of money that you would like to make from ClickBank.

This will help you narrow down the potential options that you can explore to create the product bank.

The whole exercise of selecting the right product on the ClickBank affiliate marketing program is almost like choosing the keyword for a search engine optimized site.

Think about it?

What would happen if you chose the wrong keywords or failed to identify the most appropriate one?

Your website or digital content will not be able to attract the right kind of eyeballs.

The related viewership would be much lesser, and this will harm the ranking of your content to a large extent.

In the same way, if you cannot choose the right type of ClickBank product, your overall earnings would be compromised severely.

You might be great at product promotion but without the right options, the whole exercise can fall flat, and you will not be able to make a lot of money in terms of earnings.

So what are the key terms and conditions that you should base your overall sale pitch on?

1. Earnings Per Sale

One of the key parameters that should dictate your choice on ClickBank affiliate program is the earnings that you can expect per sale.

First of all, shortlist a few items you could promote.

Now compare the average amount of money that you are making after every sale on the various products.

It is almost needless to mention that you choose the one that gives you maximum leverage in this context.

2. Commission Percentage

This is yet again a crucial prerequisite.

The percentage of sale price or the commission on every earning that the affiliates get will determine the extent of your payment.

So compare the average earnings from the various options you have shortlisted.

This will help you make a wise choice easily.

3. Popularity

In the ClickBank terminology, this is known as gravity.

Essentially this outlines the total number of affiliates who sold the product you shortlisted in the past 3 months.

This is an important consideration as a relatively more popular product is invariably the one that has better earnings prospect.

4. Rebills

The average number of ClickBank affiliates who are taking commission from rebills become a vital consideration.

It highlights the percentage of rebills paid to the affiliate and the overall reliability of the brand that you could be selecting.

So when you go through these various parameters, you will be able to create a brief profile of the type of alternatives that you must look for.

The sites or products that you choose to promote must have:

  1. These products or e-commerce sites should have a low offer price
  2. The sites you decide to promote must have at least 3-4 upsales
  3. It should contain reasonable details about the company’s sales and other details
  4. Always go through the reviews that are provided online. An honest user feedback is often more helpful than column after column of information by the manufacturer.
  5. The gravity of the page or the popularity of the site that you select should be above 20. It means it should have been selected by at least 20 people in the past three months. That reflects the overall earnings potential of your choice.

The earnings potential is the key factor for any affiliate program.

You must remember the entire purpose of affiliate marketing by ClickBank or any other network is essentially aimed at getting the right amount of exposure and earnings.

If you are not able to garner that, then your entire initiative will go waste.

The Visual Element Is Crucial

The quality of the content is crucial for any affiliate program.

If you pay close attention to all the high gravity ClickBank programs, you will notice that invariably the ones that have the best content are also the most profitable ones

By content, I don’t just mean the written content alone.

The visual element that constitutes the entire promotional content also needs to be attention grabbing.

Thinking about it, when you are flipping pages in a magazine or surfing pages on the internet, you invariably get stuck on a page that has beautiful visuals.

The same is true about the display ads that you choose from the ClickBank.

You must remember that both the design as well as the visual content of the page is very important.

Ultimately, it is this that will grab the user’s attention and help convert their clicks into buys and thereby helping you earn.

If you thought you could put up just about any content and that would get converted into earnings then you are seriously mistaken.

Remember the reason why most online users get attracted to content is only on the basis of the image that is used on the thumbnail.

As they say, a picture is worth millions of words.

Whether you are looking at ClickBank affiliate marketing for generating additional income or just as an alternate source of making money, it becomes necessary to manage the visual content of the ads that you choose.

By the rule of thumb, all such ads that have a strong and attractive visual presence will garner more attention and would be more common as well.

In comparison, ads that have unattractive visual content will not be able to create that kind of impact even if the product that they offer is great.

Therefore, we can conclude that the ClickBank affiliate program is a complex mix of great quality, shrewd business sense and a strong eye for details.

The only way that you can make ClickBank profitable for you is by maintaining a strong line-up of ads that don’t just grab attention but also result in higher earnings.

This is only possible when you devote a significant amount of time and energy to understanding the various aspects of ClickBank affiliate marketing.

Once you are thorough with the various nitty-gritty of the page, you will be able to channelize the potential of the ads that you select in a profitable manner.

Passive Income Tax Rate

When you look at the various facets of income opportunities available today, passive income is a much talked about alternative.

But often, people are unaware of the exact tax rate and in the process, tend to miss out the advantages of the additional income.

You must understand that the passive income tax rate is very different from nonpassive income.

There are different types of rates applicable for different income opportunities.

You can draw the biggest benefit from these income avenues by understanding your tax liabilities effectively and being able to service your needs and requirement accordingly.

Broadly, passive income tax can be deducted on passive income.

By passive income, the US revenue department refers to all such earnings for which you do not have to earn or make any effort.

It is income that follows its natural course as a result of any previous initiative that you might have undertaken.

At the current moment, you do not have to do anything to maintain the steady cash flow.

Therefore, this gets counted as passive income.

There are, of course, many prerequisites before you categorize the various income options.

Therefore, it is pertinent that you understand the different provisions.

Passive Income Tax Rate & How to Determine It?

So it is important to understand what exactly passive income is and how you can distinguish it clearly.

1. Passive Income

In very simple terms, passive income refers to income or earnings from any activity where the beneficiary has not participated actively.

The source of passive income could range from real estate to fixed deposit to business dealings as well.

This could also include your earnings from certain investments at times.

The crux of the arrangement is such that the beneficiary after the initial legwork can pretty much sit back and relax completely.

Now we all know that passive losses can be only claimed on the passive income tax liabilities.

Most people now try to have simultaneous passive income sources apart from their active ones.

This is exactly why special rules were constituted to put a cap on the amount of tax liability that you can seek to reduce through claiming passive income benefits.

The 1986 Rules

These special rules that were enacted in 1986 specified that you can look at reducing your nonpassive income by as much as $25,000 if your overall income is less than $150,000.

However, this also specifies your active participation in a passive income source like rent from real estate.

But beyond this point, you have to restrict claiming passive loss benefits from passive income.

The losses that cannot be claimed can also be carried forward in consecutive years.

You need to understand to offset the losses; you need to project passive income that can adequately account for this amount.

There are some instances where you can also use the proceeds of a sale to claim tax benefits for passive losses.

But for that, you need to understand the law clearly and make provisions accordingly.

This will make sure you are able to optimize the benefits of a separate passive income tax rate in the best possible manner.

2. Portfolio Income

One of the most popular and interesting investment opportunities is undoubtedly that of portfolio income.

In many ways, it can be considered passive income too as it comprises of various types of dividend, capital gains, interests and royalties.

Though they are all clubbed together as either portfolio income or passive alternatives, the crux of the matter is that this kind of income has a very different tax rate.

Different kind of portfolio income has different rates.

For example, the tax rate for capital gains on an investment that you have held for over 12 months would be between 10-20%.

However, if the capital gains are calculated on investment less than 12 months, then they are taxed at a regular rate.

Social security taxes and medicare expenses are not levied on portfolio income.

So whether you are trying to project your income as portfolio or passive, income will depend on several factors.

But another benefit in case of portfolio income is you can use this to offset tax liabilities and other investment/income losses.

3. Active Income

This is often termed as earned income as well.

It is what you would call as regular income opportunity.

It is one of the easiest types of income and seen everywhere.

You go to the office, earn money and come back.

At the end of the month, there is salary in your bank account.

As the name clearly indicates, this is active income because you are putting in the effort and getting the reward almost immediately.

It is needless to mention that this, of course, comes with the highest income tax rate.

Personal taxes range anywhere between 10-35%, and apart from the direct income tax, there are several other taxes too that are levied on this income as well like social security and medicare taxes.

Therefore, the overall tax on this active income can be sometimes as high as 50%.

Another point where this differs from passive income tax rate is the number of deductions.

Well, the number of deductions is much less in this form of income as compared to other income opportunities like passive income or portfolio income.

So that further exacerbates the need to understand that various prerequisites for what constitutes a passive income and then getting a fair perception of the exact tax rates.

This is important also because the overall deductions that you can claim on a given year, and what losses you can carry forward to the next year is very closely linked to these factors in totality.

You must remember that understanding the various facets of your tax rate is as important as making sure you have a reasonable income source.

This is because only a thorough understanding of tax will help you maximize your income potential and recover maximum value for every dollar that you earn.

This understanding is also crucial in opening up various channels of investment in a constructive manner.

The Effort Element in Passive Income Tax Rate

When you look at the taxation rate of passive income vs active income, one of the most striking elements to consider is the fact that why is earned income or active income come with a higher tax rate.

Technically, you are putting in a lot more effort, devoting decidedly more time and even in terms of engagement, you need to have a far better and greater level of involvement.

So how is it that you need to pay a greater amount of tax in return for your hard work.

Well, you have guessed it right, it is not the time that you devote towards generating passive income that matters but the point is how efficiently are you able to.

In many ways, I would say that the tax department is perhaps telling you something really important.

It is not important for you to work harder but on the contrary, you need to work smarter.

Instead of devoting 8 hours in the office, if you can work at your convenience and generate an income that carries a lower tax rate, then why not?

It will only work better in your favor.

I am sure you already understand by now what it really meant by passive income.

It is, after all, any form of earning for which you do not have to put in any active effort.

Effort or the lack of it is the key factor that distinguishes active from passive income.

One of the possible variants of this kind of income is dividend income.

There are other popular alternatives as well.

These include the likes of:

  1. Income from bank account
  2. Credit card reward points
  3. Royalties
  4. Licensing fees
  5. Rent from real estate

One of the unique features of passive income is it does not necessarily take into account how hard you work or how much effort you put in.

Rather passive income capitalizes on how smartly you can execute a task.

It is completely based on your ability how efficiently you can generate income without putting in a huge effort.

It doesn’t really matter how hard you are working or how many hours you have been devoting for the job.

In fact, it celebrates the fact that you have put in some effort today and can then reap the benefits of it for the rest of your life.

What’s even better is there are many opportunities whereby you can also convert the active income into passive income.

You can generate the cashflow that helps you take advantage of a far attractive tax rate.

Once you are able to turn the active dollars into passive assets, it is needless to mention that you can then take advantage of the more liberal tax policy and look to conserve the cash a lot more effectively.

Why Passive Income Tax Works in Your Favor?

Perhaps I mentioned this already, but it does not hurt to repeat that the tax department’s policy is so geared that it shows a decided bias towards those who are working smarter instead of harder, in other words, it favors those who choose passive income options.

One of the best ways to claim this tax advantage is by choosing the most appropriate channel to generate the income.

In this context, dividend income is one of the most lucrative opportunities.

In fact, if you happen to fall within the 15% tax bracket, you can even enjoy the earnings from dividend absolutely free.

This is because those individuals, who are within this specific tax slab, get taxed 0% on dividend income.

You might now ask what exactly comprises a 15% tax slab.

Well, according to data available online if your annual average income is around $37,000 you qualify for this rate of tax.

As per the existing policies, you can claim a standard deduction of not more than $6000, in case you are filing individually.

On top of that, there are personal exemptions which you can claim close to $4000.

On top of it, if you have a dividend income north of $47,000, you actually stand the chance of paying a big zero in income tax by the end of the year.

Now think about the tax rate at which you are earning at the moment.

The disparity will be visible to you in very clear terms.

But something that I missed out mentioning here is the social security and the medicare rates are still applicable on you.

So you need to account for another 7.65% in tax as well.

Apart from that, the tax rate still remains in favor of passive income

Therefore, it would not be wrong to term the passive income tax rate as one of the best representations of the ways to maximize the value of every dollar that you earn.

It helps you to not just set long-term goals, but add more value to every penny that you set aside in the investment kitty.

So whether you are planning to take an early retirement or compound your existing savings structure, the passive income tax rate can really come in handy in keeping the overall tax liabilities.

While setting long-term targets in one part of the story, the other important aspect is how well you can preserve this entire amount in a way that you pay bare minimum tax for it.

It would mean that you will be able to retain the maximum amount of that money with you and not have to part with it as a tax liability.

The Big Advantages of Passive Income Tax Rate

I am sure all of you understand by now what exactly is meant by passive income tax rate and the reason why passive income comes with a lower tax rate compared to other nonpassive opportunities to earn money for a prolonged period.

But those opting for this kind of tax policy tend to make savings in many other unique ways as well.

That also adds to the charm of opting for passive income and the associated tax rate that goes with it.

1. Limited Cost

If you follow the entire tax rate and way passive income tax is calculated, you will realize that there are no associated costs apart from what is already specified.

Alongside, those who opt for this kind of income, also make a lot of savings in the form of lesser lunches outside, better time spent at home, lower wardrobe costs and far lesser transportation expenses.

Now let’s face it that all of these services carry a certain amount of tax.

Whether you consider hospitality taxes, different kinds of surcharge and the rate of sales tax further exacerbates an individual’s tax liability over an extended period.

You must understand in choosing a specific way of working often means that you can optimize the value of every dollar you earn or save in a comprehensive manner.

2. Flexible & Financially Secure

Let us explore the crux of the entire passive income dynamics.

Why would you choose it over a conventional active income opportunity?

Most times, this is because you get to decide the working hours, you are able to gain more time due to less travel, you inevitably spend more time at work.

But at the same time, you are no longer financially dependent on anyone.

Whether you are earning via rent income or dividend or any other type of passive income avenues, you are able to maintain your financial independence.

A lower tax liability and ability to offset losses over wider time duration makes sure you would be tempted to choose this way of earning money more than any other.

3. You Are No Longer Tied to a Spot

If you have considered working from home ever, you would know that one of the most important reasons that people choose it over many other options is because they are then able to move freely.

Most times, it is only internet connection and a laptop that they needed.

When you consider passive income, the gains are even better.

You do not have to work, you travel as much as you want and choose to stay wherever you want, yet enjoy the benefit of a steady cash flow every month.

The icing on the cake is undoubtedly that your tax liabilities are also distinctly lower than what you would have to pay if you attended office every week and took bare minimum leaves.

Plus, there is no certainty that you will have the job forever.

You never know when you become a victim of a downsizing drive in office.

4. You Can Retire a Lot Earlier

Let’s understand we work, save, invest, work and continue this cycle for almost a lifetime in the hope of creating a cash flow that can sufficiently fund our requirements in a well-structured manner for our old age.

But what if you can create that passive source without much ado and gain financial independence at a much lower age, perhaps 34-35?

Moreover, it would mean that you also have to pay a lesser rate of tax and let’s face it.

Who does not want to take advantage of tax deductions?

Moreover, if time is money, this is one of the biggest income sources for you.

You save decidedly a lot of time, and that in itself can be a huge factor.

That apart, you also have to pay lesser tax, so it is indeed a win-all strategy for you.

The best part is you do not need to have a separate income source, you can easily convert your active earnings into passive income.

Some of the Key Passive Income Tax Rate That You Need to Know

Now let’s say; we have understood the great benefits of taking advantage of passive income tax rate.

But then the question might come that how should you diversify the cash flow source?

Should you depend predominantly on dividend income or can you also explore the option of bank deposit and earning interest for it?

Here is a quick guide on the tax rate of some of the best known passive income sources and how you can get more value for every dollar that you earn.

1. Interest Income

This is perhaps one of the most basic forms of passive income.

Hence, it becomes extremely important to understand the tax rate on this specific kind of income.

Interest income essentially refers to all such income that you earn as interest from various financial institutions and banks.

Whether it the interest that you earn from your savings account or the interest that your money market account yields, it is interest income.

Interest from various deposits and bank certificates are also included in this list.

Normally this interest, when credited to a specific account, is available for withdrawal.

You do not have to pay any penalty and will be taxed as per your normal taxable income.

The income tax rate, in this case, will range between 10-35% depending on the exact amount of your net income.

2. Dividend Income

This one is a very popular passive income source that is often recommended by analysts to generate steady cash.

Essentially dividend refers to any periodic payment by stocks and mutual funds to their shareholders.

This is not dependent on the market condition, and an individual can continue earning them as long as the stock or the mutual fund decides to pay to its shareholders.

Broadly this dividend income is divided into two categories:

– Ordinary Dividend:

These are regular dividend payouts that you see in the market.

The normal existing tax rate is levied.

– Qualified Dividend:

This refers to all those dividends that are paid on stocks that have been held for more than two months but within the 121 days post the dividend date or post the date the stock went ex-dividend.

These are subject to a maximum tax accounting to 15% if regular or normal income tax rate of 25% in levied.

In case, it falls below the 25% bracket, you are not liable for a single penny.

It is absolutely zero.

3. Capital Gains

In the list of the most popular passive income channels, capital gains tax occupies pole position.

Normally this refers to any kind of lump sum money that you might earn if you sell any major asset like stocks or mutual funds.

Normally the amount you earn from the sale is much higher than what you paid for it initially.

Capital gains again can have two primary variants:

  1. Short-term gains: This is the gain that you bag from asset sale that you have held for less than a year. These are taxed at the normal income tax rate that you are eligible for.
  2. Long-term gains: As the name suggests, this essentially refers to the profit that you earned from long-term holdings. The maximum tax rate for them is capped at 15%

4. Child Support

Marriages break, relationships suffer a jolt but what we don’t realize is these types of conflicts also have a financial implication.

The money that a parent pays to the other parent or the child’s custodian for the proper upbringing is also passive income.

This is not subject to income tax as opposed to alimony money that is taxed under regular tax rate depending on the bracket that you are under.

Therefore the passive income tax rate on money received as child support is zero.

5. Social Security

The extent to which this kind of passive income is taxable is entirely dependent on the tax bracket under which you fall.

Depending on your annual income, there are instances that not a penny of the social security retirement benefits is taxed.

For those with income below $25,000 on an annualized basis, as single taxpayers, or below $32,000 when paid jointly, do not have to pay any tax on their social security benefits.

On an average, if you file as a single tax paper and your annual income is worth $34,000 or above $44,000 as a joint payer, almost 85% of this income is included in your regular income.

This is then taxed at the normal rate that you are eligible for.

If your income is in between $25000-34000 as a single tax filer or between $32,000-44,000 as a joint taxpayer, 50% of the social security benefits will fall under the taxable income bracket.

Is Passive Income Tax Rate Complicated?

So I am sure you have understood by now that passive income tax rate is a rather complicated financial arrangement.

You need to have a very clear perspective of the existing tax rate, the return prospects of various income channels and your ability to generate returns from a passive income source.

Don’t get too buoyed by the lower tax liabilities for those with passive income.

You must understand that while it is quite simple to enjoy the benefits of passive income, generating it at the initial stage needs a significant bit of legwork.

You must be convinced about the channels that you choose.

That apart, you also need to make a ballpark assessment of the kind of money that you would require post retirement on an annualized basis.

This will then be able to give you a clearer perspective on the kind of money that you need to generate and what type of passive income platform can help you best.

It is needless to mention that you even need to take into consideration the various tax slabs and the rates applicable.

Does Lularoe Pyramid Scheme Make Sense?

The Lularoe pyramid scheme is one of 2017’s most talked about MLM scams.

The clothing line, Lularoe has been under the scanner lately.

There have been claims that it is a pyramid scheme.

Moreover, the quality of clothes has also been discussed.

The allegation is that this company sells overpriced goods that are of inferior quality.

That further exacerbates the problem.

A quick search on the internet will highlight innumerable testimonials of dissatisfied clients.

Starting from customers to members, the list of those dissatisfied is pretty long.

Lularoe Pyramid SchemeWhat further worsens is the company’s standpoint on the issue.

Most members claim that association with the brand led to huge personal debt.

Finally, a $1 billion lawsuit was filed against the company.

The primary claim is that this company is running a vibrant and active pyramid scheme.

What makes it worse is that you have a battery of housewives heavily invested in this.

So, if this is really a pyramid scheme and comes crashing down, it can wreak havoc.

The $1 billion lawsuit is undeniably one of the largest to be filed thus far.

However, this is not the first time that it has been filed against the company.

There have also been claims of its representatives collecting sales tax in states that don’t have the tax.

Moreover, in May last year, a sudden change in their return policy led to serious losses for consultants.

Like many other MLM, they clocked a sharp growth in initial years.

The founders claim that the company was created to facilitate economic freedom.

However, in reality, it is debt that has been mounting over the years.

The high starting cost and the subsequent expenses have even led many women to sell their breast milk.

Here are more details about Lularoe pyramid scheme.

The Lularoe Pyramid Scheme Inside Story

As we set about analyzing claims of Lularoe pyramid scheme, let us analyze the management view.

The founder, DeAnne Stidham says that this company was created to provide economic freedom to women.

Though just 5 years in business, Lularoe has clocked phenomenal growth.

They sell a line of dresses, tops and their very famous leggings.

We can gauge the popularity of the company by the fact that they now have about 80,000 consultants.

The management led by CEO, Mark Stidham seem rather stoical about the claims and lawsuits.

According to insiders, most of the communication with the staff seems condescending.

There are many references of an online video address in which he chides the consultants for selling to the same set of customers.

He chides them and prods them to keep adding fresh customers every day.

The wave of complaints about the policies too seems to have been brushed under the carpet.

The general approach seems to be whoever is complaining; it is their problem.

The business model has several loopholes.

Online reviews indicate claims of profitability, especially at the lower end is non-existent.

In fact, according to FTC study, almost 99% of people who joined the enterprise are losing money.

That is now a worrying thought for anyone who is planning to join the organization.

The average cost of joining is close to $5000-7500 per person.

So that is quite a significant investment in an organization that has no precedent of profit.

The overall profit margins for the company may be decent.

According to the study by some independent organizations, less than 5% consultants managed $10,000 sales.

As many as 70% of the consultants sold goods worth less than $5000.

With a starting investment of $5000, this is not even helping in recovering the cost.

The Lularoe Pyramid Scheme Product Line

Before any discussion about Lularoe pyramid scheme, consider their product lineup.

That is, after all, the reason why it counts as an MLM and not a pyramid scheme.

After all, a multi-level marketing unit always has a genuine product line-up.

The sale of the product comprises a significant part of their revenue.

This is a basic difference between a MLM and a pyramid scheme.

In this context, Lularoe specializes in creating outfits for women and children.

Their product line for women includes

  • Leggings
  • Skirts
  • Tops
  • Dresses

For the kids too, Lularoe has a rather extensive line of offerings.

But you cannot buy these products off the counter or even online.

You can only buy these through the multi-level marketing network.

But then again, unlike retail customers, you can never buy one or two.

You have to only buy in bulk, in wholesale quantities.

So you can then sell the products after buying from them.

The variety and the cut of their products are what woos customers to start with.

Almost always, that is the first reason that people agree to start as consultants.

Their line of leggings especially is a big craze in a segment of the society.

There is a continuous demand for it.

But there is something unique about the trend for their product demand.

The number of first-timers who buy these Lularoe products is much higher.

But the relative rise in return customers is significantly lower.

That again makes you reconsider their operation module.

The products can be expensive, but the quality is crucial.

Let’s see how Amway works.

The world over there are many who may look at Amway as a scam.

But that said, you cannot deny their superior products.

As a result, you have a continuous flow of reliable and loyal customers.

The Lularoe Pyramid Scheme Product Concerns

That is undeniably the key concern for most Lularoe products.

The quality of the products has been consistently bad.

Reports started pouring in from all over the world about the poor standards.

In fact, it has been considered so bad that the US Better Business even downgraded their quality rating.

Lularoe’s quality rating slipped to F given the complaints from all over.

However, that said, there was a consistent flow of new customers buying the product.

Certain times, the associated benefits also spurred demand.

How else can you justify the demand for new items delivered with holes?

At other times, clothes would tear the moment they are worn or washed,

That emphasized the poor quality of the base material that they used.

What was even more appalling was the Lularoe response.

They never apologized for the poor quality of clothes they made.

Instead, the company trained its consultants to teach customers how to wear them correctly.

The line of argument was very simple; if the clothes tore, it was because they didn’t know how to wear it properly.

The Lularoe consultants patiently explained what is wrong in your approach.

As though that was not annoying enough, they also have a lengthy cleaning instruction.

The idea is Lularoe is creating a set standard of product.

But ineffective care from your end is worsening the clothes condition.

