People often love simple correlation metrics, in part because (aside from post hoc fallacies, like more ice cream means more murder), correlation can be an easy indicator of a broader trend.

My favorite correlation metric example is the Hot Waitress Index, so dubbed by Hugo Lindgren in an article for New York Magazine. Lindgren’s point, when the economy is booming (for both genders), being sexy leads to cushy sales and promo modeling jobs. In an economic downturn, those jobs go away. Along with the beautiful people, restaurants, bars, and cafes suffer revenue declines, and that sector of businesses hire the now available models to try and slow that decline with sex appeal. Therefore, the hotter your server, the worse the economy. 

Meet The How-To Course Market Saturation Index

I have my own metrics like these measuring all kinds of things. So far, I’m most confident in the How-To Course Market Saturation Index; The more people selling courses on a topic, the more saturated the market, and the less likely anyone is to make any money using the lessons from the course.

You’ve probably all seen a video ad of someone screaming about how to make money with Facebook ads and dropshipping. I am continually targeted by a half a dozen such people often showing off luxury cars and babbling about building up a substantial business selling products from AliExpress (some even pretend to be super aware and explain why they are not scammers like everyone else). My gut, and basic economics tells me that each of these people carnival barking a course stopped reliably making money using these tactics some time ago. 

See, “100% Legit” if they were even 99% fake they couldn’t say that… Right?

People with a method to reliably start large borderline passive income streams don’t tend to share the technique with the world. Unless… They can make more money teaching, because buying products from a wholesaler and selling them with ads is both hard and these days relatively low margin.   

The Margins Are Low

Most large consumer brands either own manufacturing or are one step away, buying directly from the manufacturer in bulk. Meaning their goods can still maintain a profit when sold at a lower price than someone buying from a wholesaler. For many CPG brands, they expect repeat sales, and they can build that into the cost of advertising. Sellers of products from shampoo to coffee have a reasonable idea of how many people will become regular buyers of that brand. I’m willing to bet the average number of purchases of a drop shipped product discovered from an online ad, without availability in stores, will workout to within a rounding error of one. 

YouTuber Coffeezilla has a fantastic video breaking down the difference between revenue and profit for Amazon FBA Sellers.

Advertising Can Be Costly

All advertising, online or offline, is subject to limits of how many available places can display advertisements. A television show has a limited number of ad breaks, and Facebook is the same. At one time in 2017, Facebook maxed out the number of ads slots available within the News Feed. Predictably from November till after Christmas, the cost of online advertising goes up as big brands spend more. The only way your ads will show when most of the slots are full is to outbid your competitors.

It isn’t purely a battle of cost. Both Facebook and Google use versions of second-price auctions. The platforms consider the relevance of the ad and the amount of money bid, to create the actual amount bid in the auction. If you are better at building and targeting ads online (Facebook or Google) than those competing for the same placement, you may pay less than they have to. Still, the cost will always be higher when more people are competing for eyeballs.

Bottom Line

Online ads work, not as well as many people want to pretend, but ads emphatically work to sell products. However, when you have a low margin, no recurring revenue, and competition with deep pockets, you will have a massive uphill battle turning a profit. I assume the hordes of guru’s selling these how-to courses feel the same way I do; that is the reason they are selling courses.

Info products, like a course, offer a high-profit margin and allow for upsells. Training and classes are not inherently wrong (nor are online advertising or drop shipping), but a lot of people suddenly offering courses teaching the same way to make money, is an indicator that well has already started to run dry.

Header Image by bkeepers