Digital products as an asset class

Since paid digital products have underlying cash flows that reward their owners (makers and Intellectual Property owners) we can consider them to be financial assets.

Now, popular method of investing is to put your money into ETFs that follow S&P500, NASDAQ, Russel 2000 and other indexes that diversify risk for an amateur investor who has no time to dig into the financials of each company.

Such approach is considered to be a relatively safe way to get 7% of annualized returns (on average and on a relatively long timeframe given volatility, market conditions, etc). That means that your $1000 invested in such ETF would return $70 over a course of a year. For an average person worldwide that would mean hundreds of thousands of dollars if not millions to cover the cost of living and to protect capital against inflation.

Now, as a creator of Prodmake I want to share how I think about info-products and a relatively safe way of capturing value and “risking” your time for creating these products.

Many makers set a goal of selling thousands if not tens of thousands of copies and consider anything less to be a failure in this hobby/alternative career they pursue. Of course, it’s great to dream about these outcomes as they would mean a quick path to retirement, financial freedom and all that ease of mind people are pursuing. However, that is not realistic without an established distribution. It’s realistic of course but it takes some time to get there and as we all know, it’s the first couple of months where most people give up (if not first few weeks).

What I want to offer here is an alternative concept of how I think about investments, spreading risk and getting to that sweet asymmetric upside (meaning you bet $1 and get $10 or more).

Let’s say your hourly rate is $50 and you would need to spend 15-20 hours over the next few weekends (if you’re full-time labor like most people, weekends and late nights are the only time slots for this really) — that would mean every product costs you around $1k to make. Realistically less as most professionals cannot utilize 100% of their free time but $1k is a good number to work with.

Now let’s say it took you 20 hours to produce a 30-page guide on your favourite pastime which could be anything really:

• how to sow a pijama

• how to live off your dividend portfolio

• how to move to Chiang Mai

• how to go offshore

You get the picture. Essentially you dump your brain context into a text form, format it and publish it with a price tag of $9. A fair price? I don’t know but that’s enough to calculate the metrics.

So now we have a digital product live in public with a “Buy” button that says “$9”. You can export that to PDF, Epub or just link everybody to your product on Prodmake Store or a standalone page.

Back to the point at hand, pure profit off of $9 dollar product with 90% royalty plan is ~$8. To cover the investment you would need to sell ~125 copies of your product. Is it a lot? I can’t tell but it’s definitely possible.

Selling a copy every single day is probably not realistic for most but selling one copy per week is realistic for a decent amount of makers.

So let’s take ~50 sales per year with $8 from each sale. That’s a $400 of revenue from a single product that required ~20 hours in production costs. That means that covering initial investment would take 2.5 years. That’s a CAGR of 31.9% (higher than the greatest investors we all heard about). In simple terms, to achieve the same return your bank would have to offer you 31.9% per year instead of a measly 1-3% we see everywhere. Now, let’s not forget that you would not actually spend $1000 on the product creation (other than $20 per month for Prodmake editor app, of course). It only costs you time.

The great thing about this is that it does not stop once/if you return 100%. Chances are, if your product returned 100%, it’ll continue to sell and to return even more.

Now, that’s an example of a single product in your maker portfolio. What if you had 3, 5 or 10? You see where I’m going with it. Once again, chances are, the more you throw at the marketplace the higher the chance of something becoming popular.

I hope these examples provide a clear picture of what is possible with an approach of treating digital products as an alternative asset class that doesn’t require upkeep, maintenance, insurance.

In addition, with opportunities to enter international markets, the value of the product may not be $9, but $90. If you can provide that value in a particular niche (say education, migration, investment) then $500 is what is accepted in many industries.

I hope these examples give a clear picture of what is possible with the approach to digital products as an alternative asset class that does not require maintenance, care and insurance compared to other asset classes.

Great thing is that it also provides pleasure as a form of creative activity, builds up your reputation and makes you more knowledgeable about whatever you spent 20 hours researching and writing about.

Can’t think of a better activity for getting educated, established, and paid.

–Kaz