Their cleaning instruction includes standard care procedures like

  • Wash the clothes separately in cold water
  • Keep the Lularoe clothes in a separate basket
  • Turn clothes inside out before putting them to wash.
  • Do not wash Lularoe with any other clothes.
  • Do not put Lulroe clothes in a dryer

The list of these instructions just did not end.

They seemed unending, and all geared towards how you have to care for them.

Lularoe Heroes Poor Quality

What is really surprising is how the company managed demand despite this type of poor quality.

For every hole they found in any outfit, it was about either customers wore them incorrectly or washed them wrong.

But that cannot hide the fact that these clothes are consistently bad.

The manufacturing quality is inferior.

But despite that, people seemed to still want to sign for the Lularoe scheme.

They even got friends and family to sign along with them.

But I think this is also a factor that raised consistent alarm bells.

They surely have a product to talk home about.

But why are they churning out consistently bad quality products?

Moreover, the company seems more than reluctant about improving their quality.

Instead, they are more than happy about shifting the blame.

That undeniably raises key questions about their overall business model.

An MLM that seems to further business through direct promotion is not interested in fixing quality.

They are more than keen on continuing with the same type of sub-standard quality.

They are operating with an F rating and quite happily passing on the blame to customers.

The approach that if you got holes in them, then you are not wearing it correctly is annoying.

More than that, it highlights their lack of commitment to creating a better quality product.

So this too spurs worries about a potential pyramid scheme in making.

They have overpriced the product and compromised with the quality.

They are constantly pushing consultants to get new customers.

The line of argument is obvious.

If one set of customers is complaining, they better look for a different customer base.

It is interesting how there is no recorded acceptance of their poor quality.

The Lularoe Pyramid Scheme Business Model

But the question is how long you can fool customers with inferior products?

At some point of time, this will unravel itself.

As a result, it puts the spotlight directly on the Lularoe business model.

It becomes even more imperative to study how they conduct business.

The packages that they offer and how they convince consultants about earning money.

That will, after all, highlight how committed they are about the business.

The question that got me started is are they in the business for inclusive growth.

The company’s mission statement may boast about that, but in reality, the results still need to be seen.

Evidence of any type of conviction in helping others grow is quite minuscule.

In fact, as most surveys indicate that only a small percentage of consultants had made meaningful sales.

Moreover, how is a company that claims to bring about financial freedom compensating clients?

The consultants seemed to have booked deep losses as a result of the company’s policies.

Given the recent changes in their return policies, there were considerable losses.

Consultants had nowhere to look for any kind of grievance redressal.

Most are so deeply invested in the Lularoe story that it is difficult to extricate themselves.

There is this constant urge to try and even out or average out the losses.

The poor quality of the clothes, however, impedes any meaningful sale for a sustained period.

Sustainability is the primary concern at this juncture for the Lularoe consultants.

That in many ways has been the key trigger for recent lawsuits.

The Lularoe Pyramid Scheme Compensation Package

That brings us to the point about how do you go about getting started with the company.

Though on the face of it this is a thriving MLM, why is it courting controversy?

Perhaps the devil about a potential pyramid scheme is in the details.

Your start-up cost to get started with Lularoe is anywhere between $5000-6000.

You can even spend as much as $7500 in certain cases.

So though this program promises to offer you financial freedom, it does not come free.

This is not a zero investment business venture.

You need a sizeable amount of money to get started here.

Moreover, there are no online openings for this.

You have to buy clothes in bulk and then sell them directly.

You do not have an opportunity to undertake affiliate marketing.

Nor can you look to add to your earnings in any other way.

Most online testimonials indicate that Lularoe has three primary types of packages.

  • Package 1: 336 items for nearly $5000
  • Package 2: 365 items for over $5300
  • Package 3: 463 items for nearly $7000

But unlike in other MLM, you cannot buy as per customer demand.

You have to buy any of these packages and then look for customers to sell.

But the deal keeps getting more complicated at this juncture.

The consultants may be paying money for it, but they have no say.

They do not get to choose the pattern, sizes or colors.

So it is quite possible that you get products that do not fit the demographics that you cater to.

The question is then what do you do.

You are saddled with the package and have to look at ways to sell it.

Is Lularoe Pyramid Scheme Worth Your Time?

You have to buy at least 33 new items every month.

Only then, you can maintain the status of an active consultant.

You can argue that probably this initial investment is much lesser than many others.

But then what anybody will be worried is why you will want to go ahead with this type of investment?

You are paying a reasonably large amount.

You have to keep paying the same amount.

But you can still not decide what color or size of clothes that you want.

The Lularoe team will decide it and give you.

If you ask me, isn’t this a kind of forceful selling.

That too when you are looking to gain financial freedom through this sale.

That is what makes the deal even weirder for anyone.

Instead of achieving any type of meaningful advantage, they are getting into debt.

There is just about no mention of how Lularoe consultants will deal with unsold goods.

That, in many ways, becomes a major liability for most who sign up for Lularoe.

User Testimonials of Lularoe Pyramid Schem

Even by keying in the simple name of the company, you will be appalled by the kind of results on Google.

The very mention of Lularoe brings about tonnes of reviews about bad products.

There are many dissatisfied customers who have voiced their concern about bad compensation terms.

Most importantly there seems to be no option for consultants to get redressal.

Online reviews indicate that once you are stuck with the products, you are stuck for good

The question is why is there still a huge battery of consultants ready to take a plunge?

Often they are being approached by those who are stuck.

Moreover, everyone is looking at some ways to recover some amount of the money they have put in.

That is why you still see many gungho Facebook mentions about Lularoe.


When you discuss financial freedom with Lularoe pyramid scheme, I have a simple proposition.

If you really have about $5000-6000 every month, calculate the interest if you make a basic Fixed deposit.

I am not even suggesting any complicated investment channel.

All you have to do is put it in your savings account and enjoy the interest.

Even then you will get a minimum 10% of the money you are putting in.

Then why will you want to get stuck with Lularoe pyramid scheme?

The jury is still out whether it is an MLM or a pyramid scheme.

But the fact is you cannot make money with Lularoe.

Pyramid Scheme vs MLM

The difference between a pyramid scheme vs MLM is a matter of continuous debate.

Many times, you see both these concepts used simultaneously.

While an MLM is primarily a direct sales initiative, a pyramid scheme is traditionally seen as a fake venture.

If you track down historical information, most times people associate a pyramid scheme with quick money making schemes.

Claims about illegitimacy taint both MLM and a pyramid scheme.

So whenever you get into any venture that is either an MLM or a pyramid scheme, it is better to tread with caution.

Pyramid Scheme vs MLMThe product offering is almost the greatest giveaway about the legitimacy of an organization.

As you may have seen in one of the best-known pyramid schemes, the Madoff fraud.

The pyramid schemes by Madoff promised huge returns but delivered nothing.

This may be the case sometimes for multi-level marketing firms too.

But there are exceptions too.

An MLM is typically always a pyramid scheme, but the vice versa may not be true.

It ultimately boils down to the business model and how effective it is.

The revenue generation structure is one of the biggest factors to watch out for.

It is also linked closely to the business model.

This is ultimately the key factor that decides how the profitability pans out.

The core product offering is also a function of the business model.

Moreover, the extent of gains and losses and recruitment drive is also dependent on the model.

But the biggest factor is perhaps the end product.

Irrespective of claims and tall promises, the end product is the most defining element.

That goes on to prove how reliable and sustainable this business is after all.

In many ways, that helps you distinguish between a pyramid scheme vs MLM.

Definition of MLM

So what do you understand by a multi-level marketing firm?

An MLM or a Multi-level Marketing strategy is a unique selling strategy.

The product promotion, advertisement and selling are all via direct sellers and distributors.

They approach the customers on a one on one basis and sell the product.

But the revenue flow is never through this single channel.

Normally an MLM draws revenue from two major sources.

The commission on selling a product and also by recruiting new members in this distribution network.

In this context, the distribution network has similarities with a pyramid scheme.

Often that is the reason that an MLM has courted controversy.

This direct selling strategy depends on referrals quite heavily.

The whole idea of promotion is based on referrals.

The relationship that you share with other distributors takes the business forward.

You approach recruits too on the basis of this relationship.

So there is a huge personal angle in this professional set-up.

The distributors or the members further their network only on the basis of this personal relations.

The entire business cashes upon the personal repertoire of individual members.

The money that you earn in return is the incentive to put these relations at stake.

In many ways, that defines the social and professional dynamics of this set-up.

Stay-at-home professionals operate most MLMs.

From using social networking platforms to networking parties, individual relationships hold center-stage.

Most multi-level marketing firms formulate the growth avenues in a way that it is linked to this factor.

It directly envisages growing through an inclusive route.

But you have to remember that the product is the central force of the business.

It is what defines what the business comprises of.

Therefore, we can define an MLM as a direct selling strategy.

Definition Of Pyramid Scheme

Now the product is the most defining element and distinguishing factor.

A pyramid scheme is structured like an MLM.

But that is where the similarity ends.

The multi-level marketing scheme is often a legitimate pyramid scheme.

But then you can argue what is missing in a tiered pyramid scheme?

Why is it not considered legitimate?

Why is it an illegal set-up?

Well, the crux of the matter is the product.

If you closely study the structure of a pyramid scheme, you will see there is no product at all.

All they are selling at the most is a hope of a product.

There is no product in reality.

This is one of the biggest concern areas about this business format.

All that this business aims at is generating money for the founders.

New members are recruited only because they will help bring in more money.

Your innocence and ignorance is often the biggest weapon for the founders.

They cash-in on this to catch you unaware and rope you in.

The lure of quick money is used to attract people.

Who does not want to make a lot of money?

But the problem is most people forget that there is no short-cut to making money.

So, a pyramid scheme is only focused on making money.

The payouts to the lower rung of the pyramid are often controversial too.

The sale or manufacturing a product is not the focus at all.

Perhaps that is why selling is never an important aspect.

All a pyramid scheme is bothered about is attracting more members.

The money that comes in through recruits is the only moving force.

That is also the fundamental idea that drives pyramid schemes.

Making money on the sly is the only motive for a pyramid scheme.

Product Offering: Pyramid Scheme vs MLM

When comparing an MLM and pyramid scheme, let us start from the end.

Most times an MLM offers a product or a service.

At least a part of the revenue is generated through this way.

Multi-level marketing businesses are structured mostly around this core product.

It can be anything from a service to a consumer durable good.

It can even be a concept or a financial arrangement.

The idea is whatever this end product may be; it helps the company in furthering business.

That is the key factor to take into consideration.

The core business model is structured around the product.

From product development to product promotion, the business centers on this core product.

The business in case of MLM is all about the product.

The product is a source of a significant chunk of the revenue.

But when you see a pyramid scheme, it is not the case always.

Almost every pyramid scheme operates with the motive of making money.

There is very little clarity about the product that they are offering and how it will help in generating revenue.

These are not listed entities either, so there is no surety about the numbers they quote.

So there is no way of knowing the actual revenue that they are earning either.

As you saw in the Madoff case, they kept making false profit claims.

Most times, people who join these pyramid schemes are blinded by their greed.

They are just not able to see the loopholes and accept the profit numbers blindly.

However, in terms of actual product offering, the details are most times very vague.

Almost always, the end product is more like a concept in a pyramid scheme.

Everyone hears a lot about it, but no one has ever seen it in real.

Legitimacy of Business: Pyramid Scheme vs MLM

When you are comparing a pyramid scheme vs MLM, legitimacy is a key factor.

Like I mentioned, the lack of a product is the biggest pocket of concern for a pyramid scheme.

This is what creates the concerns and prerogatives that determine legitimacy.

Imagine going to a shop and buying a product.

Will you ever pay the shopkeeper money just for telling he has X, Y, Z products?

You will analyze the various products and then choose one.

Check the various parameters and then pay for the one you choose.

But this is not the same in case of a pyramid scheme.

You simply pay for a promise.

It is primarily about making quick money.

There are no details and strategy.

You only know that if you can recruit more people, you can make money.

This is exactly why this is an illegitimate business right from the word go.

So how is an MLM any different?

The focus of an MLM is the product that they are selling.

The MLM then becomes a simple vehicle to take the business forward.

You incentivize new recruits in an MLM surely.

But in many ways, that is also the way they promote their business.

You can further a business only when you have enough hands taking it forward.

In case of an MLM, the network of new recruits help extend the reach of the business and the product.

At the end of the day, the focus of the MLM continues to be the product they are selling.

That becomes very important for the company.

In many ways, it also lends legitimacy to the MLM.

The recruits, users and the customers are all aligned in the same plane.

That also becomes the key factor that differentiates both.

Saturation Of The Warm Circles: Pyramid Scheme vs MLM

Both the pyramid scheme and an MLM rely very heavily on the circle of close acquaintances.

They invariably become the first few rungs of the pyramid.

After all, how do you approach complete strangers?

It is much simpler to request your aunt or close friend to try the cream you are selling.

Gradually then you try and coax them to become members.

In this way, you then convince them to become members.

They then approach their friends and relatives.

So the circle continues to grow in this format at a steady pace bit by bit.

But when you are dealing with a genuine and legitimate MLM, it does not stop there.

The circle keeps expanding, and soon you are dealing with a host of complete strangers too.

What binds you together is the product.

So as long as the product is good, you will keep attracting new candidates.

You have the likes of Avon and Amway continuing for 100 years now.

But that again makes us think how a pyramid scheme is different?

The pyramid scheme does not have any product to boast upon.

Even if there are claims, there isn’t any to see for real.

The result, most people are stuck there to recover their money.

The truth of it is revealed pretty early into the pyramid.

The problem is you have already made a significant amount of investment.

You then start nurturing the hope of at least getting back some amount of money.

But as the lie starts getting exposed, recruits too start dwindling.

Slowly but surely, this flow dries up completely.

As a result of that, the fund flow stops completely.

Soon the pyramid scheme collapses.

The only people who may have made money are the founders of the pyramid.

MLM Companies Nurture Cults

Sustainability is a cardinal element for MLM.

Unlike pyramid schemes, these are never fly by night wonders.

They continue operations for years, generations and centuries for a few.

But the question is how an MLM can remain relevant for that long.

You have to create the need for the product.

That will then help generate demand for this product.

That is where the need to create cults comes into consideration.

In many ways, multi-level marketing is also relationship marketing.

They involve direct one on one selling of the product in consideration.

Creating a cult makes you part of an exclusive circle.

That also gives you the impetus to grow the circle in a steady fashion.

It slowly grows like a huge ant hill.

All your immediate family and friends are part of it.

They have even gone ahead and involves their own friends and extended family.

This has meant that a lot of time, people are also okay with losing money than breaking off relationships.

This is how a lot of MLM continue to grow despite not making money for the members.

Each one is busy trying to average out cost and keep the relationships intact.

Everyone in an MLM is going forward with the hope of recovering the cost.

There is also a feeling of bonhomie between the members who are in this struggle together.

In order to recover cost, they often try to start using the product themselves.

That then becomes their habit.

So when you are used to a certain product, you also grow comfortable with it.

That is all part of a typical cult system.

Compared to this, a pyramid scheme normally collapses a lot earlier.

There is never enough time for people to nurture the cult feeling.

It collapses long before that.

Caution Important: Pyramid scheme vs MLM

However, despite all of these differences between pyramid scheme vs MLM, caution is important.

An MLM is a legitimate pyramid scheme after all.

Even in the most successful MLM, the bulk of profit is hardly from the product.

The major chunk of the profit is derived from those who sell the product and the recruitment by them.

The amount of commission is minuscule, so the real motivation is almost always about getting more people.

The more the people join the MLM, the better the chances of individual gains from incentives.

This is why the incentive for getting new people is always higher.

Only what works in favor of an MLM is there is a real product in the offing.

This means that the interest for it can be sustained for a longer duration.

Additionally most MLM deal with consumer necessities.

That means the overall interest will last if the product in consideration is good.

The compensation plan is however never based on the product offering.

It is primarily about how effectively you can rope more people in.

In that way, the objective of a pyramid scheme and an MLM converge beautifully.

Only number of recruits will help members earn more money.


Either you join an MLM or a pyramid scheme, the scope of profit remains very low.

Most times, the only people who are making money are the founders.

The main source of income is all about recruiting new members.

At the end of the day, the product promotion may matter to an MLM.

But buying the product will erode all your profits.

The chances of making money in an MLM are almost as low as that of a pyramid scheme.

Before you join either an MLM or a pyramid scheme, thorough research is necessary.

You must be very clear about what to expect.

In that context, meeting former distributors or members can help.

But legitimacy is the only difference between pyramid schemes vs MLM.

The profitability remains questionable and there is no comparison between pyramid schemes vs MLM in this context.

Top MLM Companies You Must Know

The list of the top MLM companies is a very dynamic one.

It depends on a huge number of factors.

From the kind of product on offer to the type of response, there are several aspects.

Most importantly, the MLM should help people make money.

That is by far the most important factor.

The reason why any multi-level marketing company comes under the scanner is the business model.

This is exactly why we have created this list based on sustainability.

The ability to thrive through ups and downs is very important.

Think about why Amway or Avon are so popular amongst MLMs.

The long-term sustainability is a key consideration for any great MLM.

Needless, to mention, it depends a lot on their business model.

The frequency with which they can offer earnings becomes a crucial factor.

That alone decides how dependable the story is.

However, attractive the core story may be, if it does not make money, it is no good.

Moreover, that alone will decide how well they can manage demand.

This is because demand is a direct function of profitability in the market.

The absence of profitability and effective revenue generation will immediately impact response.

Here is a quick look at some of the top MLM companies.

The Top MLM Companies

Here is the list of the top MLM companies and their full analysis and description:

  1. The Wealth Network
  2. Herbalife
  3. 4Life
  4. NewULife
  5. Motorclub of America
  6. Rodan and Fields
  7. Advocare
  8. Pampered Chef

1. The Wealth Network

The Wealth NetworkThe business model is similar to how most top MLM companies operate.

However, this business does not have a multi-tiered payment policy.

But whatever type of membership you choose, you will get 40% of the proceeds as commission.

Just like most other MLMs, you join this firm for free.

However, there are other related products that you have to promote alongside.

That is not for free and have to pay upfront for them.

The revenue generation starts from this level.

The kind of upsell that you clock, decides the extent of your income.

However, there are various tiers of membership that you can choose from.

One of the most interesting features is the circle of affiliates they help you create.

Unlike most other affiliate programmes or MLMs, the stress is never on tapping your warm circles.

The idea is when you contact them, the number of ‘No’ and ‘ignore’ will be much higher.

Moreover, this warm circle exhausts after a certain period.

But when you approach complete strangers who evinced an interest, the success potential increases.

This also improves the sustainability aspect for individuals trying MLMs.

2. Herbalife

HerbalifeThis is a health nutrition maker and is amongst the most popular multi-level marketing firms.

It has expanded its operations in over 75 countries.

It has close to 2.5 million members as of now.

For a company that has started in the 1980s, it is a significantly big jump.

They have a wide range of product options and has a cult following in select Latin American countries.

However, you can think how it can be amongst the top MLM companies, despite claims of scams.

The fact is it had spats with the FTC with respect to the business model.

The company had to pay $200 million to former members as compensation.

But they are now in the process of business reorganization.

That said, the core business model looks fairly dependable.

The compensation plan is fairly well structured and offers decent revenue generation opportunity.

Additionally, members earn profit on every packet that they sell.

It means that the commission too forms a formidable part of the income structure.

Unstructured recruitment is one of the most important reasons for so-called failures in income generation.

The stiff competition and a massive number of members have also resulted in muted impact.

3. 4Life

4LifeThis is undeniably one of the most popular health supplement manufacturers globally.

When you search for 4Life reviews, almost 90% is positive.

That goes on to signal that perhaps the company is doing more things right than wrong.

Its flagship product that supports the auto-immune system has been acclaimed as a great product.

However, if you think that this is a magic wand that can help you become rich overnight, you are mistaken.

Just like every other MLM promoted product, you have to look at gradually creating the market.

The scaling up of business happens as an extension of it.

The idea is about providing families better nutrition levels across the world.

They call their compensation structure at the Life Reward Plan.

Quite needless to mention, it offers significant scope to grow.

They pay four times every month and in a certain case, 64% of the points amassed.

The overall plan about seven ranks in all.

The more ground you can cover, the better is the compensation structure.

That surely makes this an extremely attractive MLM proposition for members.

Though you can join the MLM with a bare minimum investment, it continues to yield favorable results.

What is particularly positive is the global acceptance of the product.

All over the world, the 4Life products have gained a certain amount of acceptance.

It is quite hard to find negative reviews about it.

In a way, that proves one fundamental factor that you cannot doubt the efficiency of the offer.

Moreover, that also goes on to establish 4Life amongst the top MLM companies.

The core point being that good quality product will undeniably ensure a better profit.

Profitability and effective revenue generation are after all the key elements.

They go on to decide on the authenticity of any product in long-term.

4. NewULife

NewULifeThis is another US-based wellness form.

It has catapulted in the list of the top MLM companies primarily on the business model.

The health and wellness niche is one of the most popular ones in the MLM space.

They offer FDA registered human growth hormone products.

These products are laced with a variety of health benefits from improved stamina to better heart rate and regulated blood pressure.

The compensation plan is multi-pronged like most multi-level marketing firm.

Members earn from selling the product and also recruiting more affiliates.

The compensation plan includes a total of seven levels.

The compensation level is totally dependent on the number of products one sells.

The residual compensation through a binary compensation method is an additional benefit.

So as you move up the cycle, the remuneration also increases in typical MLM style.

There is also a bonus element that gets incorporated with the rise in the levels.

Therefore, the expected list of benefits is quite stupendous.

But at the same time, the fine prints make it a much less impressive story.

Another key point to remember is that they have a FDA registered product.

The management is fairly silent on the potential approval outcome.

5. Motorclub Of America

Motorclub Of AmericaThe list of the top MLM companies comprises a varied range of companies.

There are some that may have a great revenue generation model.

At the same time, there are others which are phenomenal MLM stories.

Though profitability is important, the profitability of customers may not be the only concern.

In many ways, it is about highlighting MLM stories who have held their steed amidst tough competition.

The Motor Club Of America is amongst the oldest MLMs known so far.

Established in 1926, it is pretty much in the League of Avon and Amway.

In business for a little under 100 years, they operate in 50 states in US and Canada too.

They have over 6,000 repair centers and automobile service centers across the world.

However, this company does not sell motorcar insurances.

The members pay money to get the advantage of a variety of other services

These range mostly across a wide range of roadside assistance services.

So whether you are looking at tire change, filling up fuel, boosting battery, they cover it all.

These services are extremely beneficial for many who undertake frequent road travel.

It also helps members with travel assistance, reservation and other planning needs.

The benefits for members even account for discounts on prescription, dental treatment and the like.

Needless to mention, members get an advantage depending on the sale of distributorship.

While the service per se may not be bad, the level of income it generated is questionable.

It is possible that after spending a lot of money and time, you may not find enough customers.

That is a major source of worry about the firm.

It cannot be sustainable as an alternative source to raise money by an individual.

However, the fact that company has survived so long reflects some subtle demand.

6. Rodan and Fields

Rodan and FieldsAnother top ranking MLM company, this deals with skin care products.

Most of the reviews online indicate a largely positive outlook.

However, the products are priced slightly towards the higher end of the range.

This though is not any miracle cure for skin problems.

So in terms of value for money, it may not be very attractively positioned.

If you simply judge the product performance parameter, it may not be a great option.

But if it counts among the top MLM companies, it sure needs a relook.

Especially the business model of the firm needs to be analyzed carefully.

However, there is no different story outlined either.

Overall you can say that the story is lackluster one.

While the product is developed by some well-known names, the efficiency is mediocre.

In terms of the MLM structure too, there isn’t a huge difference either.

While the product is pricey and the company is making money, the same is not true about members.

Perhaps this is also a reason that it is not as popular globally.

Moreover, the products are priced significantly higher than peers.

The cost factor limits usage to a large extent.

The commission component is much lesser when you compare to options like Mary Kay.

You can attribute this to a flaw in the overall business model.

Primarily this system is created in a way that encourages the sale of products.

Product promotion is the primary objective of the business structure.

That is the most striking element of the overall MLM layout.

Profitability for individual members is a distant dream.

Perhaps a better idea is to try out the products as a retail customer before you take the plunge.

At the most, you can hope to earn some extra money being a member of this MLM.

7. Advocare

AdvocareThis is yet another dietary supplement product that has opted for the MLM route.

This company offers a wide range of products including vitamins, minerals and other nutrients.

The ultimate objective is promoting health and wellness of the users.

Just like 4Life, this too has a special appeal for sportsmen and other personalities.

On the whole, if you study the business model carefully, it is a mid-level MLM.

You can be a registered customer with the company, or you may also qualify for discounts.

If you are keen on additional income, you can also qualify for the role of a distributor.

Primarily these are the only two available positions in this MLM.

You can either be a distributor or a customer with Advocare.

This Texas-based company also has an A Plus rating from BBB.

BBB stands for Better Business Bureau and lending it considerable credibility.

As a distributor, you can get these products at 20-40% discount on an average.

That undeniably offers a significantly large window to book profit if you are interested.

Its product line primarily targets weight management and enhancing athletic performance.

On the whole, you can either opt for the 24-day challenge or the 10-day program.

However, a detailed study will reveal that the ingredients used cannot be trusted completely.

The complaints on BBB also point to a certain trend.

The concern is you have multiple sources of complaints about the efficiency of the product.

Many online reviewers, who personally tried this product, have given a thumbs down.

So the risks seem to weigh heavily on the entire lineup.

After all who wants to spend a lot of money on a product that may not help them?

If you want additional income, perhaps it is a better idea to save it from spending on these products.

8. Pampered Chef

Pampered ChefThere is so limited information about this MLM,  that doubt reigns all around.

Almost the first search result about it is whether this is a scam or legitimate business?

That surely engulfs the entire MLM in a cloud of doubt.

Are you then wondering why would I put it on a list of the top MLM companies?

Well, this is a product line geared towards pampering chefs, as the name indicates.

They sell a wide variety of kitchenware and cooking aids.

Established in 1980, the business has been building a base gradually over the years.

What adds a lot of credibility to it is that Warren Buffett’s Berkshire Hathaway picked it in 2000.

That alone highlighted the strength of the business fundamentals.

The Oracle of Omaha, an investment guru, has earned the reputation of backing strong stories.

The fact that he bought the company and appointed a CEO to run it says a lot about its potential.

The current business structure is also an outcome of this association primarily.

They start from basic accessories and expand to a range of options including stoneware.

Like most other multi-level marketing firms, their compensation is commission based.

So apart from selling the products, you can even expand your own team to earn more money.

You get a percentage for every recruit, discount on product and bonus payouts too.

So this is an out and out MLM outfit.

The profit percentage is closely linked to the projected commission and recruit potential.

Just the product sale will not churn a profitable proposition for you.

That way, the compensation plan is very straightforward.

The product cost is also in the affordable bracket.

However, it may still not be sufficient for a long-term living.

Sustainability is a decided problem with them.


So, all in all, the list of top MLM companies is pretty varied.

Assessment of the revenue generation potential is only one aspect.

There are several other elements that you have to pay attention to.

The most important aspect is, of course, authenticity and credibility.

But that is also subjective in certain cases.

Most times, those who are successful post rave reviews.

But those who have failed post negative reviews.

MLMs are not everyone’s cup of tea.

It needs decided strategy and sharp business planning.

Only that will ensure sustainable profitability.

We have taken all these factors in creating our list of top MLM companies.

They don’t just have a great product or affordable rates.

They are also facilitating an easier money-making opportunity for people.

That is what makes them one of the top MLM companies.

What Is Income Statement?

The income statement is one of the most important financial statements.

It is not just a statement listing out the income details of a company.

In many ways, it is one of the most crucial documents to assess a firm’s financial health.

It is the broad summary of the variety of revenue inflow and potential income avenues.

This is why often it is the most important representation of the future potential

It lines out the kind of income that a company has.

It is also an indicator of the kind of revenue you can expect in future.

What Is Income Statement?That means if you are taking a call on the investment worthiness of the company, this is important.

After all, we always refer to the financial health of a firm before investing in it.

Depending on the kind of income projection a firm has, you can take a call on future.

It will help you outline the type of growth a company may see in future.

On the whole, the income statement gives a broad view of the average growth outlook.

For example, if you are a VC looking at potential investment targets, you will refer to the income statement.

This is by far one of the most important documents to refer to.

It highlights the firm’s potential to generate long-term income.

So, it will help you get a fair idea of the kind of returns you can expect.

It will also help you assess investment opportunity in the particular firm or sector.

Most importantly income statement is similar across industries.

So you do not need any special skill to decode this statement in a comprehensive manner.

Definition of Income Statement

So how exactly should we define an income statement?

In many conditions, it is also termed as the ‘P&L’ statement or the profit and loss statement.

So you can well imagine, it the detailed account of the revenue generated and expense incurred.

In fact, this is amongst the most important financial data.

It figures prominently in any company’s annual report.

Also, it is an important and an integral part of all legal transactions.

Furthermore, it is one of the best representation of a company’s financial affairs.

It is the only document that gives a broad view of both the sales and the income.

The income statement can be very specific too.

It does not just offer a picture of the annual income, but also small time periods.

You can even break it down into smaller units.

The lowest of the lot is undeniably the earnings per share or the EPS value.

So an income statement helps you in ascertaining the valuation to the smallest level.

Normally an income statement has two fundamental parts.

It is divided into operating and non-operating parts.

As you can understand, the operating statement gives you details of the direct revenue flow.

This also includes the expenses that you may have incurred to fund the regular operations.

The non-operating part of the income statement covers all the other expenses and revenue sources.

Let me use an example to clarify my point.

Let us assume I have a bakery business.

I earn x% profit every month.

The operating part of the income statement will list out the revenue and expenses incurred in making and selling the product.

But I have also been investing a part of the profit every month.

The income from that will then be part of the non-operating segment.

Earnings Component Of Income Statement

So what are the primary parts of the income statement?

There are many elements to provide the complete revenue a list.

Revenue Inflow

In very simple terms, it is the money that you get from the sale of various products.

Whatever the company has to offer, this records the desired income flow.

In many statements, there are other related terms like sales, net income that are used.

Most statements refer to it as ‘top line’.

It completely highlights the overall revenue picture.

Every penny that comes in is accounted for under this head.


This is an essential component of any income statement.

In very simple words, it is the essential money you can make after covering the input cost.

So it is revenue minus every imaginable expense.

This will also include tax liabilities and administrative costs, wages and all such elements.

This also includes non-cash entities like amortization and depreciation.

Gross Profit

Now this is where the income statement gets to specifics.

This is the difference between the revenue and the cost of goods.

So this helps readers get a better idea of the actual profitability of the business.

This figure also has a bearing on the overall margins.

Operating Income

This is what you get when you subtract the cost of goods and operational expenses from the key revenue.

This is why it is also referred to as earnings before interest and taxes, the EBIT number.

Expense Components Of Income Statement

Here is a quick summary of the overall expenses in the entire statement:

Cost of Goods Sold

This is one of the most important expenses incurred.

It is the direct cost of every single product that is put up for sale.

So this includes the material cost, cost of labor, resource mobilization, machinery, etc.

It fairly details out every penny that is spent in the creation of the product.

Operating Expense

Operational costs are also an important expense for a business.

Often the amount of research work done, the type of administrative expenses incurred fall under this head.

In short, it is every single expense that is important to keep the business operations.

From the smallest stationary to the electricity cost, it includes all.

Even the patent filing expenses and other legal documentation is part of this expense.

Depreciation Expense

It refers to the depreciating value of the machinery and the other tools that are required for production.

Every asset that the company owns for a long time has to be valued as per current rates.

The income statement carefully records every small detail regarding that.

Other Income/Expenses

Now this is a unique element that is mentioned in both the expense and income list.

As the term indicates, it is every other income or expense that is incurred by the business.

You can have interest income or expense, the tax expenses or refund, and many similar miscellaneous items.

These are also crucial data points and form an important part of the overall income statement.

Why Do We Need Income Statement?

Well, I mentioned right at the behest that an income statement is necessary to understand the financial condition.

But is that the only purpose or utility of an income statement?

Well, this statement is a key financial data point for many different types of analysis.

Research analysts use this statement to calculate many important financial ratios.

These include the

  • ROE or the return on equity
  • ROA or the return on assets
  • EBIT numbers or earnings before interest and taxes
  • EBIDTA or earnings before taxes and amortization

So, in short, every small and big financial ratio takes this number into consideration.

Analysts can also break up the individual elements into percentage format.

This helps in assigning what expenses made up the maximum chunk or what income was the key element.

In short, it provides the most relevant profitability analysis.

Most importantly the income statement is never for a specific time period.

You can refer the data from the previous quarter or even financial year.

A typical income statement will at least offer 2-3 years of historical data.

That plays a very important role in analyzing data matters especially when you are drawing up the comparison between multiple companies.

For many active investors, these comparisons are the primary pillars of a great investment.

It helps them in thoroughly investigating the overall financial health of the firm.

The EBIT and EBITDA numbers also bring a more realistic assessment of a firm’s debt liability.

Therefore, it just does not tell you about the current debt but also about the future liabilities.

This is because the future interest cost will also depend on the company’s ability to generate revenues.

As a result, the income statement gives readers a comprehensive view of the overall financial strength of the business.

How To Format An Income Statement?

So now the question is how to compute the income statement?

It sure is a record of some of the broad expenses.

But there is a set format to write it.

In fact, the income statement does not differ with the industry.

So there are two primary ways of formatting it.

Single Step Method

This is decidedly the most basic formatting type.

In this, all the revenue is added and then subtracted from the expenses.

In one single step, as the name implies, you get your income account and profit data.

So you can well understand that this is a straightforward and uncomplicated way to compute profit.

But this will work only in the select situation.

Many times, you may have to furnish more details than that.

Multi-step Format

In this case, you need to calculate quite a few things.

The bottom line is actually the final bit of the entire income picture.

Needless to mention, it is a fairly more time-consuming format.

You have to first jot down the operating expenses and the gross profit.

After that, the operating cost is subtracted from the gross profit.

You get the operational income.

After this, you will have to subtract the other expenses and add the other income.

So you get the overall profit before taxes.

You can subtract the tax liability from it to get the actual profit after tax.

This is the net income or the actual bottom line.

This is by far more specific, and as a result, the income statement is more detailed.

That is often very important when you are calculating key ratios.

A broad addition and subtraction as in the single step format do not work effectively for much detailed analysis.

The multi-step format is, therefore, more accurate.

How Is Income Statement Different From Balance Sheet?

We have already mentioned that the income statement is one of the three most important financial documents.

The question is how is it any different from the balance sheet?

The balance sheet is also an account of profit and loss.

The balance sheet too accounts for the operating costs and margins.

But, it is still not the same as the income statement.

There are some unique differences between the income statement and the balance sheet.

On the whole, you will notice that a balance sheet is an account of assets, liabilities and equity.

Overall the assets include the investments, both short and long-term and assets.

They also include the liquidity and the receivables by a business.

This also accounts for fixed assets like real estate and long-term ones like Fixed Deposits.

So in short, assets both tangible and intangible are listed under this head in a balance sheet.

The investor looks at each and every value and then adds them together to get the final value.

Now, what does an income statement do?

Just like balance sheet, it is also an account for the overall current valuation.

The actual worth of the business is manifested in the income statement.

The income and expenses are listed under operating and non-operating parts.

It essentially deducts every expense from every revenue source.

In step by step process, you get the net income.

That essentially means you have to keep excluding the other expenses.

The other income too has to be included in a systematic manner.

When all these numbers are computed together, then you get the final net income number.

This, therefore, means you have to study the balance sheet and the income statement together.

Proper analysis of both will enable an effective assessment.

How Is Income Statement Different From Cashflow Statement?

The question is what is the basic difference between the income and cash flow statement?

The cash flow statement records cash usage for a business during a specific period.

The income statement, on the other hand, measures the overall financial performance during a period.

The cash flow statement is very specific in this context.

It will provide exact details of cash generated and used.

The most basic computations are for a month, and it keeps increasing thereafter.

So, as a result, it highlights the current transactions and all potential changes in the balance sheet.

So, cashflow statement records any increase or cut in the amount of receivables.

However, the non-cash components are not specified in the cash flow statement.

So, it is a better reflection of the short-term liquidity consideration of a business.

The overall funding required and used in a shorter period is captured quite accurately.

The result is that several other elements like amortization and depreciation are not recorded here.

These are non-operating expense elements.

But at the same time, you cannot assess profitability properly without these figures.

So if you are trying to analyze if the business is capable of addressing daily expenses like labor wages and the like, it is the key data to look at.

However, the income statement is broader based.

It records revenues, total expenses and other related costs.

So, be it the depreciation rate or other non-cash elements, this is a better reflection.

It provides a distinctly longer-term viewpoint when you compare with the cash flow data.

It can also differ and can include longer time frames.

As a result, this gives a better assessment of the company’s financial performance.

So if you are keen to understand the financial strength of a company, the income statement provides a better analysis.


An income statement well represents the success or failure of the business.

The main goal of computing this statement is to highlight the quality of business in pure numbers.

When your income statement shows steady revenue and profit, there is something else that you should know.

It highlights how successful the average quality of the business is.

Normally this income statement is computed on a monthly basis.

That means that it can be extremely specific, and highlights development over a limited period.

So if you are keen to analyze a business’ financial strength, the income statement is a reliable option.

The income statement well represents overall earnings, profit and loss.

The Best Residual Income Ideas

Do you prefer to be self-employed?

You don’t particularly enjoy the idea of doing a 9-5 office job?

There are many residual income ideas that you could explore.

You would have to put in some hard work in establishing this source of business or livelihood.

But you can enjoy the benefits for a relatively longer duration.

Residual income is the income that keeps coming even when you stop working.

There are some businesses that can generate residual income.

But they do it only when they have been promoted enough and have been taken off the ground.Best Residual Income Ideas

However, many of them need a lot of money and effort to be built.

For example, you can build some rental buildings and then rent the apartments and offices.

This is known as one of the best residual income ideas.

While it only needs some maintenance, it makes a reasonable amount of money every month which is known as the residual income.

But you already have to have a lot of money do this.

What Are the Best Residual Income Ideas?

Here is the list of the best residual income ideas and opportunities:

  1. Rental income
  2. Earning royalties
  3. Sell course online on membership basis
  4. E-commerce store with dropship facility
  5. Build a mobile app
  6. Data technology

The above residual income ideas and opportunities, in general, comprise of creating some long-term income sources.

They help you create opportunities to get involved in multiple channels at the same time.

Moreover, these residual incomes also provide you with more flexibility.

However, keep in mind that although they are among the best residual income ideas, there some other ideas that are even better.

I will let you know at the end of the article.

Learn about each idea in details:

1. Rental Income

This is perhaps one of the best classic residual income ideas.

In this, once you create some real estate and lease it out, you can continue to get residual incomes from it for as long as you keep it on rent.

Of course, you have to spend a lot of money in creating the real estate asset and maintaining it.

But beyond that, your day to day involvement in the core business is quite minimal.

You just have to get a professional broker.

He has to get you a regular flow of tenants.

He also has to do a bit if running around in getting the lease deeds done and follow up on the rent amount.

Rest, there isn’t too much of engagement that is required on a day to day basis.

The problem is, for those who don’t have enough money to create the rental real estates, this idea is out of the list already.

You have to put a lot of money at the beginning.

It takes a long time to recover it through the rents.

Therefore, you have to be financially strong to become able to go for this great residual income idea.

But be patient.

You make and save enough money through the other opportunities.

Then you will finally become able to go for this residual income idea to grow your wealth even more.

2. Earning Royalties

Written a book or created a music album are also some great residual income ideas.

You can continue to earn royalties long after the book has been published.

Of course, you need to put in significant effort in getting the entire process going and generating matter for the book.

But once that is done, you don’t have to toil any further for it.

The rest of the game is pretty simple.

The sales keep happening, and the royalties keep coming to your account.

Given the ease of operation, you can even look at publishing eBooks instead of hard copies.

You have to make the whole effort even simpler and with a far less gestation period than a regular book.

This will be a quiet time taking process and involves multiple media.

Also in an eBook, you get the option to optimize the SEO aspect and rake higher with the same effort.

Even after paying your affiliates, you will be able to make a significant amount of profit.

You will generate a sustainable long-term residual income source.

Please note that the amount of the residual income that this idea leaves for you is strongly dependent on the quality of the book, e-book, album, training video course and…

It has to attract people and goes viral over the Internet, otherwise it will be wasting of time and money.

3. Sell Course Online on Membership Basis

Other interesting and often used residual income ideas include the sale of courses online through a membership based program.

In this case, you would generally need to create a multi-media driven website selling comprehensive course materials.

Of course, you would have to work hard to ensure that the course that you choose to provide significant demand.

It has to cater to the interest of a large number of people and can make pronounced impact on the lives of all those who undertake the course.

The way you will generate revenue is by creating a subscription or membership model whereby interested users can access the information for a specific price.

In this way, you then create residual income and channelize the same time for pursuing other important initiatives.

You can also work on further upgrading the membership plans and attract more clients or members through even based discounts that can help them get better value for the money that they put into your course.

Additionally, the convenience with which you can undertake an online course often makes many opt for these courses in comparison to a physical classroom format which can be far more time consuming.

4. E-commerce Store with Dropship Facility

This is another common idea to generate residual income by many enterprising individuals.

Additionally, when people realize that they can pursue this type of an initiative along with their day jobs, it further adds to the appeal of the course and encourages them to go ahead.

Your drop ship ecommerce store can be for anything from handicraft to clothes to curios.

All that you have to do is invest time in understanding the market and generate capital for the basic investment in setting up the e-commerce store.

When you organize dropship facilities, it means that you do not have to invest time in getting a warehouse separately or invest in the upkeep or acquisition of the materials you sell.

All you are doing is getting the interested buyers and sellers under one roof and making a cool percentage as a facilitator of the service.

This also means your overhead costs are quite limited and by that extension, your residual income would be significantly larger.

This can then be counted as a sustainable and dependable source of long-term residual income ideas that a resourceful and interested individual can easily explore.

5. Build a Mobile App

It is a mobile world with zillions of ideas and opportunities especially for those who are interested in generating some residual income.

Almost our entire daily routine is very deeply entwined with our mobiles.

These days, you have a plethora of apps helping us go about our day to day work like ordering vegetables, buying medicines, listening to music, ordering cinema tickets and what not.

The possibilities are innumerable.

All you have to do is identify a niche that nobody has explored thus far.

Then you have to go ahead and develop an app that can make a difference to the lives of many.

Your gain from the entire operation is that you will be able to generate residual income by making this app available on Google Play Store or similar platforms.

The more the number of people uses your app, the bigger would be your average gain from the entire operation as such.

Of course, you have to make some initial investment in identifying the niche area, mobilizing awareness and marketing the product that you are selling.

After that, based on the actual utility factor, you can easily make a sizeable profit from this effort and enjoy the fruits for a long time.

There are so many Residual income ideas are floating around us.

The trick is to identify the appropriate platform to capitalize on and make it big.

You have to understand that your focus should not just be on creating a source of income.

You have to focus on generating the residual income without your active involvement beyond a point.

This will then help you channelize your energy on multiple fronts in one go.

6. Data Technology

All the above ideas are great to create some decent residual income.

Even some of them like e-commerce, online membership, mobile apps and… are part of the Data Technology system.

But none of them are 100% based on the data technology.

Data technology has opened some new doors on entrepreneurs to make money through the Internet and from home, even to become even millionaires.

Data Technology is above the top and best residual income ideas that I listed above.

To create some many of the above businesses, you need a lot of time and money, sometimes even millions.

But you can become a millionaire data technology entrepreneur almost for free, compared to many of the other ideas and opportunities.

It needs some time and energy to take the business off the ground.

But it is a lot easier than the other ways, and its income potential, specially the residual income potential, is a lot higher.

Learn more here.

Cash Flow Management Strategies for Your Business

Cash flow management is among the top most challenges for any entrepreneur.

The simple fact is that it is not just sufficient to get funds to start a business.

One must look at ways to create a steady flow of funds that is necessary to keep the business alive and sustain day to day running of the organization.

It is after all important to remember that effective execution is the only way to make a great entrepreneurial idea succeed.

For that reason it is necessary to keep the finances in place.

Almost 75% of entrepreneurs agreed that cash flow management remains their top challenge.

In fact, study and many leading StartUp data reveals this.

Nearly 47% entrepreneurs consider personal finance stress as primary.

They admit to having either faced the issue or continuing to face it for an extended period till the time business stabilizes.

Cash Flow ManagementAn entrepreneur’s personal finances and the cash flow management at the startup are very closely tied up in the initial stage.

Therefore, one can only fathom the importance of having an effective cash flow management for the proper functioning of business.

Do you know what is the second most common reasons for businesses failing or companies being forced to shut down?

Inadequate cash flow management and running out of sufficient funds.

Detailed study of over 100 startup failures indicates this.

The problem most time is that while gathering funds could be an uphill task.

But spending it efficiently and wisely is a greater challenge.

The importance of this can be well understood by the fact that most entrepreneurs consider gaining expertise in accounting and finance as a crucial element for recording better success.

As Tim O’Reilly, founder and CEO O’Reilly Media once said,

“Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations.”

The fact is that ‘cash is king’, after all, your employees need to paid regularly.

Therefore, it is true about all the rent and the long list of monthly payment outgo that you would have.

As an efficient entrepreneur, you need to keep no stone unturned in ensuring that your business remains a well-oiled machine run with the cash that you are able to generate.

The Problem Areas in Cash Flow Management

You would realize that most businesses or entrepreneurial ventures that fail are often.

The reason is that they are not able to manage their cash flow better and hardly.

They are not able to generate desirable returns.

The two main reasons why this happens is because:

  • Often entrepreneurs set unrealistic targets for the projected cash flow management from a start up. They invariably overestimate the projected income and underestimate the extent of expenses and payment outgo that they need to meet up on a daily basis to keep the business running effectively.
  • Another key reason is the fact that entrepreneurs often are not able to gauge the extent of cash shortage that they might face. This is because of a poor or no proper cash flow management strategy As a result they are forced to suspend operations to balance out the input and output of funds and the overall debt equity ratio that the business is based on.

In this context, one fundamental problem is perception, especially about cash flow management and profitability of business.

Let us understand very clearly that profitability is never same as generating cash flow. It is always important to remember that:

Profit is essentially the difference between the expense incurred and the income generated.

It is invariably based on the numbers recorded when the sale is booked and when the expense is calculated and is never on actual payment received or bill paid.

Cash flow in comparison is the difference between the actual inflow and the outflow.

As a result cash flow goes on to include either working capital infusion that an entrepreneur may resort to or any other type of debt financing that the company has to go through to ensure the smooth functioning of the business without any possible break or stoppage.

Ways to Project Cash Flow Management

That surely brings us to the next port of call in the cash flow management trail.

It is about how exactly do you need to project cash flow to gain a reasonably realistic estimate and not compromise the business basics of your organization either.

One of the simple approaches would be to stick to actuals and project only what can be realistically assess.

So this includes:

  • The actual cash in hand- your personal savings, money in hand and actual bank account balance
  • List out the anticipated fund inflows including customer payments, debt collection, earnings from interest and money that the company might earn from its investment
  • The next logical step after this is to list out the outflow as well in equally detailed manner. This should account for monthly salary payroll, overhead payment, tax liability, possible debt payment and also possible liability from future tax obligations
  • You must also list out the future expenses that you might have to incur like investing in new machinery, expenses for creating brand awareness and other marketing initiatives.

Once all these elements have been accounted for, your next step involves putting them in an excel sheet in a proper order.

This facilitates regular assessment and update of the same without any kind of problem and harassment in following of a proper cash flow management strategy for your business.

– Cash Flow Management Software

As a first time entrepreneur, you can even look at taking advantage of the many interesting and easy to use software that are available for easy accounting.

This regular updating is crucial as it will keep you abreast of any negative cash balance that you might register.

You have to remember that even a small amount of negative cash balance can be a huge problem for the business and in no situation can the business run smoothly with negative cash balance.

The regular accounting helps you to stay on top of this problem at all times.

In fact in the interest of your company’s long term gains, it pays to be exceptionally conservative in this aspect and keep the inflow estimate on lower than expected levels and projected outflow at the higher end.

What this instantly seeks to achieve is a small buffer that will help you tide over possible exigencies that you might face during the course of running the business.

Remember ending up with negative cash flow almost invariably means loss of business, trust and credibility and that is a big ‘avoid’ for a startup trying to buy a successful business model.

Another effective tool to rein in your cash flow management is tracking the actuals.

Compare and contrast the projected numbers with the actual cash flow as and when required.

This will not only help you stay updated on the company’s business but also help you gain a realistic idea on the expected level of cash flow from a specific function or endeavor.

This kind of exercise also goes well in helping entrepreneurs learning from past experiences and creating better buffers for future transactions.

Better Cash Flow Management

So that brings us to the fundamental aspect that what and how should you go about following a cash flow management strategy in your firm to create a strong gateway for future successes.

The two main aspects are managing the receivables better and organizing the payables in a clear manner to ensure that there are no major slip ups.

1. Tracking Your Receivables

1) Remember that in most businesses, you are never paid instantly and that by far, is the most important reason why cash flow management problems come to foray at all.

This is exactly why effective tracking and management of receivables is so important.

The trick is to create some easy to implement and effective alternatives to ensure better flow of the fund that you expect to receive.

2) You can begin by offering discount to customers for faster payment of bills.

3) Make deposit payment mandatory while placing orders.

4) Do away with outdated inventory that might result in greater fun outflow than inflow

5) In the case of non-cash paying customers, accept orders only after a thorough credit check.

Remember it is always better to have one customer less compared to having a problematic customer.

6) Make it a practice to issue invoices as soon as you accept orders and follow them up meticulously for faster delivery of receivables.

This will ensure that the pace of receiving payment will rise instantly and bring in better fund inflow.

2. Payables

The next challenge, therefore, is that you also have to organize your payables in a way that there is no sudden and urgent outflow and every month the payment and inflow happen in a well-regulated fashion.

Putting in a proper system facilitates not just better cash flow management but your company also gains by avoiding late payments in many instances.

This also helps in keeping a check on expenses.

Remember there is no room for complacency, and if not reined in on time it will only result in a bigger gap between inflow and outflow leading to future cash flow trouble.

Just like in case of receivables, create a system for payables too.

Pay close attention to the terms and conditions put forth by the creditor and take advantage of them in every way.

For example, if you have a 30-day period to make payment don’t strain your resources to pay in 15 days.

If you have a 90-day credit period, then organise your payables and receivables in a way that one accounts for the other without unnecessarily straining the system.

Also, try to extend retaining funds as long as possible.

For example, if you make an electronic transfer of funds closer to the due date, you will be able to remain current with suppliers without stretching your resources too much.

In case you are facing any financial crunch, try and communicate with your suppliers about potential extension of your credit till a new inflow comes in.

In this way, you can manage both ends without straining the cash flow management situation.

Don’t always fall for discount offers without paying attention to details.

Go through every possible and minute detail of the deal to ensure that your outgo is never more than estimates with or without discount.

Your reputation matters a lot in taking forward the business.

Therefore, it is extremely important that while you manage your expense, you do not cut corners that are crucial.

So settling for the lowest priced supplier is not a great way to go about doing business all the time.

Perhaps what you need is a supplier who delivers reasonably priced goods with a more flexible payment schedule.

How to Handle Cash Shortage?

Let’s say that despite all your precautionary measures, you still end up with a certain amount of cash shortage.

How are you going to handle that situation?

Speed is one of the best keys to addressing this situation.

The sooner you are able to identify the problem point the better prepared you can be about dealing with a potential shortage.

Even if you have to borrow or take a loan from a bank, it is much better to apply for it well in time rather than being a hand to mouth borrower.

When you apply well in time, you give the impression that you are a well-planned entrepreneur with a foresight about future needs.

That leaves a good impression with a banker and gives them greater assurance of recovering a loan as compared to somebody who applies for a loan today and needs money today as well.

Bankers in general are wary of putting their money in such initiatives.

Another key to creating a healthy cash flow management is creating effective channels of communication with your suppliers as well as customers.

If you are anticipating a credit crunch, try and convince your suppliers to extend credit period.

You can even request your customers to make urgent payment at certain times to tide over the potential crisis.

Resourcefulness is the other name for effective entrepreneurship.

Therefore, you need to look for all avenues to generate money and have the proper cash flow management strategies.

You can even consider raising funds by leasing machinery and office furniture to tide over any sudden crisis.

This also highlights the entrepreneur’s commitment towards the venture’s success.

Organize your bill payment effectively as well.

Sometimes what happens is that you pay smaller amounts and larger bills keep pending for a longer duration.

And suddenly you can be faced with a severe crunch in terms of cash to tide over these payments.

Therefore, it is a much better idea to be organized and regular in bill payment and plan it as per your needs.


In short, cash flow management is literally the backbone of effective entrepreneurship.

Proper cash flow management strategies provide the source of sustenance to take forward a business over the long run and work out efficient strategy to ensure flawless execution of the entrepreneur’s dreams.

Efficient cash flow management strategies are also an indicator of a well balanced and a well-managed business.

As a result, an entrepreneur on the back of good cash flow management can aspire to look at attracting more investment towards further expanding their business.

How Does eBay Make Money?

In the world of e-commerce, if there is one name that has become synonymous with success and innovation is undeniably eBay.

Founded in the mid 90s, it has played a crucial role in connecting buyers and sellers from across the world and helped them make money.

It is known both for the variety and the depth of products that is on offer on eBay.

Perhaps in this context, one of the most interesting stories is the fact that one of the first products that sold was broken laser pointer.

When Iranian founder and chairman, Pierre Omidyar, pointed it out, the seller specified that he collected and sold ‘broken’ laser points and that surely highlights the market and range of esoteric products that are on offer across the world and that which you could make money by selling or buying on eBay.

It won’t be wrong to say, eBay managed to bring about the marriage of technological advance and retail success just about the right time.

eBayIt did not just bring retail spending out of brick and mortar stores and into your bedroom, it also managed to make the physical store an option for the buyers and sellers alike.

You can well understand the depth of the eBay market when I put some basic statistics in place:

  1. eBay has over 150 million users in all, this 3000x the total users of the next biggest online marketplace, Bonanza.
  2. Though Bonanza has a pretty low listing fee of 3%, eBay managed to maintain its supremacy over others
  3. The entire market operations undertaken by eBay needs 52,533 servers
  4. The eBay servers need a total of 20 megawatts power to run efficiently
  5. From Sweden to Hong Kong, the eBay brand has a localized version in almost every corner of the world

Perhaps the point that I was trying to make with broken laser points is the also a unique element of the eBay model.

The pithiness and the esotericism overshadow almost every e-commerce site that you have ever heard or thought about.

You have everything on sale from really old cell phones to collector’s items like porcelain dolls.

Apart from a few forbidden items like guns or ivory, pretty much everything else that you might think about is simply a click away and gives you an option to make money from it as well.

But in all of it, one basic question comes across and that is how does eBay make money?

It is rather interesting to understand this key fact because often this question also holds the key to the answer, how you can make money with eBay.

This revenue model is just so successful that despite being in business for 20 years, they have never felt the need to alter or re-calibrate it.

It, therefore, highlights the sound business sense in it as well.

The eBay Business Model

On the face of it, if you analyze how does eBay make money, it is a pretty simple proceeding.

The seller lists the product, and the buyer buys it, and because both are operating a neutral platform, eBay, they earn a pre-determined sum as commission based on the pre-tax value of the product.

Pretty straight forward you would say.

But I believe that it is only the tip of the iceberg.

If you really want to get to the bottom of how does eBay make money, it almost becomes mandatory to chart the growth path that eBay followed.

Quite early on during its operation, eBay received funding of over $6 million from Benchmark venture capital and from there on followed a mix of organic and inorganic growth channels.

In fact, the number of companies that it has bought is astounding.

Pretty much every three months, this e-commerce innovator bought companies and sold some as well.

For example, Skype was first bought by eBay and then sold to Microsoft.

Not just Skype, but there are many other interesting buys as well by eBay.

It becomes extremely important to understand these various acquisitions because in many ways they tell you how does eBay make money.

Revenue Channels

The revenue channels or fund flows decide the extent of money that eBay has at its disposal to fund future growth.

In this context, one of the most noteworthy acquisitions by eBay is undeniably PayPal.

They acquired the company in 2002 for $1.5 billion and hived it eventually into a standalone entity in 2015.

This is a rather interesting development as PayPal was a major revenue driver for the e-commerce giant.

As far as 2014 results, PayPal was responsible for 40% of revenue inflow.

The reason why eBay and PayPal made the perfect pair is that though both these market players did not have an absolute monopoly, they achieved success pretty close to it.

While on the one hand, eBay is one of the most striking virtual markets for consumer goods, PayPal is also the uncrowned king of online payment.

That allows them to operate in a symbiotic and profitable manner.

But the question that comes to play now is how the split with PayPal has materially impacted eBay’s performance and the way it plans to make money.

While its success trail surely floundered for a while post the separation from its long, associates, eBay did not lose time in rebranding its image and looking for drivers that channelize the next level of growth.

It is also in the process of undergoing a complete makeover.

It has roped in supermodel Karlie Kloss as one of the brand ambassadors and reworking on its entire gamut of growth drivers.

Not only that, the San Jose based eCommerce giant also managed to deliver online results with revenue reaching $9 billion.

For 2017, they aim to better it to $9.5 levels.

What was even more striking was that eBay managed to deliver strong operating cash flow and that exactly brings to our old question- just mere commission, does that earn adequate revenue for eBay or do they make money by some other means?

How Does eBay Make Money?

  1. The Revenue Structure of eBay
  2. Exploring eBay Market Place as Way to Make Money
  3. Enterprise Helps eBay?
  4. eBay Makes Money via Auctions?
  5. eBay Makes Money via Dropshipping?

1. The Revenue Structure of eBay

Well if you have delved into the entire topic of how eBay makes money long enough, you would know that the listing fee is not the only source of eBay’s revenue flow.

You must remember that it comprises a significant chunk of their revenue at 10% listing fee.

Given the wide and deep market presence they command, the company does make money and a huge sum at it.

Therefore, while the listing fee is not everything, it surely makes some key contribution to the revenue outlook.

So how else does eBay make money?

– International Revenue

eBay today is a global entity.

This San Jose company is not just limited to the jurisdiction of United States.

In fact 2011 onwards, its international revenues have clearly outshined the domestic ones.

Compared to the domestic sales, international revenues now account for near 62-63% of the total money that eBay makes.

For market services and other revenues, the percentage or the international contribution is now close to 68-69%.

What is particularly interesting is 2015-2016 numbers take into account the planned separation between eBay and PayPal.

But despite that, the share of the international revenue has remained quite steady and highlights their intrinsic importance.

Some of the most important markets for eBay where they make significant money includes

  1. UK: This is the second largest for eBay just after the United States, and sales here are north of $2.6 billion
  2. Germany: This follows UK in terms of the money that eBay makes. The revenue collection from that market is above $2 billion
  3. The sales from the rest of the markets globally are pretty much what eBay makes from each of these markets individually.

– Advertising Revenue

Think about it- how does eBay make money from advertisements? You will be surprised that eBay sells ads worth nearly $3 billion.

On a standalone basis, if they were just an ad agency they would have been counted amongst the biggest names in United States.

Therefore, it would not be wrong to deduce that this advertising revenue too forms a major contributor to the overall kitty for eBay.

Online advertisements form the most important chunk of revenue generation for eBay in this segment.

The time period for these advertising contracts can range anywhere between 1 week to even as long as 5 years.

The normal action plan through which this advertising revenue is derived is by way of impressions that are received on the website.

The impression in simple language indicates the total number of instances when this ad appears to a specific page on eBay.

Every time a user clicks on these ads and reach the advertiser’s site, eBay can make money on a per click basis.

Normally these contracts with the advertiser firm are held on a monthly or quarterly basis.

The fee and the other details for these advertisement contracts are fixed on a set term basis that accounts for revenue rotatably.

eBay understands the potential

Increasingly eBay understands the potential and ways to make money with these advertising revenues.

As a result, eBay even expanded the list of products where the advertising feature can be used.

This new initiative has been rebranded as ‘promoted listings’ and was launched a year or so back.

This particular feature highlights a completely new approach by eBay in terms of attracting revenue and increasing the overall visibility.

The sellers get an opportunity to feature their products rather prominently through the website.

This helps them to make money and also becomes a convenient alternative for eBay to make money.

The e-commerce giant adapts fair trade practices by charging the seller only if a sale is made after users clicked the specific ad.

If you are a seller who has eBay store application, you can take advantage of this feature.

Not only does it bring about a convenient solution to how does eBay make money, this feature has a dual benefit.

It helps increase this e-commerce behemoth’s transaction as well as advertisement revenues simultaneously.

It drives significant traffic, and this transaction revenue often works up to even 70% of the total worldwide revenue collection by eBay, hence a key link in the chain that enables eBay to make money.

Key Advantage of the Dual Benefit

Another key advantage of the dual benefit is that earlier on just advertisement basis, eBay’s revenue follows a per sale approach.

This is a rather limiting opportunity but with this new feature, the chances of increasing the average user spend on the network is significantly higher adding to both transaction and ad revenues.

Therefore, in many ways, this acts as the double-edged weapon to push revenue for eBay in a constructive manner and a sustainable business model.

We could follow the company’s 2017 financial results more closely to better gauge how this step helps eBay make money.

In fact, if you closely follow the eBay 2016 full year performance, you would notice that the transaction revenue has increased significantly.

This means that eBay is using this tool to make money quite profitably.

This key data is particularly of relevance after they split with PayPal as it brings in the entire revenue structure of eBay in the new light.


This is because after eBay had parted ways with Paypal, its marketplace business became the most important growth driver apart from the revenue inflow channels that we already discussed and analyzed the broad ramifications.

Apart from the marketplaces, in your tryst to understand how does eBay make money, StubHub, the sports and concert ticket platform, would find a prominent mention in their platform for sports and concert tickets.

As per industry watchers and retail industry veteran, StubHub is undoubtedly a major player and most investors would keep an eye on its progress to better assess how does eBay make money.

In this context, it will be worthwhile to keep a tab on the transaction revenue recorded post the PayPal split.

Numbers do not lie, and often they provide the most dependable and trustworthy analysis.

For just the fourth quarter of 2016, eBay clocked transaction revenue of $274 m Vs $232 m on year on year basis.

Perhaps more than anything, this is a major pat on the back of the eBay management in assessing the most impactful growth drivers going forward, in the absence of PayPal.

The healthy transaction revenue is also indicative of the fact that eBay continues to make money with its 2-decade old policy, though the sheen might have been lost a bit tackling the struggles and competition in the e-commerce environment globally.

2. Exploring eBay Marketplace as a Way to Make Money

We already mentioned that in the absence of PayPal, the marketplaces on eBay globally are one of the most influential and important revenue generators for the e-commerce giant.

As we had seen for advertising revenue, eBay depends heavily on the transaction revenue from the marketplaces.

This transaction fee is usually levied on the seller when people approach the marketplaces to buy products internationally.

The company puts a cap on free items that users can list every month at 50.

Beyond that, eBay uses the listings as a vehicle to make money.

It charges sellers a specific transaction fee based on the product variety and keeps the revenue meters jingling without a break.

Generally, there is a fixed price that is levied by eBay depending on the product profile.

  1. It charges 5 cents for Movies, Music, Video Games, Books and DVDs
  2. The amount reduces to 30 cents for auction-style alternatives and products from the fixed price segment.
  3. They can click addition 35 cents for larger images or a strong auction style promotion

Readers must understand this amount is over and above the 10% listing fee that it charges the moment the company kicks off its association with eBay in a meaningful manner.

However the maximum amount of fees that eBay us $250. But the prices of these fees are not uniform and similar across the board.

They have different billing rates of different kind of products.

Additionally, I must mention that when you are exploring how does eBay make money.

With eBay clocking close to 150 million active users, the transaction fee even at this rather insignificant rate adds up to account for well over 50% of the overall revenue collected.

It is in general upward of $3 billion in all.

So it won’t be wrong to infer that when you are analyzing how does eBay make money, the transaction revenues comes across as one of the most serious game-changers.

It goes on to highlight how sheer volume can completely change the revenue landscape even with an insignificant base number.

3. How Enterprise Helps eBay?

In your quest about how does eBay make money, one of the biggest answers would be no doubt the role of the Enterprise.

Often in common parlance, the Enterprise, is known as the final revenue stream for the e-commerce giant.

So the question that comes into the limelight now is how pronounced is the contribution of the Enterprise and how exactly does it help eBay to make money?

Essentially for this, we must understand what Enterprise is all about in the eBay parlance.

This is that crucial branch of eBay that facilitates and often convinces brick and mortar retailers to join the internet bandwagon and experience the convenience of the online shopping sites.

The biggest challenge, in this context, is to explain the revenue inflow retailers and how it can materially improve through your liaison with an online retail portal.

Like I already mentioned, Enterprise is a comprehensive tool.

Its work is not just about convincing retailers for a transition.

They are also the one-stop destination for helping clients with every kind of market solution that they might be in need of.

This arm has come into being about half a decade ago and takes on the main responsibilities in

  1. Customer care
  2. Processing payment
  3. Detecting potential fraud
  4. Engaging consumers in a meaningful way

The impact and importance of this arm can be gauged from the fact that this alone accounted for close $300 million or almost 6% of the total revenue that eBay collected over an extended period.

What is even more worthwhile to note is that the role of the Enterprise is continuous.

At no point in time, can you wash your hands off saying that the company does not need any of the above-mentioned services?

Therefore, in your overall journey in exploring how eBay does make money, you must remember that though Enterprise is a small segment, it is a major contributor to the overall eBay wealth and therefore, takes up a strategically important position in the revenue inflow chain.

The extent of scalability that this enterprise division promises is also seen as a major positive.

4. eBay Makes Money via Auctions?

Another key revenue contributor for eBay is undoubtedly the auction division.

But the question here is how does eBay make money through this channel.

Well in very simple terms, the revenue that is collected is a happy mix of listing fees and the commission that eBay levies on every transaction of the cost.

First of all, the collector or seller in this case makes a listing of the rare items that they are interested in auctioning.

Next, the bidder or the buyer put in their bids.

Once there is a happy match achieved, the deal is finalized in totality.

Given the fact the eBay is one of the most active hunting grounds for curios and collectibles outside the regular and conventional auction houses, it remains a fundamentally strong source to make money for eBay.

In fact, with the introduction of promoted listing, creating traffic for these types of products have become even simpler and thereby, the number of users exploring this avenue has also increased.

In short, it means better sales and more listings and therefore added commission for eBay.

5. How Does eBay Make Money via Dropshipping?

This is another crucial arena to explore in understanding how does eBay make money?

You must understand that the entire eBay model is very closely linked to the delivery competence.

Not just for eBay but most e-commerce alternatives cannot make money if they do not have appropriate delivery channels in place.

Perhaps this is exactly why understanding the eBay revenue flow via drop shipping becomes so interesting.

Dropshipping is that unique arrangement in which sellers do not have to stock the product.

Once they get the order, it can be directly shipped to the buyer.

In this case, it is the logistics company or the shipping firm that handles the entire responsibility of collecting the product from the manufacturer and then taking it to the final buyer.

Apart from the listing and commission that eBay charges from the seller and makes money, there is an additional revenue source.

The shipping company pays a fixed transaction fee to eBay.

This is, of course, dependent on the type of product and the place that it needs to be shipped, and there are no uniform shipping charges.

But given the crucial role that shipping plays in the entire success of the overall e-commerce module, it becomes a key contributor to revenue for eBay.

It is, therefore, needless to mention that this revenue percentage might be rather minuscule in the entire gameplan.

However, it is undeniably one of the most crucial foundations that eBay business model is based upon.

The company is also in the constant process of improving the quality of service extended to customers.

That said, we can conclude that the answer to how does eBay make money is rather complex and multi-layered.

There are many aspects to this entire business model.

When you are trying to understand how eBay makes money, it is also extremely important to gauge the impact of seasonal forces.

For most e-commerce entities, competition becomes even more intense, and in the absence of a strong revenue model, their sales would plummet significantly.

For example, the eBay CEO mentioned that the holiday season is one of the biggest revenue earners for eBay.

It becomes one of the hottest destinations to shop online and in fact ranks as second in the list of most visited websites during holidays for shopping.

No wonder that eBay wants to put this progress in top gear and make money at an even better pace than before.

The company’s business strategy is geared to rake in revenue through this channel and improve the fund flow in a pronounced manner.

The structure data initiative, in this context, is one of the primary catalysts driving revenue for eBay going forward.

It aims to make money is a rather constructive manner by taking advantage of the ‘keyword tag’ feature provided by Google.

It is expected to ramp up transaction fees further through increased traffic.

Another initiative undertaken by eBay to help make money faster and on a much larger scale is expanding the scope of the fixed-price products.

This is also seen as a direct strategy to tackle competition from players like Amazon, who might have denied the money they make significantly.

The overall growth of the company has been slow and the 2017 guidance relatively muted.

It also signals that the company’s effort into revamping the way eBay makes money is bearing slow but a steady fruit.

Revenue might be expected to see a quiet 5% jump.

But it means they still can make money a lot better than many other new players.

What Is Conversion Rate Optimization?

Conversion rate optimization is one of the most critical buzzword in ecommerce.

It is a science about convincing visitors to a site to fulfill a certain pre-decided action.

It is a powerful marketing tool that analyses customer behavior.

Also, it persuades visitors to a website to engage in a specific action.

This desired action can differ from website to website and product to product.

Essentially, this is the catalyst that motivates visitors to fulfill an action.

So, this is also the technique that converts passive visitors to active users.

But this optimization strategy can differ from product to product.

As an entrepreneur, it is necessary to have your own optimization plan for improving the conversion rate.

There is no uniform law for maximizing the conversion rate.

Every business or website has its own special set of features that attracts visitors.

As an entrepreneur, you will have to analyze the key business points and create your own plan.

Moreover, conversion rate optimization is all about a continuous change process.

Conversion Rate OptimizationYou have to keep tracking the smallest changes and then adopt the necessary course correction.

Creating value-based models of operation is crucial for sustainable results.

You already understand the basics of marketing via driving traffic to a website.

Conversion rate optimization is all about taking it to the next level.

It is bringing about science to the trend and gaining a mathematical edge on it.

The primary idea is enhance the overall acceptance of the brand and drive revenue through it.

It is not just about gaining new traffic.

Often this is also about optimizing the existing traffic in the best possible way.

So it is a multi-pronged approach in enhancing the overall revenue base.

It has now become the backbone of effective online marketing strategy.

Why Undertake Conversion Rate Optimization

One of the most commons myths about conversion rate is you optimize when sales are lower.

But conversion rate optimization is never just about higher sales.

Broadly speaking, it is about improving the entire package for the customers.

The idea is not just about a great product or good business.

It is about creating a comprehensive solution for every website campaign.

Every page on the e-commerce ambit comes with a definitive purpose.

Whether it is about enhancing the user experience or attracting new eyeballs, the conversion rate is primarily about targeting the appropriate objective and ensuring its proper execution.

The dynamics in the ecommerce space is very different.

Perhaps what is particularly interesting is the pace of the change.

Practically nothing stays for too long.

Change is the name of the game, and it is fast-paced change.

The broad outlines of what right today has no bearing on what will be right tomorrow.

Ecommerce and online marketing are all about keeping your eye on the ball every moment.

There is no scope for any lapse in attention or execution.

Just more visitors to your website cannot guarantee better revenue inflow.

Bringing in more traffic to your website is only part of the story.

It is no doubt one of the key stepping stones for better gains.

But maintaining a similar quality of traffic is also important.

Moreover, you will also have to look at sustaining traffic inflow over long-term.

Once the initial euphoria disappears, creating a superlative user experience is what matters.

It is this exercise alone that will ensure longer-term efficiency in operation.

Conversion of traffic is all about taking your marketing exercise to the next level.

A holistic growth in business is dependent on the kind of sustainability you can acquire through these steps.

Purpose of Conversion Rate Optimization

When we discuss conversion rate optimization, it may not always indicate buying conversion.

Though that is also an important conversion but there are many other types of conversion too.

It can be a conversion for completing a survey or creating a user base.

Also, it can be a conversion to generate the greater mass opinion.

It can be something like conversion to download an app.

The maximum number of users is encouraged to download a specific app.

So it is essentially related to any action that is completed as per pre-designed plans.

So, in very simple terms, you can look at conversion rate as a percentage indicator for a specific cause.

This can be a sales goal, an ad campaign or even an introduction to an innovation.

Therefore it is needless to mention that a higher conversion rate is always welcome.

For any type of ecommerce, this is one of the biggest indicators of steady improvement.

It covers any initiative that attracts more visitors to a website and helps in enhancing the brand.

Whatever may be the target action; this is one uniform approach to make sure it is completed with success.

As an ecommerce operator, there are many areas that you may want to optimize.

Each, in its own way, is created towards enhancing the business model in a unique way.

The different alternatives may include

  • Optimizing the navigation through the website
  • Customer feedback
  • Overall business approach
  • Testing a variety of initiatives
  • Abandoning cart, checkout trends
  • Use of special offers and discount
  • Segmenting sales
  • Search optimization

If you pay close attention, these are all varied action.

But there is one basic goal or outcome expectation.

The idea is to further the business in the best possible manner.

Increasing revenues and sustainability is the core motive.

A/B Split Testing

The A/B Split testing is one of the basic media for conversion rate optimization.

This is also called the multivariate tests.

Most successful ecommerce businesses conduct this test for at least once a month.

It is a basic test to introduce innovation on a website.

The final idea is to enhance the overall conversion rate of the business.

The most basic format is to create two landing pages, with a few different elements.

Maybe the color scheme in one is extremely garish, and the other one is comparatively sober.

The traffic to your website is split into these two pages.

One half is exposed to the garish one while the rest access the sober half.

This is an ideal way to register the smallest changes that you undertake.

You can take note of the variance in response to your call to action.

The most common tweaking can be even changing the color of a button on the page.

But that is not the only innovation to improve conversion rate.

From the image of the product to the background color to your product layout, there are myriad changes.

You can bring in variation in the text size and font also.

Any element that indicates a potential improvement in conversion rate needs to be explored.

All of these will then be a part of the multivariate test.

As the name indicates, it means splitting your visitors to multiple versions of the same page.

The larger the number of combinations you test, the bigger is the audience base.

However, something unique about this testing methodology is there is never any end to it.

This is one of the continuous processes to enhance revenue generation.

Even small changes can improve conversion rate significantly.

There can never be enough of innovation here.

Analyzing Customer Experience

The customer experience is one of the most popular platforms for CRO.

In fact, customer satisfaction and conversion rate optimization go hand in hand.

A satisfied customer automatically translates into better sales.

Studies indicate that close to 60% users take advantage of these customer journeys or experiences.

It will not be wrong to say that this is decidedly one of the most reliable tools to optimize conversion rates.

As technology advances and trends improve, customer response is increasingly becoming unpredictable.

As options and opportunities are increasing, gauging customer behavior is becoming difficult.

It is not just complex but also varied depending on geographies and local trends.

As a result, the whole journey from visiting a website to buying, getting delivery and seeking customer support is a complex labyrinth.

It takes into consideration a massive amount of resource mobilization.

This includes both offline and online resources and channels of operation.

It is now even more complicated for businesses to gauge the trends.

This is exactly why recognizing and responding to the overall trend is complicated.

Marked improvement in their profitability is the primary motive for this exercise.

Reducing bottlenecks for customers is one of the most significant advantages of this exercise.

Improved conversion rate is directly proportional to ease of customer navigation.

This is why a wide gamut of data points are collected for appropriate analysis.

A comprehensive customer behavior analysis is seen as the backbone of better conversion rate optimization.

Often organizations also collate data and also user experiences from varied call centers.

In fact, the call centers are treasure troves for crucial customer feedback.

From the most common customer complaints to their top expectation, it is a minefield of information.

Needless to mention, all of them can go a long way in enhancing the conversion rate.

Addressing Customer Need Better

Perhaps one reason why improving the conversion rate is better is because of the long-term impact.

Unlike gaining new customers, conversion rate optimizations need continuous introspection.

It does not allow an entrepreneur or a business to rest on their laurels.

There is a continuous exercise to upgrade and better services.

Whether you sell a service or a product or an experience, conversion rate optimization always gives an edge.

It trains businesses and entrepreneurs to gauge customer needs better.

The idea is never about just doing what they think is important.

This is a unique model that gives customers an undeniable prominence.

It is never just about satisfying customers but more about how to make it better.

Customer experiences and requirements are both extremely dynamic.

No two customers have the same type of need.

Neither can you satisfy two customers the same way.

Each one visits a website with a different set of expectation.

Each customer is using the website and the business as a platform to address certain aspects.

As a result, just making customers happy will never solve the problem for them.

The challenge is always about how to enhance the service.

The idea is about creating a concept that is indispensable.

Most times return customers come because they have got something additional.

For example, every apparel website will offer trendy outfits with a long range of sizes.

However, what can set you apart through better conversion rate is introducing simple innovation.

Supposing, website X started introducing hand-written thank you note, and a care manual with every package can do the trick.

You can introduce these through effective conversion rate optimization and analyze results.

If users give thumbs up to this, and this results in better conversion, it becomes a positive outcome of the effort.

Better Brand Positioning

Effective conversion rate optimization is also about furthering a brand.

The dynamics in the ecommerce space makes it necessary to establish a brand.

Competition is extremely stiff in this space.

You practically have a new player making a foray every day.

In this context, staying relevant is all about how you present your brand.

Presentation and positioning your brand makes all the difference.

Conversion rate optimization provides you with key inputs in this context.

They are not just indicators about better sales.

They provide you a necessary peek into what exactly  drives a brand.

Businesses develop understanding about what and how works to maintain the brand image.

The profile of the customer who visit the website is crucial.

It gives you key information about those who are accepting the brand.

Also, it helps you to narrow down the segment that is not accepting the brand still.

It is not possible to go and satisfy every customer’s needs separately.

But the brand can surely introduce measures that create a distinct and strategic position for it.

Customers will get attracted to the brand essentially for these features.

This is what will then help create a meaningful image of the brand.

So, in short, conversion rate optimization helps entrepreneurs develop a better perspective.

They don’t just create avenues of increasing eyeballs.

But at the same time, they can make meaningful inroads in long-term customer relationships.

For most successful brands, these relationships are often the fine-line between success and failure.

Better conversion rate, therefore, undoubtedly improves success prospects.

It makes potential avenues for long-standing customer appeal.

It also helps the business expand through word of mouth.

That is always a very big step in a business growth chart.

Often word of mouth is what creates a distinct level of credibility.

Successful Strategies for Conversion Rate Optimization

Certain strategies are very effective for long-term conversion rate optimization.

1. Call To Action

A call to action that is included in the text is traditionally seen as a more effective option.

It undeniably works more effectively in improving the conversion rate.

When you have a blog spot or an e-commerce site, text-based call to action brings forth much greater impact.

2. Pop-ups Attracting Attention

On an average, there are certain pop-ups that attract more attention amongst users.

One of the most effective ways to improve conversion rate is identified these.

An intelligent placement of these will automatically generate way more customers.

3. Regular tests of Landing Page

Conversion rate optimization is a continuous process.

In fact, regular tweaking can undeniably improve business to a much greater extent.

The A/B split test invariably highlights meaningful channels of improvement.

4. Compelling Copy

This is an old-fashioned concept but always an effective one for better conversion.

There is nothing quite as compelling as a copy that attracts a customer’s attention.

Whether it is a description of an outfit or a blog about motherhood, it can drive users to complete the call to action quite effectively.

5. Auto-generated emails

When it comes to conversion rate optimization, you can use technology to your advantage.

It is now possible to track the visitors to your site.

Maybe they left an unfinished cart on your website.

Connect with them through auto-generated emails for long0standing gains.

6. Re-engage with users

In many ways, this is why re-engaging with users on a website helps.

It helps establish that human connect with them for better gains.


Therefore, effective online marketing is also a lot about efficient conversion rate optimization.

It is not just about improving sales but create a long-standing strategy to engage with customers.

That is exactly what enables a meaningful conversion rate.

So if you want an edge over peers online, the primary key to it is effective conversion rate optimization.

How Much Is a Gold Bar Worth?

If you are planning to invest in gold, it is important to know how much is a gold bar worth.

Assessing how much is a gold bar worth can be tricky.

There are various reasons for this.

A variety of factors assesses a gold bar’s worth.

The weight of the bar is a crucial factor.

But that alone is not the only price determinant in this case.

Understanding the variation is very important.

This is because the gold bar is one of the popular ways of investing in gold.

Investing in physical gold is still one of the common investment avenues.

This is because it is an attractive way to diversify the overall risk.

Investing in the gold bar helps you realize a significant premium.

But the point is this investment will be worthwhile only when you realize appropriate value.

There are many aspects of assessing how much is a gold bar worth.

A proper research can often go a long way in establishing better clarity on pricing.

It highlights the variations in the different instrument of bullion investment.

In this context, you have to analyze the manufacturing expenses and handling costs.

That alone can help you earn the additional premium on the gold bar.

How Much Is a Gold Bar Worth?There are some distinct advantages of owning physical gold.

Unlike electronic gold, a gold bar offers better security and flexibility.

You get to have control on your wealth, and there is no third party involvement.

So in terms of a crisis, this offers better options of preserving your assets.

But that apart, investing in a gold bar adds depth to your investment portfolio.

In many ways, it opens up a completely new avenue of investment.

In fact, this is often the best way to hedge the risk in your investment profile.

Why Invest In Gold Bar?

This is why before analyzing how much is a gold bar worth, it is important to know why to invest.

If you notice historical trends, there is a distinct upmove in gold prices.

Whatever timeline you consider, gold has yielded higher returns consistently.

It has helped investors earn sustainable returns in every age.

As they say, there is never a bad time to own gold bar.

Most importantly, you don’t have to time the market for buying physical gold.

You can buy it just about any time and still earn positive returns after a period.

Now that you can get a gold bar of different weight, the initial capital is also not a big criterion.

You can buy gold bars of practically any weight.

The smallest offerings in gold bar may weigh a few grams.

At the same time, you can buy jumbo ones weighing a few kilos.

It all depends on the funds that you are ready to invest in.

Physical gold gives you a sense of ownership too.

But it also comes with the responsibility of keeping the investment intact.

If you compromise the security element, you run the risk of losing investment.

But if that factor alone is resolved, there is complete sense in investing in gold.

The gold bars are manufactured only by accredited firms.

Therefore, they come with a much greater degree of credibility.

The purity of the gold bar is not questioned, and it invariably comes with a certification.

Moreover, not ever jeweler can create gold bars.

Unlike gold coin, there are special conditions for manufacturing these bars.

It is important to satisfy these conditions.

This makes a deeper understanding of how much a gold bar is worth necessary.

It will help you make a fair assessment of your investment goals too.

The Premium Attached to Gold Bar

You have to weigh the rate of premium attached to gold bar when you are assessing its worth.

But the question is why is the premium attached to the prices?

Unlike gold jewelry, prices are not determined just on the basis of spot price and making charges.

A certain premium is attached to the cost involved in packing, insuring and delivering it.

The percentage of premium is fairly limited to keep the prices competitive.

In fact, when you compare with gold coins, it is very low in case of a gold bar.

This is exactly why it makes sense to invest in gold bar more than the coins.

One practical reason is the lower manufacturing cost.

Gold bars are typically larger in size compared to gold coins

As a result of the smaller units, coins also attract much higher cost of production.

Similarly even in case of a gold bar, opting for large 500 gm bar is cheaper than 10 50gm bars.

When you are investing in gold for long-term, you have to look at realizing absolute value.

Short-term considerations do not weigh much in this context.

You have to look at what can help you optimize the value of every penny spent.

That is why buying large gold bar makes sense.

So when you are looking at how much is a gold bar worth, it is important to look at relative value.

For example, if you want to own 500 gm of gold, you must calculate how you want to.

Compare the cost of 1 bar of 500 gm and 10 bars of 50 gm each.

Only then you will be able to analyze the true worth of the investment.

This also will help you optimize the absolute worth of the money invested.

Account for the Value of Flexibility

However if you want to understand how much is a gold bar worth, just one factor is inadequate.

There is a practical problem with owning large gold bars.

While it is true that they deliver better returns over a longer term, getting that value is tricky.

What I mean is it is simple to buy a large gold bar.

But at the same time, it is not that simple to dispose it off.

Selling 10 small 50 gm bar is much simpler.

This is because each individual bar represents much lesser value.

But, in comparison, one chunky 500 gm bar will also require a greater amount of money.

So the relative flexibility in selling is significantly lesser in case of this one.

That’s also one reason for the relatively lower premium available on the gold bar.

In times of crisis, this access to cash can be extremely crucial.

It can often be the difference between a good and bad investment.

It can also help you understand the true value of the investment and their timely use.

Moreover, if you want to change the asset allocation in your portfolio, the gold bar can pose problems.

The whole idea of owning gold is primarily diversification.

But if you are invested in very large gold bars, realizing the complete value of the investment is difficult.

This lack of flexibility can often come in the way of the actual worth of the gold bar.

The gold bar’s value is not just what it represents.

You must also make a fair assumption of how much you can realize from it.

If an investment cannot yield the value it represents, it decidedly creates an anomaly in pricing.

Additionally, it makes it that much difficult to make an assumption about actual worth of the bar.

The Scope of the Investment

The kind of investor you are also has a bearing on gold bar prices.

Investing large chunks in gold is undeniably simpler.

You do not have to deal with complicated transaction methods.

You do not have to pay a huge amount of transaction taxes extra.

Let’s say if your funds permit, you can just 1 kilo of a gold bar and relax.

The larger the bar is, the better the value you get.

Buying large volume of gold turns out cheap on a per unit basis.

The manufacturing expenses are much lesser so as a result, it indicates a bigger profit margin.

The amount of gold you get for every dollar also turns out to be higher.

So again, there is a difference in the relative value of how much a gold bar is worth.

It is directly proportional to the amount of money that you may be ready to invest in.

The higher amount of investment yields far better value of every gold bar you invest in.

In comparison creating smaller bars involve higher cost.

As a result, their value reflects this additional cost as well.

So you have to weigh the options and advantages in the final value.

This is why the weight and the investment opportunity together will decide the final value.

When you analyze how much is gold bar worth, you have to consider the investment opportunity.

Simultaneously you will also need to account for the relative return prospect.

Needless to mention, this is also dependent on the money you invest.

As a result, the final value of a bar is deeply dependent on all of these factors together.

Looking at any one aspect in isolation will not help you.

For best value and a fair price, a comprehensive analysis is necessary.

Return Prospects

Well, that brings us to the next most important point to ponder.

If I want to know how much a gold bar is worth, it is important to consider the return.

Investing in any savings instrument is only a part of the story.

The most important factor is undeniably how much money you can get as a return.

The gold coin, in this context, has almost 40% higher premium.

This is primarily because the return prospect in that much higher on an average.

But there is no set formula for it either.

The demand-supply matrix, the existing gold rates, all are involved in assessing the return prospect.

In general, coins have a much higher prospect than bars.

Here again, the final price is dictated by the flexibility and liquidity in the market.

Times when the gold prices are soaring, and the market is flush with cash, it is much easier to get returns.

In fact, you may see it is much easier buying and selling larger bars as well.

The overall environment is all about looking for a comfortable and easy investment opportunity.

But in comparison if the economic situations takes a turn for worse, liquidity begins to recede.

This means relative return from the same gold bar may reduce.

While gold continues to deliver strong returns, there will be subtle differences.

During the crisis, you will always see smaller bars or coins can be sold easier than large ones.

That in itself is a big factor in determining the returns prospects.

The relative ease of selling a large gold bar always impacts how much return it will command.

This, therefore, will have a definitive bearing on the final price of the gold bar.

So when you consider the value of a god bar, always consider the scope of returns.

Liquidity in the Market

This is again a very important factor when you are assessing gold bar prices.

The price of the gold bar is directly proportional to the overall liquidity in the market.

If the market is flush with cash, you may see more and more people interested in buying these bars.

Similarly when people have sufficient cash, sellers will find more buyers in the market also.

So, this ease of transaction will also be reflected in the price of the gold bar.

It will always reflect a better value when the market has adequate liquidity.

But you can then argue that this fact is true about gold as a commodity or investment destination.

Well, this is exactly why you will notice that the gold prices are also dependent on liquidity.

The liquidity conditions also dictate the supply of gold bar.

Unlike a gold coin, not everyone is authorized to make these gold bars.

Across the world, there are 63 active gold refiners who can make these bars.

Needless to mention, this can also impact the relative price of the gold bar in long-term.

So, many factors impact the final value gold bar value.

How Much Is a Gold Bar Worth of 400 oz?

When you set out to consider how much a gold bar worth, you have to discuss the 400oz gold bar.

This is currently the world’s largest single gold investment.

This brick is made of pure 24Kgold.

The 400 troy ounces is the standardized unit for measuring gold.

Retail demand for these heavy bars is not too huge.

But the Central banks world over hold and trade these gold bar.

In fact, this specific gold bar also remains the traditional insurance and guarantee for safe investments.

But here also if you see, the buying price for it is close to $550,000, but the selling rate is just a tad over $515,000.

These are always stamped and carry and air of credibility around them.

You can store these in any one of the several secure global vaults as well as vaults provided by banks.

The idea is to use them as guarantee or security for a huge amount of investment.

However, this is not the largest gold bar ever produced.

If you ever want to know how much is a gold bar worth, think about it again.

In terms of dimension, it is not more than a shoebox.

Its dimension is 17.9 inches by 8.9 inches by 6.7 inches.

This gold bar weighs a whopping 551 pounds.

In troy ounce, it weighs a whopping 8,037.585 troy ounces.

1 troy ounce is equal to $1,176.75 US Dollars.

So can you calculate how much is this gold bar worth?

Its current worth is over $9 million.

So can you imagine $9 million worth of investment tightly packed in a shoe box?

The concept in itself is overwhelming, and perhaps this decides the ultimate worth of a gold bar.

You cannot deny that it is one of the most compact forms


Therefore, there is no clear way to assign a value to a gold bar.

The final cost of a gold bar is dependent on several factors.

However, 400ox gold bar offers a certain degree of standardization.

But the average retail ownership is very limited in this category.

Often the question is how much is a gold bar worth in current scenario.

Gold prices are extremely volatile and dependent on several geopolitical factors.

In this context, the price of the gold bar also reflects these elements.

Moreover, it is often about investing in gold in bulk.

So you have to take a fair view of the opportunity cost and projected returns going forward.

Therefore only if you are certain about long-term exposure to gold, it makes sense to invest in gold bar.

How Does PayPal Make Money?

The moment you talk about the online transaction, it is impossible not to mention PayPal.

Today, it is almost synonymous with any type of money transfer online.

Whether you think of paying credit cards or transferring money to friends or family, PayPal is popularly known as the world’s favorite middle-man now.

Perhaps the ease with which you can transfer money online using PayPal is often seen as the biggest contribution.

Compared to the complicated and costly wire transfers that used to happen earlier, the PayPal transfers are absolutely free and minus all the hassle.

But that also highlights a key question in our mind, how does PayPal make money?

This is relevant because when we are getting the service for almost no cost or bare minimum charges, it is interesting to understand how PayPal makes money.

How Does PayPal Make Money?

This is the question I am usually asked because people know me as a person who knows a lot about currencies and their transactions.

Many entrepreneurs think about running an online business like PayPal.

That is why they want to know how PayPal makes money.

I answer this questions first and then I will tell you what I prefer not to use PayPal in my business.

How Does PayPal Make Money?Maybe that is even more important for you to know if you are interested in running a business like what PayPal does.

Better grasp of their revenue model will also help you better understand the dynamics of online transactions and the primary factors determining the movement of funds and how it can help you make money.

A detailed study of the mechanism based on which PayPal works is crucial to the overall revenue model that dictates the money flow the world over.

1. Understanding the PayPal Business Model

So the primary question is how does PayPal operate?

A premiere e-commerce merchant service provider, it was founded in 1998.

Currently, they cater close to 200 markets the world over and have almost 100 million active users.

eBay acquired the company in 2002 for $1.5 billion, and almost every big business worldwide features in the client list of this company.

Their clients include the likes of Netflix, Starbucks, Dell, WalMart and many other international plays with the global operation.

Online fund transfer is one of the most cardinal functions that PayPal specializes in, and in many ways, has revolutionized the entire concept.

It facilitates this transfer using a simple email address, irrespective of whether you are a member of the site or not.

All you need to do is to link your account to a credit card or bank account and undertake the overall transaction.

However that said, you would surely need a PayPal account to receive the money.

Now let’s reach the crux of the key discussion point; how does PayPal make money if the transactions are free on the website?

Well in this context, you must remember that though the basic account on PayPal is free, there are many other options like Premier and Business accounts which are offered to you for a price.

The Premier account is more suited for amateur sellers, and it allows you to a few other features apart from fund transfer.

It enables access to a shopping cart along with payment reporting tools that are crucial for business deals and those with regular customer interactions.

The PayPal Business Account is essentially targeted for those who handle large-scale online businesses.

This includes several full-fledged players with active online businesses in eBay and other similar accounts.

They have the ability to generate accounts under the name of their business as well as facilitate recurring payments.

Moreover, they have no cap on the debit card use and can even take advantage of extended customer service facilities.

It is needless to mention that both the business and Premier accounts involve some amount of payment to PayPal.

But it is understood that for the business model to function smoothly, just this much of payment cannot really suffice in terms of providing a long-term revenue solution for the most celebrated online middle-man.

Well, there are a few more avenues that PayPal uses to generate revenues on a sustainable basis.

2. How PayPal Makes Money?

One of the best adaptations to the growing need to replace paper money, PayPal, relies on two cardinal sources of revenue to make money.

These are the sources that primarily fund the overall monetary movement that determine the extent of PayPal’s earnings.

What is particularly interesting is that this revenue model was evolved after a detailed and multiple adaptations of the original concept.

As the service provider matured and the range of services expanded, the revenue model underwent a series of changes to reach its current avatar.

So there are some basic routes that PayPal adopts to make money.

These include:

a- Transfer of Money:

Not only was it the cardinal model on which the entire PayPal business is based upon, but in many ways, this is one of its primary sources of revenue for the online middle-man.

You must be wondering now how that is possible.

Doesn’t PayPal provide free transfer of funds from any email account across the world?

Well, the fact is that while most of the domestic money transfers are free, all international transfers entail some fixed charges on the entire transaction.

For all international transactions, PayPal charges a fixed 2.9% of the money that is being transferred along with a fixed charge for being a facilitator of this service.

This percentage, of course, reduces if you transfer more than $3000.

  1. For transactions between $3000-10000, PayPal charges 2.5%+fixed fee
  2. For $10,000-100,000, PayPal charges 2.2% along with the fixed charges
  3. Transactions above $100,000, PayPal charges 1.9% of the transaction along with the fixed mandatory charges. The fixed charges is a basic rate of $0.30 that PayPal levies on all its international transactions.

So in this context, the answer to how does PayPal make money, would be the usual route that most payment gateways offer.

They are offering a service facilitating easy and hassle free fund transfer and charging you a set fee for doing the same.

So it operates more in lines with the escrow format and PayPal in the entire transaction takes on the role of a middleman.

It is needless to mention a lot of it is on account of the safety of operations that PayPal undertakes.

It guarantees both the sender and receiver about the surety of them receiving their funds.

The number of their active users and a number of transactions that happens every day can give you a realistic idea how PayPal makes money through this mode.

The rate of PayPal charges, however, varies from country to country.

These are more or less the basic transaction charges.

There are some changes, of course, depending on the geography and the specific country that PayPal is catering to and that surely impacts the overall payment model that they depend upon.

The format that PayPal operates on to make money is quite similar to that of a payment aggregator.

All the successful fund transactions go through Transaction discount rating.

It is interesting to note that the transaction charges for PayPal are rather low at $0.30 compared to close to 3% percentage cuts that they levy.

Essentially the $0.30 is the amount of money that PayPal requires to process your overall payment and make sure that it is sent to its destination within the specified and the promised time frame.

They currently service close to 200 countries with 2016 revenues close to $11 billion.

  1. This accounted from an annual payment volume of over $350 billion
  2. On an average, every active user undertakes about 29 transactions every year on PayPal
  3. The average weekly one touch PayPal transactions exceed 1.5 million, and 17% of active users use this facility globally
  4. Over 4 million merchants use PayPal now globally
  5. In fact, the annual PayPal payment through the mobile facility increased by 55% in the past few years and averages $100 billion annually. The mobile payment is particularly important as often this is a chosen way of payment given the ease of operation and relatively swift and efficient results. The recent rise in smartphone usage over the last decade or so can also be attributed to the gradual rise in the transaction via mobiles and the rising revenue for PayPal via that route.

What is also striking is the share of international transactions in all these statistics.

Almost 22% of their digital payment was a cross-border transaction.

As PayPal makes money primarily through these international fund transfers, it is needless to mention that it is one of the key revenue indicators to analyze if you want to get a clear perception of how does PayPal make money.

On an aggregate basis, PayPal makes a total of $315 million transactions every day.

Of these e-commerce sales, the share is expected to be less than 25%.

So we can easily assume predominant portion remaining is from fund transfer and from that, you can easily deduce the monthly revenue that PayPal earns from this route.

Given the active number of users range from over 200 countries worldwide makes the mathematics even more complicated.

So overall we can say that PayPal uses this model to make money on a sustained basis.

This is by far one of the most long-standing and primary sources to earn revenues.

As the number of PayPal users keep increasing and the amount of money transfer continues, the revenue for PayPal will keep tickling.

But as you can well imagine, this is not the only source of revenue for PayPal.

b- Arbitrage Value:

PayPal can make money via arbitrage as well.

Arbitrage essentially means taking advantage of two different rates and pocketing the difference as profit.

On an average, PayPal undertakes transactions in 25 currencies globally.

They have their own unique conversion rate.

This is generally at a premium compared to existing exchange rate.

Most times, users ignore this predominantly because of the ease of transaction that PayPal facilitates.

Now have you considered what happens to the difference?

Even this is a few pence every one dollar, multiply with the total transaction that is undertaken by PayPal even on one given day and the outcome, I am sure will make you dizzy.

Let me explain to you how PayPal can make use of this opportunity to make money using an example.

Let’s assume, I am a resident of Unites States, and I am suing PayPal to send $1000 to a friend in India.

The current USD-INR rate is above 64, but PayPal offers around 61.64.

Now I know that this conversion rate is way less than the market value, additionally, I must also pay PayPal about 4% as transaction charges along with the fixed transaction fee.

The mathematics is there for you to calculate and make an assumption.

PayPal will never advertise that they are charging you close to 9% on every transaction but let’s face it; this is the business they are in and want to make money.

So you cannot possibly fault them.

For those, who are not interested, can look for other options where the average rate of conversion and the transaction charges are much lesser.

But the advantage dealing with PayPal is that it has access to 25 currencies, many of them exotic and hard to get a fair rate.

Moreover, there are very few money transfer routes that are as convenient as PayPal in terms of accessing through just your email id.

If you have old parents far away in your home country, often this is the most convenient option to send money, albeit a tad expensive.

But who cares when you can rest assured about the fact that your money is in safe hands and your loved ones who need it will get the money within the promised duration.

There is another form of arbitrage too that PayPal can undertake.

Though it is hard to confirm and the company will not talk about it, it is fairly plausible.

After all, if you are out there to do business and make money and this is surely an interesting window to explore.

Let’s say 1000 PayPal customers transact $1000 through PayPal on a given day.

Now depending on the nature and the type of the transaction that is undertaken, this money will remain in PayPal account for a minimum of 4-5 days.

All of this money 1000×1000= $1 million gets deposited in the PayPal account for those many days till it is not diverted to its final destination.

Now it is up to you to calculate the interest that this kind of fund would generate.

Also, even if there is regular inflow and outflow of funds in the PayPal account, the amount of money that would be there on any given hour/day is sure to attract a basic minimum interest.

This surely can be a way to make money for the celebrated online middle-man.

After all, who wants to give up on some handy cash that they might be able to generate?

So if you ask me how PayPal makes money, this would be one of the alternatives for sure.

c- Interest on Money in Your PayPal Account:

Now let’s say, you are a 70-year old senior citizen staying in Vietnam.

Your son has a relatively cushy job in the US, and he sends you about $5000 every month.

Now given your age and frugal expenses, you do not have to withdraw money every month.

The result, the money remains in your account for more than a month also at times.

Now, you and your son are not the only PayPal users.

According to the last count, this ‘online superpower’ has close to 200 active users, and I am sure most of them do not withdraw the money instantly.

Has PayPal ever offered you any kind of interest?

No, of course not, but that is surely a way for them to make money from the surplus fund that remains parked in their account for a given period of time.

While I would refuse to get into any debate about why or how PayPal earns this money, this is surely a means for them to generate that extra revenue.

When you are exploring how does PayPal make money, this is surely a revenue generation route that you cannot possibly ignore.

You must understand that it is a regular business like any other.

Don’t we know of huge corporates who earn tons of interest in extra cash that might be lying in their account? In fact, it is seen as a big positive for these corporates.

Often it is seen as a sign of financial security; many listed entities even give a share of this money to their shareholders as a dividend.

This reflects rather positively on the company’s fundamentals.

So in PayPal’s case also, we must look at this cash just like we would view it while analyzing the prospect of a banking firm.

Moreover, apart from the US users, the cashing out of money from PayPal electric account is not that simple either.

There are several restrictions that are applicable.

This again means that at any given instance, all the 200 PayPal users are not withdrawing the money they have or cannot withdraw it in many cases.

But the money is safe and secure in that account.

PayPal, which is the safe keeper, in this case, can then easily make money from the cash lying in its account on behalf of the close to 200 million users who access this online middleman quite actively.

d- Online Sales:

Now comes one of the most important sources that helps PayPal make money- i.e. online sales.

According to last collated data, e-commerce contributed to nearly 25% of the total revenue generated by PayPal.

Not just that, the company’s statistics as updated in 2015 indicate that almost 80% of their revenue was an outcome of processing the online transactions of various merchants associated with PayPal.

In fact, as many as 202 of the top 1000 e-commerce retailers in not just US but entire North America engage Pay Pal as their primary processor for payment.

Even a chunk of the remaining 20% is mostly from the processing of transactions by various consumers who use PayPal to buy various products online.

Now you can compute the exact impact when I give you a few more numbers.

  1. PayPal at any given point of time has close to 200 million consumers.
  2. Almost 13 million merchant consumers are associated with PayPal globally.
  3. Globally close to 500 of the top online retailers accept PayPal as a secure means of transaction.

Therefore now if you put this entire information flood in perspective, the exact answer to how PayPal makes money is not hard to gauge.

Also, you must remember that while PayPal was part of Ebay group between 2003-2014, there was a tsunami of payment from people who sold their ware on eBay.

Now you can imagine the kind of impact it had on the average revenue outlook for the company as a result of this association.

What is interesting is for most online sales, this still remains one of the most preferred ways of making payment.

This is simple, swift and convenient with a relatively much larger access than most other similar payment gateways in recent times.

Even for their online sales, PayPal operates on a fixed slab.

For example, the rate they charge for transactions below $3000 and those above $100,000 have different rates applicable to them.

Along with this, there is also the fixed transaction fee that sellers must pay PayPal.

The implications can be well understood given the steady money flow that is expected from online sales in the current scenario.

Independent studies have indicated that e-commerce is a potentially high growth avenue.

According to current data, almost 40% of the current internet users, whether you consider a laptop, desktop or even mobile devices like tablets and smartphones, are steadily joining the group of individuals who are more keen on buying products online.

This 40% totals to almost 1 billion online buyers at any given point of time.

Now you can make rest of the calculation to identify the kind of user base you can boast of and the percentage that uses PayPal.

Therefore if the rate of e-commerce keeps rising, it will soon become one of the top contributors to the PayPal revenue and no doubt, a great way to make money for them over the longer term to keep the growth projections on track.

e- Miscellaneous Fees:

Now these are no doubt the top contributor to PayPal revenue model.

But that does not mean that there is no other way to monetize its services.

Let us remember that one of the biggest contributors to PayPal’s growth is undoubtedly the free money transactions that it has come to become the brand ambassador of.

While you know that you can send and receive money within the United States for free and also open an account free of cost, there are some other services for which PayPal charges you and it no doubt helps them make money.

These include

  1. If you prefer checks to cash withdrawals, PayPal levies basic fees on you. Every check transaction entails a $1.50 fee
  2. International transactions all carry a fixed fee as well
  3. If you are a seller on PayPal, all your transactions attract a certain minimum fee apart from the percentage of sales that you would have already agreed to pay to PayPal. That apart, individual rates for specific currency differs and you must understand the exact transaction fee that is levied on you. So if you are analyzing the means of earnings, these are all various sources that PayPal uses to make money.

f- The PayPal App

The mobile or digital payment is a big money spinner for PayPal.

About 30% of all PayPal transactions happen via mobile.

The scope of this can be well gauged by the fact that the company processes $8000 worth payment every second.

So you can quite imagine the PayPal founders looking to capitalize it better make money even faster.

Therefore, it is but obvious that they have been instrumental in developing several mobile apps like Venmo which are essentially made with the purpose to make and receive payment.

So these are the many alternative platforms that PayPal has been focusing on to make money.

How Do I Like PayPal?

I use PayPal for some of my small personal transactions but I don’t like it for the business at all.

The most important reason is that they charge a lot through the exchange rates.

They apply their own exchange rates to make a lot of money through the arbitrage.

They never answer to any questions regarding their extremely high exchange rates and it seems there is no regulation or third party supervision on this.

Above all, their support team looks arrogant sometimes and they ignore the clients questions and objections.

Maybe they think they can do this because they are so big and popular, but time is a good teacher.

When a new system comes that not only offers all the services that PayPal does while they make less money for themselves compared to PayPal, but also they work as user-centered company that put more value on their clients, then PayPal will understand what their mistake has been all these years, but it can be too late.

Exactly like taxi drivers who thought they were kings of the streets but now Uber has changed everything and has made many of them cry.

Paypal Is a Good SystemDespite the above two problems, PayPal is a good system.

So when you set out to find out how does PayPal make money, the short answer to it is in myriad ways.

An immensely popular online payment facilitator with close to 200 million active users and owner of one of the most visited websites in the world; they have leveraged their earnings on both the global necessities and individual requirements.

They make money essentially helping you undertake your needs in a hassle free and convenient manner.

It is needless to mention that their revenue model is a direct outcome of the internet boom.

So, no doubt, transaction fee remains one of the platforms for PayPal to make money.

Whether you are an online seller or average professional sending money to your family and friends, PayPal becomes the facilitator of convenience and comfort to you.

In return, they charge some fees for making these transactions possible.

Given that now the active PayPal users are on the verge of crossing the 200 million mark, even $1 charged annually would yield $2 million in revenues.

So PayPal is able to capitalize on this base to make money pretty swiftly.

Last but not the least, as you explore how PayPal makes money, you cannot ignore the contribution of online sales that is soon promising to take up a dominant position.

That along with the fact that PayPal is one of the few international operators to provide service in 26 currencies globally makes sure they always have myriad channels to make money.

So to find out how does PayPal make money, all you have to do is explore the range of offerings they provide and the current number of active users they have.

Rest as they say is history.

Startup Business Plan Template

When an entrepreneur takes baby steps towards a new venture, a startup business plan template can be of immense help.

It helps you as an entrepreneur, to put the plan that you might have in your mind on pen and paper and bring out a lot more holistic strategy for your better success.

A plan will enable you to move ahead in a comprehensive manner.

It helps you be it the decision making aspect or execution element.

But something that is very special about a business plan template for startups is the fact that it is inevitably simpler and less detailed.

The financial projections occupy more space than performance aspects.

The whole focus is getting the startup business on a strong footing.

For starters, a business plan template for startups has to be more straightforward and practical.

The need for clarity and direct pitching is crucial.

The cardinal focus in the plan shifts to the execution element.

You must realize that most startups face maximum problem in that aspect.

You often face an uphill task in trying to successfully implement this core department.

So then the question is how can it help the overall business success?

How Does a Startup Business Plan Template Work?

Well, when you consider a startup business plan template, don’t think you need it only if you are putting up a huge manufacturing unit or establishing a multimillion dollar business.

Startup Business Plan TemplateIn fact, it can be equally effective for someone starting even a basic cottage industry initiative like making candles or designing jewelry.

A business plan will not just help you take a comprehensive view of the overall business.

It also throw up interesting suggestions about how to improve it.

The reason for this is when you primarily start jotting down the various scattered parts in your startup business plan template, it deepens your overall understanding of the business.

This, therefore, also helps you to

  1. Identify the sales drivers
  2. Make a note of what and how customer demand can be met
  3. How to optimize the basic business prospect
  4. Better use the available resources and create sustainable cash flow chains
  5. Improve the basic balance sheet ratios to your advantage
  6. Better plan for future eventualities through more direct future expenses and costs detailing.

Not only would these details help your business get going but often highlight aspects that could have been shrouded in uncertainty hitherto.

A well laid out plan always manages to bring the core issues in focus.

How to Get a Headstart in Your Planning?

Often when first time, business persons employ a startup business plan template, it is with the whole idea of gaining a headstart in the basic business model.

We have all read and heard about the advantage of executing a written plan.

However, the point is you need to be methodical and extremely systematic in your basic approach.

The first step in this process is inevitably the pitch of your business.

This as the name suggests inevitably focuses on the primary starter points which include your basic business line-up:

  1. Mission Statement
  2. Objectives
  3. Target customers
  4. The basic demand you are satisfying or the problem you are addressing

The detailed market analysis for bringing about this pitch is no doubt instrumental in addressing customer problems with greater depth and taking a critical overview of the overall business motives.

Therefore a startup business plan template plays the dual role of both enabling documentation and boosting execution.

This is of particular interest to entrepreneurs who might be a bit overwhelmed tackling the multiple challenges a startup throws up.

Deciding on the Exact Kind of Startup Business Plan Template

When you set about to write a business plan, even a simple one, you must remember a cardinal aspect.

Not all businesses require the same type of plan.

You have to move ahead in business in a stage-wise manner.

You must remember that there is a fundamental order that you must follow.

In this regard, it always helps if you can broadly discuss the plan with the key stakeholders, partners or other friends who share the initiative with you.

One option is to follow the basic startup business plan template keep adding elements to it on a need basis as the business progresses ahead.

Say you move gradually from the type of business to the funding sources to basic objective and then perhaps move to the ultimate aim of doing the business.

Some simple business options starting from home would require a relatively simple and lean startup business plan template.

But there are many others that would need more details and involves several complicated detailing including a broad balance sheet analysis.

The point that you must remember in this context is every business has a plan, and you must have a properly written document to make it useful and relevant to your business objective.

Why Is Planning Useful?

That said one fundamental factor could still be a concern for you.

Why is planning useful and why do you need a proper startup business plan template?

Well, planning has a multitude of benefits.

These include:

  1. Effective communication of business goals and objectives and their easy implementation.
  2. The various topics discussed in the plan add value to the fundamental idea and boost pace of decision making.
  3. If people outside the company are involved, it is a brilliant channel to provide instant and comprehensive ringside perspective of the ground realities.
  4. The plan can easily chart out the competition, the factors abetting growth, the target market and key consumers to focus on and the overall strategy that needs to be implemented.
  5. Have a clearer picture in front of you with the basic financials like sales and profit all in one place.
  6. Bring about a detailed market analysis.
  7. Help you manage inventory a lot efficiently and improve economies of scale.
  8. Boosts sale collections and improves quality of record keeping that you follow.
  9. A startup business plan template can also help more effective tax computation and significantly higher savings.


It goes without saying that a proper startup business plan template can provide a major fillip to your business whether you have started operation or still planning to do so.

From providing a realistic financial analysis to improving the fundamental quality of planning that goes into the execution of a startup business idea, it is this business plan template that can often make the cut.

As an entrepreneur, it also takes your overall comprehension of the business motive and objective to a much higher level and as a result bring out a lot more cohesive execution.

Small Business Ideas for Small Towns: Not All Businesses Work in the Small Cities

So you live in a small town and you want to start a small business and are looking for an idea, right?

There are so many small business ideas for small towns, but not all of them work the same.

I share some of the good small business ideas here, because obviously you are that type of person who is looking for a regular brick and mortar business, otherwise you wouldn’t be here on this page.

Different types of locations have different business dynamics.

This is exactly why the business requirements in small towns are very different from top cities.

That could have worked as a very successful business proposition in metro might not be among the most successful small business ideas in small towns.

Therefore, the question is what could count as a great small business idea that works properly in a small town?

I will share some of the good small business ideas with you, because obviously you are that type of person who is looking for a regular brick and mortar business, otherwise you wouldn’t be here on this page.

The business ideas I am sharing below, are for those who want to have an income to make a living with.

They are not for those who want to become rich and financially free.

Maybe you say you are among the ones who just want to make a living and you are not after becoming rich through your small business, specially because you live in a small town.

That is an absolutely wrong mentality.

Living in a small town, or needing to make some money to survive, doesn’t mean that you can’t think about becoming rich.

I am not going to refer you to a get-rich-quick program.

I am just talking about “thinking” and “dreaming”.

It is not a crime to think big and have big dreams, is it?

It is not harmful as well. So, read the below small business ideas while you are dreaming of something: What if you become the richest person of your small town?

Think about it and I will let you know at the end of this article.

Small Business Ideas for Small Towns to Make a Living With

Small Business Ideas for Small Towns

Well, there are actually many alternatives.

The idea is to undertake the right kind of market study and gather suitable information to cater to the right set of demand profile.

I created a handy list of successful small businesses in a small town to help you navigate through your entrepreneurial dreams more efficiently and get a better grasp of your business.

1. Coffee Shop as a Good Small Business Idea for the Small Towns

Coffee Shop

Think about the quaint little coffee shops in sleepy little towns and instantly you will realize owning a coffee shop is among the most successful small businesses specially tailor made for small towns.

You must realize that most international coffee chains would make a beeline for the top tier cities given the higher business opportunity and revenue prospects.

However thanks to globalization, people in even distant and remote areas could nurture the ambition of getting these classic cafe experiences and that would be your opportunity to cash in on.

You can even look at expanding the reach by keeping a possibility of serving alcohol post work hours. In that way, you can cater to two different types of clientèle under one roof.

On the one hand, you would have the afternoon college crowd taking a break over some small tit bits and coffee and then comes the post work crowd ready to unwind with some alcoholic beverages after a hard day.

2. All Purpose Grocery or Convenience Store in Small Towns

Convenience Store

The grocery store too can be considered as top contenders in the list of successful business ideas for small towns.

A mom and pop style shop requires significantly low startup capital and the relative investment in provisions is also significantly manageable.

This kind of business will ensure that they will always have a continuous chain of cash flow on a regular basis.

Because on an average however well planned a shopper one might be, there is always constant need for regular provisions like jam, bread, biscuit, drinking water and the like.

This type of grocery store will comfortably fill that void and make it a great hangout joint over a bar of chocolates.

If you are looking to expand, you can also stack up latest newspapers and magazines that people could either buy or read for a price like a mini journal library too.

But you need to conduct some sizeable market study in the kind of products that you should store, the kind of demand that’s there for essentials.

Most importantly pay close attention to the kind of things that people are struggling to get around you and that’s your cue to get exactly that and in bulk.

3. Water Refill Centre in Small Towns

Water Refill

This could be among the top 5 in the list of the most successful small business ideas if you are in a small town which has a scarcity of portable drinking water.

In one master stroke, you will be addressing the basic and greatest necessity of the residents and also churn out sizeable profit for you.

Water is one of those basic needs that you cannot ignore.

So you will be simplifying a major challenge in your effort to realize your entrepreneurial dreams.

It could really help you to make this decision is that the relative cost of these water stations is significantly lower.

4. A Boutique


A small town often tends to lack a great shopping place, but that also means that you have another listing for a small business idea.

Yes indeed, if you have always wanted to be a designer, have a reasonable sense of cuts and patterns and can get the raw material, grab this golden opportunity.

You could even save the people from making those painfully long drives to the big city to buy good looking clothes.

They can now buy quality clothes right from their neighborhood and you too experience the joy of doing something you like.

5. Vape Shop Small Business in Your Small Town

It is a misconception that vape shops are only for big cities.

In fact, it is among the most successful small business ideas for small towns.

The latest data indicates that there is still a demand for these vape shops despite an overall decline in smoking rate.

Of course, the place that you are in and the specific state that you are targeting could make a difference depending on the local regulation.

But overall, there is a strong demand for it despite a niche placement for this type of business in small towns.

6. Bakery


There are hardly options that could better this one in your tryst for the most successful small business ideas for the small towns.

Particularly if you enjoy baking, have the resources to start a shop with a steady supply of most in demand goods, this could be one of the easiest business to start even from home.

You could even use the living room window to be your storefront if required.

Food items always yield high profit margin if managed carefully.

The trick is to identify the right type of products and the kind of customers you are catering to. That will no doubt help you make more sustainable choices.


All in all, the most successful small business ideas that you can choose to open in a small town are all about identifying the right kind of business.

You must undertake a very detailed study of the market you are catering to and the existing demand trends and average behavior of the people.

All of that would help you get a better understanding of the small businesses that you could plunge into.

We created a list of some promising small business ideas that have a higher chance of success in small towns.

The trick is to capitalize on them and adapt them as per the precise needs of your locality.

But now I am going to talk about something that I promised at the beginning of this article.

Most probably you have found this page because you are looking for a good business idea that works in the small town you are living in.

The above small business ideas are all good, but there are some problems with them, and so, I don’t recommend you to spend any time and money on starting them.

First, they need a lot of money to start while it can take a long time to take them off the ground and start making profit with them.

Therefore, you have to have a lot of money to start and a good backup to survive while the business doesn’t make profit.

That lowers your success rate, and it is possible that you give up after losing a lot of money and wasting a lot of time.

Borrowing money from the the others is a terrible solution, simply because you never know when you will be able to return their money.

This can get you into serious troubles specially because you live in a small town.

Second, the above businesses, although they are among the top small business ideas that have the highest success rate in small towns, are not scalable and are always struggling.

It means even if you can make them profitable, you have to work day in day out to keep a fixed income coming.

If you stop working for a week for some reason, you will be in trouble to pay the rent.

You will like to increase the income but you can’t do it easily.

How can you increase the income of a boutique or bakery in a small town?

It is somehow impossible because there are so many factors that aren’t under your control.

Even if you offer the best service, the number of your customers will always be under a special limit.

The other question is how you will deal with the economic recessions and the occasions that people don’t make enough money for a while?

I have seen that even barbers get into trouble during a financial crisis and recession because surprisingly most people go for a haircut less frequently when they make less money or they lose their income.

The conclusion is that it is a terrible idea to run any of the businesses that I listed above, and if you do so, the chance of your success is below 5% according to the statistics (read this).

In spite of this, you had no option in the past, and you had to go for a small business like the ones I listed above.

You couldn’t do better and you had no better option.

But things have changed a lot, and you will be a loser if you don’t make the most of the new things like the Internet.

You can start a scalable worldwide business that gives you money, time and location freedom, and can make you rich: What Is Data Technology and How It Can Make You a Millionaire?

So, run a “small” business which is as wide as the world, and can be managed from anywhere not only from your small town.

Debt to Equity Ratio and How To Keep It Stable in New Businesses

There are some aspects of the business which are absolutely important to understand whether you are an entrepreneur or an investor, whether you have a small startup or a big business.

The debt to equity ratio is one of them.

I am sure you have heard about it many a time.

This is one of those crucial financial indicators that investors always check before investing money in a project.

So, the question is how exactly you would define the debt to equity ratio? How can the entrepreneur look at keeping it stable?

Back to basics first before getting into the details of how to keep the debt to equity ratio stable, it is important to understand what comprises of a stable debt/equity scenario.

As an entrepreneur, it is also necessary to understand the key elements that go on to determine this crucial ratio for your company.

Understanding Debt to Equity Ratio

In very simple terms, debt to equity ratio is a measure of a company’s financial leverage.

This is that important ratio that clearly spells out the amount of capital that has been provided by the owners and the amount that lenders or any other investor has put in.

Debt to Equity RatioEssentially, the debt amount is divided by the equity to arrive at this ratio.

This ratio then clearly identifies the startup or new business’ ability to repay its monetary obligation as well.

Say for example, if a particular company showcases more debt than capital/equity, the internal cash flow of the company is less than the funding provided by creditors.

Studies charting out the success and failure of various startups indicate that this is a dangerous trend.

It clearly signals that despite the capital infusion, the company is unable to generate the required revenue and could spell trouble for the entrepreneur in the long run.

On the contrary, when the equity portion is higher than the debt amount, it is a clear green signal in terms of the health of the company’s finances.

The assumption in this case that the entrepreneur is successful in generating a higher rate of revenue and able to rein in the debt amount.

Ideally, first-time entrepreneurs often get swayed away and try and look for additional creditors to pump in cash.

This can be a rather tricky and dangerous situation as it raises two primary red flags.

First and foremost, the business is trying to expand at a rate higher than its comfort zone and secondly it slows down asset growth as well.

One must remember that it is always a good idea for a startup to target growth at an affordable rate at the beginning.

You must understand that your firm’s growth is closely tied to the asset growth, and so to the debt to equity ratio that you can bring about and vice versa.

The ideal condition is when asset grows in tandem with the overall growth of the company.

This ensures that the overall expansion of the firm is in sync with the growth profile.

1. Stability Important For Sustained Growth

While it is never a Utopia and many a time entrepreneurs may have to take in larger debt to fund the company’s growth, it is not advisable for a sustained period.

The fact is growth that is fueled by debt does tend to falter beyond a certain point of time and is a rather risky proposition if you are looking for meaningful and sustained growth of the company.

This is exactly why you would have seen in the early 90s close to the heels of the telecom boom came a major fall as well.

These telecom companies expanded significantly on debt as they were confident of generating enough revenue to pay it off.

However, this idea did not pan out as envisaged.

The revenue generation was hardly in sync with the debt that was incurred.

As a result, these telecom companies had to restrict a lot of the expansion plan they envisaged going forward.

The debt part of the debt to equity ratio might often lead to an unstable business condition if not checked in time.

Entrepreneurs need to make informed choices at all times.

They must follow the balance sheet of the company in details and also take account of the various day to day expenses which could result in overall skew in the balance sheet.

In this way, they will be abreast with the daily dealings and can decide better on how to line up their debt planning to be more in command.

Too much debt always makes the business foundation flounder and many a time when entrepreneurs fail or are fired from their companies is because of this reason.

A case in point is the debacle.

Here the management not just committed a lot of money in debt but also spent the money without any account of the corresponding revenue that is being generated.

What finally happened was the debt to equity ratio was skewed against growth.

2. Eyes On Equity Growth

The only way to deal with this uncertainty is to keep your focus on equity.

It is important for organizations to ensure that they measure their growth by growth in equity more than debt.

This will ensure that the pace of growth is always within affordable limits and the debt to equity ratio is never stretched unnecessarily.

So even if you need to take debt, you are always mindful that the debt numbers do not spike up unnecessarily.

Equity growth also ensures that an entrepreneur can sustain growth bit by bit without rushing through with huge debt.

The equity therefore in this case also acts as an insurance that the company does not grow at an unreasonable pace, especially if the debt is fueling that growth.

Balancing debt and equity also means that as an entrepreneur you also start budgeting expenses and never move out of your comfort zone to accommodate expenses.

The debt to equity ratio therefore also helps you improve financial discipline.

3. Debt to Equity Ratio: How Much Is Too Much?

As an experienced entrepreneur, you already understand how different sectors have varying levels of debt-equity requirement.

What works for one sector might not be true about another.

For example, the financial sector if you notice has a significantly larger debt to equity ratio compared to say perhaps technology.

So, question is how you would ascertain how much debt to equity ratio is ideal for your company?

This is a question that also takes us to the fundamental question about how much leverage are you comfortable with?

Apart from sectoral limitations or preferences, this is the other key factor that will play a decisive role.

What most investors would do is pay attention to the company’s historical debt to equity ratio and how the current number stands in comparison.

The performance of the company thus far and the current performance will easily help decide if the there are any red flags.

If the divide between the historic debt to equity ratio and the current number is too much, it invariably means there is a source of worry and corrective action is necessary.

While some capital-intensive sectors like services and utility do need a higher capital allocation and hence a higher debt, in general, it signals aggressive growth plans.

It shows the entrepreneur might have been over ambitious in setting the growth targets and achieving them.

If the revenue generation is at par, then this isn’t so much of a worry.

However, if that’s not the case.

The sooner this divide is minimized, the better it would be for the company’s growth.

This is also a key player in keeping earnings growth on track and reducing uncertainties from the company’s balance sheet.

Higher debt if not supported by higher earnings could often cause sustained problems for an enterprise.

4. Why Do You Need Debt to Equity Ratio?

Well that said, we need to address the most important factor, why do we need debt to equity ratio?

Well for starters the debt to equity ratio is the entrepreneur’s best tool to assess personal progress.

Moreover, this is important because

  • Investors always refer to the company’s debt to equity ratio and projected debt plans to assess the growth and financial health of the company
  • For an entrepreneur looking for funds, the DE ratio is the best tool to showcase superior growth standards and appropriate eligibility for loans if needed.
  • Earnings of the company are also severely depressed if the debt to equity ratio is skewed in favour of debt
  • A stable debt to equity ratio showcases your company as a safe bet to potential lenders.
  • An enterprise with stable DE also has lesser chances to falter and finds more opportunity to grow.
  • A stable DE also highlights entrepreneur’s restraint and fiscal prudence
  • In the long-run, a stable debt to equity ratio easily becomes the greatest tool to fuel expansion
  • If they list the company, stable DE makes the stock more lucrative in the stock market and that can lead to further gains.

5. Is Equity Overload Always Advisable?

That brings us to the fundamental question that is debt always bad news for a company?

Actually no! Many market veterans will explain to you how the successful running of an enterprise has to be a happy marriage between debt and equity.

While theoretically it could be projected that if you can generate enough revenue to pay off the debt, that’s ideal, in real life this is hardly the case.

In fact, that’s not always desirable either.

Actually, debt does have some advantages too, especially in terms of fueling growth for a company.

You can always look at deducting the interest you might be paying for your loans as a business expense.

Creditors who simply loan you fund never have any say in your business dealings as long as you pay their installment and loan amount on time.

On the contrary, if you bring in an equity investor they would invariably have a say as well as a stake in your dreams.

Just because they have paid the money, they will also expect you to listen to them and could often be a hindrance on your independence.

Therefore, as long as your fund requirement is within manageable limits and you are getting creditors willing to loan you the money, it is never a bad idea to opt for the loan instead of bringing in a fresh investor.

In this way, you will be able to meet your funding requirement also and not hamper the company’s growth chart or your individuality either.

Creditors often give you comfortable window to pay off the loan as well.

If you can negotiate well, you also get the chance to pay off at a pace that’s comfortable for you without inconveniencing anything.

However, as an entrepreneur you need to be careful of the interest you are paying and how much you can afford to.

6. Appropriate Planning

Therefore, it all boils down to one fundamental business basic:

As an entrepreneur, the only way you can maintain comfortable debt to equity ratio is through proper planning and financial discipline.

Let’s assume you are drawing up a plan to chart out your company’s 5-year growth plans.

You will have many parameters like improving revenue growth, profit, expansion and many other factors.

It is beneficial to also account for the potential debt requirement that you might have.

This prior planning will enable better calculation.

You can easily calculate how much debt equity you would need at a certain period to maintain business stability.

This will also help calculate how much debt payment you can afford without impacting cash flow.

This will no doubt help you identify the red flags well in advance.

Based on your actual requirement you can then plan accordingly on ways to fashion and channelize your growth initiatives and overall forward plan.

Many a time it so happens that you can easily reset the business stability by either deferring or advancing a certain expense or a certain project.

Of course, you have to ensure you do not hamper future prospects in any manner.


The debt equity situation does not just help in maintaining stability but also proper cash flow in the company.

This is because it will help you keep a check on the overall debt situation and the resultant payments.

Therefore, a health DE is often the key to a successful business.

For more details, you can easily subscribe to or newsletter for a detailed and minute to minute update on the top concerns and hot trades in the market for entrepreneurs.

We help you stay on top of your investments, run your business efficiently and undertake proper steps to maintain fiscal prudence at all times.

It goes without saying that the debt to equity ratio is a very important measure of a company’s financial progress and stability.

This number is self-explanatory in bringing out the proper business prospects of an enterprise It also acts as a signal to the entrepreneur to undertake course correction whenever require.

This can easily help you in getting funding from investors very easily and undertake important expansion.

A healthy debt to equity ratio also acts as company’s progress report to correctly showcase a firm’s business excellence.

Passive vs Nonpassive Income and How to Have Both

When you look at the various income sources, you can broadly classify them into two categories.

These are passive income and nonpassive income.

The moment you think of a passive source, you could consider any form of business or earning where you do not have to be involved on a day to day basis actively.

Nonpassive source of earning, by definition, points to any kind of activity where the level of initiative or activity is more pronounced.

Often the difference and debate about passive and nonpassive income is seen in the taxation perspective in a most pronounced manner.

The rate of tax that you pay is often dependent on whether you have passive vs nonpassive income.

The US revenue department, in fact, has incorporated several tests to identify whether a source of income is passive or nonpassive.

Passive vs nonpassive income have a direct correlation to the amount of tax that you pay.

Additionally, in many ways, it impacts the exact amount of income that you can hope to generate from a profession.

It also often decides on the career path that you eventually zero in on.

Definition of Passive income

Passive vs Nonpassive Income and How to Have BothIf you look at the classification made by the tax department, there are broadly three main classifications of income:

  1. Passive income
  2. Active income
  3. Portfolio income

So, what exactly is meant by passive income?

As the name suggests, it is any income where you are not actively involved.

So, it could be the earnings that you could generate from a rental property or for that matter, a business where you have a limited partnership.

You are not actively involved in the day to day running of the business and have no material involvement in the overall running of the business.

Even for that, portfolio income is considered as passive income by some analysts.

The argument is rather simple.

The dividends and interest that you earn are often without your direct involvement in the entire procedure.

Of course, you might have worked hard in getting the portfolio created but beyond that, the market forces come to play, and an individual’s role is almost non-existent.

If you notice the recent trends, passive income has often been used rather loosely in the modern perspective.

The most basic derivation is any regular source of income where you have little or no role beyond the conceptualization part.

Most times, when people seek to adopt a better-quality life, devote more quality time to family, this is seen as the most convenient arrangement.

You work from home on your own terms, and that is often the biggest pull for opting passive income.

While it might not be something as effortless as a lottery win every time, but surely the capital gains that you incur can be termed as passive.

But if you are trying to classify these from the taxation perspective, then passive income has a relatively more precise positioning.

For example, it does not include a lot of online work from home in that category.

Therefore, a very technical definition of passive income would be any kind of earning where there is no material involvement of the taxpayer.

So, material involvement becomes the key point of consideration when you are trying to differentiate between passive and nonpassive income.

Perhaps this is the reason that often instances of self-charged interest and situation where you earn profits from shares issued to you as an incentive is termed as passive income.

Here are some basic income options that get termed as passive:

1. Property Income

When you go on to define passive income, this is perhaps the most popular format of income that is considered.

Whether you own a commercial property or a residential one, any income that gets generated through these channels will be termed as passive income.

However, it won’t be considered passive if you are a real estate professional actively involved in buying, selling and leasing of property.

Though this income is not strictly passive in the IRS book, you can surely claim the advantage of the passive income loss rules if the property happens to see a depreciation in value.

In the taxation terminology, all holdings in land and otherwise is termed as active or nonpassive income.

2. Self-Charged Interest

Essentially this is the income generated from the interest that is accrued from a partnership or a corporation.

This is a business arrangement that is often undertaken to nullify the impact of double taxation.

So, the interest accrued is seen as a pass through impact that gets taxed as passive income.

Also, care has to be taken to make sure that the loan proceeds too are used for the passive activity.

In simple terms, this is a unique situation that refers to the kind of income that you might gain through a chain of passive involvement or rather lack of involvement in a business venture.

3. Why You Would Choose Passive Income Options

Often when you are trying to figure out the difference between passive vs nonpassive income options, the benefits of each individually comes to play do proper justice to the overall concept.

As we discuss passive income options, let us first understand their benefits:

1. This arrangement makes an investor take maximum advantage of the available tax deduction.

This is because when an individual claims loss on a passive income avenue, they often have the deductions offset against the taxpayer’s overall tax claims.

The earnings of consecutive years are also sometimes taken into consideration for arriving at a reasonable tax computation.

2. Moreover, a tax paper who is involved in multiple passive income avenues has the option to group all of these into one large unit.

Then the IRS would not count your material involvement in each of these activities individually.

On the contrary, they will be able to project their involvement in one economic unit that groups all these passive activities together.

This is particularly important in terms of how the tax liabilities are computed in the overall service profile.

Tax Deduction Advantages

The reason being the grouping activity helps you to claim the various tax deduction advantages in the most beneficial manner.

In case it suits your purpose, you can also look at keeping them ungrouped as standalone entities.

It is a kind of business arrangement that is aimed at bringing about the most sustainable value addition to the overall service profile.

Most times, passive income opportunities are more an extension of the individual’s need to generate multiple earning avenues.

As against popular notion, passive income is not just a chosen channel of earnings for retired persons or aged people.

Often, those at the pinnacle of their professional career could look at exploring these opportunities to value add to their existing income opportunities.

However, the concept of passive income strictly in the IRS terms is not exactly how you would consider the options in the practical terms.

It is needless to mention that if you intend to take the maximum possible advantage of this opportunity, you must understand the tax implications very clearly.

Definition of Nonpassive Income

Now that you understand what is passive income, it is time to understand the comprehensive details about what constitutes nonpassive income.

You must understand that just by referring to it as nonpassive income, you cannot term it as active.

In fact, nonpassive opportunities can be

  1. Active Income: This will include the likes of salary, daily wages and the like
  2. Business Income: This is essentially the earnings generated from a business or an investment where you are actively involved

In general, nonpassive income comprises a significantly large number of active income opportunities.

Here there is no via route to get your earnings.

Your income is directly related to the overall work you are doing.

In other words, you are doing something and getting paid in return.

That is also what you would think is active income.

So, while nonpassive income is not equal to active income, this later one forms a very important part of the former larger group.

Without it, the core concept of nonpassive income cannot be judged or considered adequately.

Therefore, it needs to be seen in appropriate perspective.

It is worthwhile to understand in this context that nonpassive income is taxed differently from that of passive income.

You cannot use the losses incurred in one to offset the losses incurred by other type of income.

So nonpassive losses and income cannot be used to offset passive income and losses and the vice-versa as well.

This is particularly important when you are trying to offset losses in a business operation.

However, you must remember that while passive losses can be carried forward, in the case of nonpassive losses, it needs to be settled against income in a specific year.

The concept of carrying forward does not function here in any way.

So, it would not be wrong to define that nonpassive income is essentially a full-time job.

You are putting in a lot of effort and then seeing the returns from this in the form of the income generated through it.

Whether you are in a business or a service, as professional is almost always in control of the nonpassive income that they generate.

It is common sense that if you put in 8 hours of work, you will surely earn more than what you would from 4 hours of effort.

Also, not all nonpassive income opportunities are office based either.

You can also be home and be part of a non passive or active engagement.

One of the best examples of this might be the job of IT professional.

Given the advancement in technology and the easy access to internet, a lot of IT professionals are working from home.

They are doing so to spend more quality time at home, but their earning is directly proportional to the hours they are putting in to get their job done.

In contrast, if you see the role of an app developer, they surely put in effort in developing an application.

But once that is built, and they have sold it for a profit, it ceases to be a nonpassive income destination.

It instantly becomes a passive income opportunity.

They are at that point of time not actively involved in the amount of money they are earning.

Neither are they in control of increasing it as per their requirement.

Till they are negotiating for the right price of the app, this is an active income destination.

But the moment they have got the money in the bank and start enjoying the interest, it is a passive income.

However, if they used the money they earned to develop a new application or used this income to start some new venture, this will again be counted as nonpassive income.

The point here is that whenever we discuss passive vs nonpassive income opportunities, the quality of your participation becomes the crucial and the biggest deciding factor in the entire game plan.

In fact, in the entire differentiation process of the two distinctly different income opportunities, it is the engagement level that makes all the difference in the core profit that is earned or loss that is booked.

Therefore, the involvement in any venture is a primary factor to consider.

Material Involvement in Passive vs Nonpassive Income

Often when you set out to differentiate between passive vs nonpassive income, material involvement is a key term that you often come across.

I think this is one of those unique terminologies that needs to pe explained with an example for better and deeper understanding of the various income formats.

Let’s say I am an investor.

I decide to invest $30,000 in a business initiative, perhaps a mom & pop store at the corner of the locality I stay in.

But I have no time or understanding of the business. So, I find out someone else who runs a similar store but is in need of fund.

I get an agreement from that person that they would pay me a certain percentage of the profit in return for the money that I am investing in.

This earning would then be classified as passive income.

So essentially this means that as long as the investor is not actively involved in the overall business operation and has no role in its profitability apart from providing the money for it, it gets counted as passive income.

As an investor, I do help the owner manage the same store, my earnings would then be termed as nonpassive income.

According to the US tax department, any situation where the overall involvement is beyond mere capital payment would be termed as nonpassive or rather active income opportunity.

One of the simplest examples to understand the difference between passive vs nonpassive income is perhaps the difference between a venture capitalist and a limited business partnership.

The VC firm involved with a company is very actively involved in the running of the business, they oversee the various business decisions and often have a very important voice in board meetings, etc.

But in comparison to this, when you analyze the role of the limited partners in a business and the income they get, it would be considered as passive income in entirety.

Apart from the money they have invested in the company, they have no material involvement in the entire operation of the business.

Therefore, material involvement is often the catch phrase that seeks to differentiate between passive vs nonpassive income, especially for taxation purposes.

So how exactly the tax department seeks to make this differentiation.

The IRS terms an involvement decidedly material if it exceeds involvement of 500 hours in a business where you are invested.

The minimum hours of the range are seen at 100 hours at least.

In other words, the IRS terms any business activity where you have participated for at least 100 hours as material involvement in the entire business.

Therefore, there are some clearly defined rules that will help you grasp material involvement in a business with relative clarity.

More than the actual implications, this is material from grasping the resultant tax implications of this arrangement.

1. The overall individual participation of a tax paper needs to be above 500 hours on an annualized basis.

Often, this will be counted as material involvement that can actually bring about a meaningful difference to business profitability.

2. This essentially comprises the business activity by the group of investors who are not direct owners in the business.

3. However, a taxpayer’s 100 hours of participation in a business can also be termed as non-passive, in case no one else participates for longer hours than this specific individual, who has put in 100 hours.

Therefore, it is very important to identify the entire business activity in relative levels.

4. In terms of total tax computation and difference between passive vs nonpassive income, it is also important to see the period of this material involvement or active participation.

So, on an annualized basis, it can be 500 hours a year but it is also important to calculate the number of years that this has continued.

It is needless to mention that both the individual levels of participation, the group activities and the groups in which the entire list of passive activity is considered all make a huge difference to this core concept of material involvement.

Ultimately, it is the material involvement aspect that seeks to differentiate between passive vs nonpassive income, at least in terms of tax computation and overall tax liabilities of an individual.

Basically, the material involvement is the IRS’ way of understanding about how substantial is the quality of your overall involvement in the entire business activity.

1. What Is Passive Activity & Loss Rules

That brings us to the other important aspect in understanding the difference between passive vs nonpassive income.

What exactly is passive activity? Let us understand this concept with the help of an example.

Let’s assume you have a rental property, the income generated from this source comes to be termed as decidedly nonpassive income.

In the case of a loss, the taxpayer can then claim losses against income from these passive activities.

You cannot look at offsetting this loss against your active income channels.

Though it is possible to pursue both these opportunities simultaneously, a taxpayer needs to be extremely careful about how they put up the claims and tax liabilities.

In case if you cannot offset your entire passive loss in one year, you can also carry it forward in future to get a comprehensive and complete deduction.

This is a direct fallout of the passive activity loss rules.

It is only pertinent in the case of those income opportunities where they are not materially involved or active engaged.

The moment you are not able to substantiate claims of the passive engagement, or if your material involvement is higher than the predefined standards, it comes to be termed as active involvement, and your tax liabilities get computed accordingly.

So, if you are not able to stay within the predefined boundaries of passive income, you cannot claim deductions on the basis of the passive loss rules.

So, while the colloquial definition of both the income opportunities often merges into each other, in the tax department’s rulebook, there is a clear demarcation.

A proper understanding of this demarcation helps you take proper advantage of the tax deduction.

2. Is Portfolio Income a Passive or Nonpassive Income?

However, there is one more avenue to explore before you understand if you can pursue passive income and nonpassive income simultaneously.

That is the grey zone called portfolio income.

The debate on whether it is a passive or nonpassive out is not completely settled.

Often the income generated from portfolios can involve significant engagement in the initial stage and almost next to nothing involvement in the later phase.

Therefore, this is an opportunity where you do some bit of both of these.

Essentially portfolio income refers to Portfolio income refers to the kind of income that you earn from the various investment that you might have made.

It could also comprise of dividends, royalties and capital gains that you might have earned.

While you may not be working too hard for this income at the moment.

It is important to understand it is not possible to create a portfolio with passive investment.

At some point of time, you would have had to put in significant work to create a reasonable investment portfolio or create a music album from which you can earn the royalty.

Identifying and having a clear sense of what is passive and nonpassive income is very important.

This is because most taxpayers tend to lose money by not being able to categorize their business in the appropriate channel.

After all, nonpassive losses cannot be offset against passive income and the vice-versa.

Therefore, inaccurate categorization of these different income opportunities can severely impact the kind of income and losses that you have to report every year.

This is particularly important to understand because while passive losses can be settled over a few years, active losses need to be settled within a particular financial year that they have been filed.

3. Pursuing Passive and Nonpassive Income Simultaneously

Therefore, we come to the basic point we started this entire article about- can you pursue them together? Yes, it is possible to pursue passive and nonpassive income opportunities together.

But you need to be careful about how you compute the taxes for it.

After all, we all want to take advantage of the best tax saving opportunities, and often an inaccurate analysis of these two different income options could severely impact your tax liabilities.

So our advice is to get in touch with a good CA with an in-depth understanding to help you tide through this.

They will be able to help you understand how to work out your income and liabilities to and take advantage of the maximum deduction.

This is also an important consideration when you think about the future prospects and your need to create a comfortable retirement kitty.

After all, you do not want your retirement money to get eroded paying passive income taxes because you were not careful or clear about the various distinction between the two.

Passive vs Nonpassive Income

Essentially the debate between passive vs nonpassive income reaches a definitive point with the term ‘material involvement’.

This will define how actively you are engaged in generating the income.

Apart from determining how much income you generate through the level of your engagement, the ‘material involvement’ angle also has very serious implication on your overall tax liability for a year.

The passive and nonpassive income have different tax computation rules, and that is exactly why you need to be rather careful about how you group your income avenue.

This is particularly useful if you have multiple channels to earn money and you would want to consolidate them and conserve maximum gains for yourself.

After all, who pays the tax department willfully?

But yes, it is possible to pursue both these forms of income simultaneously.

For example, when you write a book and put in an effort to write a book, your material involvement is in the active segment.

But when the book becomes a success, and you begin to earn the royalty, it is passive.

But in case you are constantly updating the contents to make it relevant, or write another one with the money you earn you are simultaneously involved in passive and nonpassive income options.

Residual Income Formula Is Defined Differently Here

Calculating your residual income can never be difficult if you get the residual income formula correctly.

The basic formula is based on the net inflow and outflow of an individual or a company as might be the case.

However, the formula is tweaked a bit depending on the key purpose that this valuation metrics would be used for.

There are various applications of the residual income starting from assessing an individual’s capability to repay a loan to a manufacturing unit’s expansion potential.

Therefore, calculating it can be quite simple.

Below, I am explaining how to calculate your residual income based on an accounting point of view.

However, as I have already explained here, residual income has a different definition from our point of view.

It is the income that will not be stopped if you stop working.

So it is completely dependent on the nature of your job and whether it is able to generate a residual income or not.

It is very important for your future to spend your time on the jobs the will keep on making money even if you stop working.

You can’t be dependent on social security, RRSP and things like that.

The Residual Income Formula

The Real Residual Income FormulaThis is why one basic formula that you must remember is

RI = A – (B x C)

RI, in this case, stands for Residual Income.

A is the total net income on an operational level.

B represents the minimum expected return.

C is no doubt the average assets, again on operation basis.

Therefore, it is quite clear that formula uses actual figures more than the notional or estimated profit level.

As a result, they always become a way more accurate assessment of the financial state.

This is an important valuation entity not just for large corporates.

But it is also for many small time businesses and even self-employed individuals.

This becomes a very handy approach to judge the overall valuation for many individuals who are not really working at the moment to generate income and residual income is important for them.

But the mere formula for residual income would not be useful at all if you do not understand it in the appropriate context and use the right type of variables to truly bring forth its relevance.

It becomes extremely important for you to grasp how it works in sync with the other various elements of the balance sheet.

For example, the component ‘A’ in residual income formula is the net operating income.

But you can’t just have a reference figure.

You need to take into consideration your entire monthly income or the revenue that has been generated and then go on subtract the various capital costs and loan liabilities that you might have.

Let’s say you released a music album and perhaps sold about 10,000 copies.

Then your net operating income will be the actual amount after you subtract the cost involved in creating it, editing it, marketing it and designing the cover.

Once all these expenses are accounted for, the resulting amount would be your net operational income.

If you create an e-book, you won’t have any costs because you can sell millions of copies without having to pay for any hardware and duplication fee.

Therefore, any money that you make through selling your ebook, will almost be your profit.

Digital products are better to generate residual income because once they are created, they can be sold unlimitedly.

The cost of capital is no doubt the kind of cost involved in mobilizing the said assets to start generating income.

When the return on this basic investment is able to cover the cost and also create a surplus, you are then able to calculate the residual income based on the percentage of relative return.

The other aspect of the equation is the operating assets.

This essentially involves the kind of money that needs to be ploughed back into maintaining and further the production level thus far.

As a result, the more successful a company is, the better residual income can be expected from them.

Such is the value of this metrics that many companies base their business ethics on the principle of generating larger residual income.

How Is Residual Income Not Always Passive Income?

Perhaps one of the greatest benefits of using the residual income formula to work is that it easily enables you to identify the difference between residual income and passive income.

This is one of the core formulas that are enabling lots of businesses today to focus more on generating substantial residual income as opposed to passive income.

Another major advantage is that you can use this formula conveniently to create addition income channels.

The trick is as long as the result of the residual income formula is positive, it means that the business is generating additional revenue despite the cost involved.

Therefore, it would make sense for you to continue and further the scopes of such a business.

The Formula for Personal Residual Income

You already know the core formula for calculating residual income.

But you must understand it needs some tweaking depending on the specific purpose that it is employed for.

So when you set out to calculate personal residual income

The fundamental factor is that it is often also referred to as discretionary income.

It would be pretty simple to calculate it.

All you have to do is subtract the various expenses like loans and mortgages and look at the net amount remaining.

Therefore the formula is relatively a more simplified version incorporating these two simple parameters.

Residual Income (RI) = Total salary – debt outgo

For example, if your monthly salary is $10,000 and you have one mortgage payment of $2000, $1000 loan EMI and other expenses worth $2000, your residual income would be $10,000 – $5000 = $5000

Now if someone’s loan worthiness needs to be assessed, it would be based on this RI figure of $5000.

A higher RI would always entail a greater possibility of getting a loan.

The Formula for Business Residual Income

Now when the same residual income formula is used for assessing corporate accounts, it takes into account the many facets of operational income that go hand in hand with a business establishment.

The net operational income would be the total revenue subtracted from the cost of capital used up to create the kind of revenue that it starts to generate.

So it is not just the profit level, but profit subtracted from the basic return that the business is set to generate.

Residual Income = Net Operating Income – (Min Required Return x cost of operating assets)

When the residual income turns positive from this calculation, it is a major plus as it denotes that the business is profitable after all the costs and is creating a surplus profit over and above the basic minimum rate.

There the residual income formula is not just an easy way to grasp the true profitability of business.

But it also enables you to get appropriate indicators in terms of the financial viability of a business.

Even in personal employment terms, this formula is also beneficent in creating multiple channels of employment.

An individual can use this formula for getting the right perspective about the kind of surplus income they need to generate, and this leads to a far effective fund allocation.

That was all about the accounting aspect of residual income and the formula that accounts use to calculate it.

How Much Does a Gold Bar Weigh?

The weight of a gold bar can often be a matter of great debate.

Gold has traditionally been an important investment avenue.

But have you ever wondered what form of gold you should invest in?

Even, if you consider conventional physical gold, there are many variants.

Perhaps the most common form of physical gold investments includes gold coins and bars.

But then, you get gold bars of varying weight.

The question is, does it really matter how much these bars weigh?

How Much Does a Gold Bar Weigh?After all, the gold prices are closely linked to the purity of the yellow metal.

But it is surely important to understand how much does a gold bar weigh?

This is not only important in terms of assigning a value to the gold bar.

It also helps create a standardized form of investment.

As in case of gold coins, a gold bar too can have varying measurements.

Some of the weight variants are standardized.

On the other hand, you have certain unique ones that are created for special situations.

A certain degree of the gold bar weight is also as per international accreditation.

This is crucial and creates a certain amount of standardization for gold bars internationally.

It helps you to assess the potential investment opportunity.

When you consider how much does a gold bar weigh, you also need to look at regional specifications.

In many ways, that also goes on to determine individual weight specs as well.

This is exactly why the weight of gold bar oscillates in a wide range.

The starting levels can be very small, and there can be really large ones too.

The overall weight is also dependent on the purpose for which you use the gold bar.

You have different variants for the different purposes.

What Is a Gold Bar?

Before we delve deeper into how much does a gold bar weigh, it is important to understand what it is?

As the name indicates, it is a quantity of pure yellow metal in the shape of gold bar.

This is one of the most common forms of physical gold apart from gold biscuits and coins.

Relatively, large quantity of the pure metal is molten and then molded as bars.

These bars are, of course, created as per certain pre-decided standards.

The variations are then incorporated according to the purpose for which they are made.

On an average, this is why the purity of the gold bar is also standardized.

Surprisingly, that has no bearing on the weight of the bar.

The purity is maintained on a global basis.

The fact that it is one of the most commonly used formats of physical gold investment is also important.

This is why there is always a great demand for the gold bar.

As a result, there is also that additional emphasis on the weight of these bars.

The point to note in this context is that these gold bars are much in demand internationally.

Especially for banking transactions, this is the ‘gold standard’.

Most Governments and financial institution use gold bars as investments.

Even the gold against the printed currency is stored in this format.

This is why the gold bar weight is such an important consideration.

They use it as an international measure of fund reserves at a specific weight.

Of course, the weight and purity of these gold bars are always pre-decided.

But that apart, you have other variants of the gold bar too.

In that case, the weight can be very different from the pre-determined international standard.

It goes on to highlight the weight intricacies.

Types of Gold Bar

The weight of the gold bar is directly proportional to its purpose.

This is why you need to know the purpose the bar is for before determining how much it weighs.

The gold bar can be categorized roughly into 55 different variants.

This is determined as per their size, weight and manufacturing process.

Typically a gold bar can be of a standard weight or of innovative dimension.

There are some usual shapes and certain unusual ones too.

While there can be many types of grouping, let’s check some international standards.

The most accepted ones are, of course, the grouping as per The Industry Catalogue of Gold Bars Worldwide

The Grendon International Research or the GIR relies heavily on this list.

Apart from it, they have derived a list from The Industry Collection of Gold Bars Worldwide.

Needless to mention that weight forms a key element of this grouping.

Normally the key factors determining this categorization also depends on

  • Shape of the gold bar
  • Weight specification
  • The particular denomination of the gold bar
  • The decoration used
  • Any unique feature that may have been incorporated

The overall categorization carefully follows all of these specific details.

The jewelry and the fabrication market utilizes the bulk of these gold bars.

But in 46  of the total 55 categories, these bars are investment quality.

In other words, they have every quality that fulfills investment requirement.

Normally by this, I mean, in terms of purity and composition these are investment grade.

They adhere to internationally created weight standards.

More often than not, you will see that the gold bar is issued at a premium to existing valuation.

These categories include varying types of the gold bar like

  • Scrap gold bar
  • Dore gold bar
  • High premium/sample gold bar

1. Cast Bar

Cast BarWhen you differentiate types of gold bar, how much it weighs becomes crucial.

Along with the purity, this is the most important factor.

The cast bars are the most common types of gold bar.

London 400 oz Bars

As the name indicates, this is a standard form of transaction in the London Bullion Market.

The London Good Delivery or the LGD is a 400oz gold bar with minimum 99.5% purity.

This gold bar weighs around 400 oz or 12.5 kg.

The fine gold content of this bar can, of course, vary within a range.

The fine gold content can be anywhere between 350-430 troy ounces.

The troy ounce is an important measure.

Gold bar measures typically in this unit.

But that weight is not recorded on the bar.

COMEX 100 oz Bars

The name indicates that it is commonly used for the transaction on COMEX.

The COMEX Good Delivery gold bar weighs around 100 oz .

Though commonly referred to as 100 oz bar, the weight can vary.

It can range anywhere between 95-105 oz.

This is again dependent on a variety of factors that go into manufacturing it.

The purity of this gold bar is again around 99.5%.

It is one of the most commonly used transaction gold bar internationally.

Given the fact that COMEX the biggest commodity exchanges, it is common too.

Shanghai 3000 g Bars

By now I am sure you have understood that the naming convention follows the exchange.

The Shanghai Gold Exchange uses it as transaction standard.

The weight of this gold bar is almost 3000 gm.

The purity, of course, is standardized at 99.95% as is the case with other gold bars.

Most cast bars have pre-determined purity parameters.

This helps in the more effective categorization of the gold bar.

2. Kilobars

KilobarsWhen you analyze how much does a gold bar weigh, this is one of the most common variants.

In fact, the Kilobar weighing a kilo or 1000 gm is one of the smallest gold bars in terms of weight.

But the interesting fact is that this is also one of the most widely traded gold bars.

Though most international gold bars are flat, traditional kilo bar is shaped like a brick.

In fact, these brick shaped gold bar is still available in many parts of Europe.

The purity of the kilo bar can vary fractionally.

The normal and commonly used purity measures include

  • 99.5%
  • 99.9%
  • 99.99%

The weight of this gold bar makes it a very convenient alternative for trading.

As a result, you will see a wide variety of traders opting for this variant for their transactions.

Both in terms of pricing and portability, the weight of this gold bar is one of the best internationally.

As a result, this is used by a wide gamut of traders for trading.

Even in terms of investment, this is a very convenient size.

The weight of this gold bar helps investors take an active position in the yellow metal.

3. Small Cast Bars: Gram Bar

Gram BarWhen you categorize gold bar as per weight, the gram bar too figures prominently.

This is one of the smallest gold bars available.

As the name indicates, they weigh so less that you measure them in grams.

Most times, these measure about 500 gm or even lesser.

In fact, you even have gold bars that weigh 250 gm or 100 gm

The smallest known Gram Bar weighs around 10 gm.

This 10 gm gold bar is manufactured by Umicore Brazil since 2006.

This is the smallest known variant of the tradable gold bar.

The purity of the Gram Bar is at par with most other gold bar variants.

The valuations of these gold bars are directly proportional to the weight.

The advantage of this type of small cast bar is that they can be traded conveniently.

That makes these gram bars very attractive.

Moreover, it enables high volume and fast trade globally.

They are also durable and enables easy storage for an extended period.

Needless to mention that has also helped enhance its charm globally.

But you do get a small gold bar for even the smaller duration.

4. Troy Ounce Gold Bar

Troy Ounce Gold BarThese are undeniably one of the smallest denomination gold bars.

Though not very popular, these are made by some accredited refiners.

Troy ounce is in fact, one of the smallest measures of gold.

The Perth Mint in Australia is the only accredited manufacturer globally.

They offer a wide range of these low denomination gold bar.

You will be surprised to know how much these gold bars weigh.

It can weigh anywhere between 50 oz to 1/2 oz.

So in many ways, these are the micro variants of gold bar in weight terms.

They are not used very extensively.

Regional Gold Bar Weight Specifics

Globally you will notice that the weight of the gold bar is standardized.

Though this remains same for most global transactions, there are some area-specific options too.

This is primarily in areas where there is a high usage of gold.

China and India figure prominently in this list.

This is also because the local demand for gold in these market is quite extensive.

1. Tola Bar

Tola BarTraditionally gold is weighed in Tola in India

As a result, the Tola Bar is a specific gold bar manufactured for Indian consumers.

1 tola stands for 3.75 oz or 116.64 g.

So in many ways, this is a type of Gram Bar in terms of international standardization.

The purity of the total bar is closer to 99.9%.

Apart from India, 10 Tola bar is used in the Middle East as well.

These have rounded and smooth edges.

Typically, you will not see serial numbers in these Tola Bars.

2. Tael Bars

Tael BarsThe Tael is a measuring unit in Chinese.

1 Tael equals to 1.20337 oz or 37.429 gm.

The 5 Tael biscuit with a weight around 187 gm is the most popular variant.

This is listed as a transactional unit as per the Chinese Gold & Silver Exchange Society

3. Baht Bar

Baht BarThe Baht as you know is a Thai unit of weight measures.

The 10 baht biscuit is the most popular variant.

10 Baht equals to 152.44 gm.

The purity, of course, is the most unusual element.

While the other two had purity close to 99.99%, this one is 96.5%.

The weight of these gold bar can be anywhere between 1-100 baht.

Therefore, most of these regional gold bars are essentially Gram Bar.

These are not just portable and convenient but easily tradable too.

Storing is also a key advantage.

4. Cast Gold Bar Issued By Banks

One of the gold bar weights that manage most is the ones issued by banks.

Are you wondering how much does a gold bar weigh when a bank issues it?

Well, there are no specific weight measures in this case.

But most times the banks get these manufactured by outsiders.

Once the external makers have created the bar, they market with the bank’s name.

You have customized bars issued by a wide range of European banks.

Some of the Middle East banks also get these manufactured.

Most times the Swiss refiners specialize in manufacturing these.

The UBS, Commerzbank and Credit Suisse are some of the common issuers of these gold bars.

How Does The Gold Bar Weight Impact Transactions?

The question therefore arises, how does it matter how much a gold bar weighs?

Well, in this context, you must understand that these variants of the gold bar is purely demand driven.

Different gold bar weight serves different purposes.

While some are better for trading, others might be more useful for the investment.

Moreover, the weight of the gold bar is dictated by local concerns too.

The region-specific gold demand to plays a crucial role in deciding how much a gold bar weighs?

1. Lower premium

The lower average premium of the gold bar is the most pronounced advantage.

On an average, the premium on the gold bar is much lesser than a gold coin.

As a result, if you are sourcing bars of greater weight, this can be advantageous.

This is primarily because of the lower cost of production for the gold bar.

So for the same money, you can get a higher weight bar for a lesser cost.

Most times in gold coin, the rarity and grade of gold are crucial determinants.

But in case of a gold bar, the weight remains the primary price determinant.

2. Trusted Quality

Unlike gold coins, not every jeweler can create a gold bar.

These are mostly manufactured by trusted authorities.

More often than not, these are private players or accredited government representatives.

The Perth Mint, the Royal Canadian Mint and The United States Mint are common manufacturers.

The bar’s weight, purity and refiner’s names are clearly etched.

So, you get a way better value for the money.


Therefore, it is very important to ascertain how much does a gold bar weigh.

Different countries and regions have specific gold bar weight.

But there are some basic specifications in the international arena.

Especially compared to gold coin, you can get better value from a gold bar.

This is primarily because of the variety of standardized norms for international gold bar weight.

It, therefore, will help you get better returns by investing in gold bar.

Are There Any Legitimate Work from Home Jobs Stuffing Envelopes?

I am sure you might have often seen ads in the weekly papers about work from home jobs in stuffing envelopes and make $1000 a month.

I am often intrigued by this whole advertisement and the sheer length of time that they have continued to woo potential participants.

The question is how does this entire working from home envelope stuffing really work?

Most importantly, is it legitimate at all?

Stuffing EnvelopesThe point is why anyone would pay you that kind of money for stuffing envelopes in a day and era where computer and emails have pretty much taken over the communication world?

Why Do I Doubt Legit Work from Home Job Stuffing Envelopes?

There are many reasons why I feel that the work from home job of stuffing envelope is simply too good to be true and borders more towards the side of a potential scam in terms of its authenticity overall.

The Rationale of Investment Weak

The first reason that the working from home envelope stuffing raises my doubt is because of the claim of the potential money involved in this transaction.

The fact is for earning $1000 a month, how many envelopes a month would you have to stuff and most importantly where would all these envelopes be going.

Let’s face it, when people can easily distribute flyers, pamphlets, why would they want to distribute mailers stuffed in a proper envelope.

Marketing is all about getting maximum exposure with the minimum expense involved.

Today, you can email flyers or even whatsapp them, so why would anyone want to actually pay money, invest in postage stamps and then send these mailers.

What kind of information would be there in these envelopes to deserve that kind of expenses?

Cost Involved

Postage stamps and envelopes are really expensive these days.

No one gets envelopes and stamps free unless these are self addressed.

The point is why anyone would send you self address envelopes with postage stamps.

This is a rather remote concept and seems so out of sync in today’s world.

After all, the primary motive of any business and its marketing initiative is reducing expenses and assuming these are meant for marketing.

You can get a lot better impact by creating a Facebook page for almost zero cost and sending invites to a host of contacts.

Start-up Kit

It is a myth that you will require no fee to start.

Most times they camouflage the fees as the cost of a start-up kit to help you understand the dynamics of work from home stuffing envelopes.

Well, you might be at home for whatever reason, but the fact is at no point of time, would you be so dumb that you won’t be able to understand how to stuff an envelope.

That is basic, and almost anyone can tell you how to start stuffing envelope.

The fact is anyone who is able to read their name would be able to stuff an envelope.

Spreading Misinformation

Most times, you would hear people talking a lot about work from home stuffing envelopes before they start but once they get on with it, the chances are you have never really heard from them.

Have you wondered why?

Well, that is because they never get paid for stuffing envelopes really.

What they get paid for is convincing another set of people to fall in the trap.

So for every person whom you can convince to buy the starter kit, you get a percentage as commission and that is how you get an opportunity to make money.

Let’s face it that cannot be legit, and neither is the claim that work from home stuffing envelopes has no fee to start.

Therefore, a business which has its roots based on unethical business practices cannot be a fair trade to be associated with.

It surely reeks of malpractices and misinformation, and it can’t be something that you would be proud to talk about in your friend circles.

This is exactly why when anyone tells you that it is a great business, think twice, ask relevant questions, and only then you should go on to make a decision about joining it or not.

Type of Pyramid Structure

Most times, there is a huge question mark on the legitimacy of a pyramid structure that does not sell anything exactly.

This is exactly why I am not convinced about the legitimacy of the work from home option of stuffing envelopes.

Let’s face it; you are getting paid for convincing others to fall into the trap.

So knowing very well about the dangers involved, you are actually trying to get more people into the scheme just to retrieve the money that you have put into it.

This is exactly how a pyramid scheme works and puts a huge question mark on its authenticity.

This is exactly the reason that there is a question on whether the scheme of envelope stuffing as working from home option is legit.

Though there is no regulatory warning against this business, the truth is that this is a scam from the word go.

There is absolutely no business sense in getting more and more people in the scam.

In the absence of any real product for sale, the only gainers can be the people who are perpetrators of the scheme or who start it off and collect money for the start up kits.


While envelope stuffing as a working from home alternative has merit in the concept that it needs no skill, no degree or experience to excel, the relative purpose of the whole scheme is extremely questionable.

There are many red flags in the business model.

These include

  • Whole purpose of the effort
  • No end product to sell
  • Intent to create a pyramid structure by getting more and more recruits
  • Charging for a start-up kit.

Come to think of it.

Do you really need a start-up kit to learn how to stuff envelopes in any form whatsoever?

The biggest problem with the whole initiative is the fact that in this era of social media marketing, the idea of sending envelopes stuffed with flyers with postage paid for seemed extremely out of sync with the current need and the demand trends.

It is almost like trying to light the fire using stones when you have matchsticks or gas lighters at your disposal.

How to Start a Consulting Business

Before you start on about ways to start a consulting business, it is important to understand who is a consultant.

In common terms, a consultant is an expert in any field who offers the advice as a service

When a consultant starts a business, his business is a consulting business.

You can have many types of consultation from IT to HR and even business processes.

The only pre-condition is your expertise in the chosen field that you choose to continue your consultation service in.

So the question then is how to start a consulting business? What most would be interested in knowing though is

  • What are the pre-conditions to start a consulting business?
  • Are there any qualifications that you need to start such a business?
  • What is the kind of funding that is required to start the business?

How to Start a Consulting BusinessThe fact is that a consultant’s job is to simply consult, nothing more than that and nothing less either.

Therefore, for you to have a thriving business it is very important that your consulting business has access to the

  • Right set of target audience
  • Right type of knowledge base
  • Appropriate resources to make it big

Here is a quick lowdown on how to start a business and some easy steps to enhance your whole consulting business.

Knowledge Is Crucial

When you start a consulting business, you must understand that knowledge is the primary commodity that you are dealing with.

So you must understand that you must assert your knowledge at every possible opportunity.

The client when they select you, it is predominantly on the basis of the knowledge base they have.

It implies highlight your superior understanding and overall expertise that you have created your overall niche in.

Your essential deliverable is knowledge.

Remember that if you do not deliver in the right form and right spirit, then your core expertise becomes susceptible to being questioned.

So, therefore, stay true to your core area of expertise and be forthright in your advice.

Even if that means the client does not agree with certain aspects of your advice and do not agree with you, that’s perfectly all right.

More or less, the core point is that do not crimp on the quality of advice that you can offer.

When you are confident, and the knowledge speaks for you, there is no other element that can stop your progress.

Pricing Your Service Is Crucial

When you start a consulting business, a primary mistake that you need to be careful about is how much you are charging.

In fact, studies indicate that this is one of the biggest mistakes that most consultants are guilty of in the initial days.

Most new consultants end up not charging enough for their service.

Though there is no magic formula to set the right kind of fee structure but remember that whatever or however you charge, don’t crimp on rates just because of your limited experience.

One ground rule is that always charge more than you think you should.
Remember that as a consultant it is extremely important to project your overall return on investment.

The fact is it is not just important to you but also to your clients.

When you can project and prove a sufficiently high ROI, you can also charge an appropriate percentage of the client’s profit as your charges.

The basic point is that the higher your rate is, the better you would look on the balance sheet, both on the client’s as well as yours.

If you look at industry dynamics, you will notice that a consultant with an hourly rate of $1,000 per hour would be valued much higher than someone with an hourly rate of $100 per hour.

Clients tend to go for the consultants who have relatively higher billing rate.

Presentation Is Crucial

You must remember a crucial fact when you start a consulting business.

The ultimate property that you are selling is you.

Starting from your knowledge to your personality and poise everything is up for display and often subject to the client’s scrutiny.

While there is nothing bad or sordid about the whole thing, the fact remains that the client decides on a consultant based on the entire personality and the way you dress and talk also play a crucial role.

This is exactly why when you start a consulting business, you must

  • Dress in an appropriate fashion and project the right type of personality dynamics
  • Price your services in a way that it makes the right type of impression in front of the client
  • Project your trustworthiness in a big way and leave no stone unturned in terms of convincing your client about your overall trustworthiness
  • Create a strong brand entity and market yourself accordingly

Don’t Give up Easily

Another factor that you must be very careful of when you start a consulting business is the fact that you need to be stoic in terms of dealing with disappointment.

There are moments of devastation that every business needs to tackle with, but there is no point in losing heart.

You need to be strong and deal with it maturely.

Moreover remember that disappointment is part and parcel of any business and you have to prepare for it as much as the physical and mental toll that this business takes on you.

The point is your positive spirit can often make the business model more profitable.


Therefore, when you start a consulting business, it goes beyond the simple task of creating a business plan and raising funds.

You have to employ a comprehensive game plan and ensure that you sharpen your skill sets to deal with the challenges of the field in every possible manner.

The core idea is that this is a specific kind of business where your knowledge is your biggest asset as well as greatest liability; the point is how well can you utilize your talent.

Also look at continuous updating of knowledge for better results.