Creating Real HYIP - Calculate The ROI

This is Part Nine of the series of articles about creating a real HYIP. If you have read the previous articles from the series, by now you should be full of ideas how to create a very successful real investment club and earn a lot from it. If you have not read the previous articles, it's time to do that now:

- The HYIP Business - Is It Really A Hopeless Situation?
- The Real HYIP Can Exist
- Creating A Real HYIP - Set Your Basic Concepts
- Generating Profits For Real HYIP - Invest in Trading
- Create Profits For Real HYIP - Invest in Sport or Financial Betting
- Create Profits For Real HYIP - Invest in Real Estate
- Create Profits For Real HYIP - Invest in Internet Business
- Create Profits For Real HYIP - Invest in Real Business

Once you have created your business model and know where the profits may come from, you need to think about their redistribution. Yes, this is the sweetest part, but if you think it's a game, you are wrong. It's very important to ensure proper and timely distribution of the profits and fair calculation of the ROI as well. If you fail to do so, your members will start screaming "scam" and recovering from this is bloody hard. If you don't want to upset your customers, you need to specify exact payment rules and stick to them.



But everything starts even before that - with proper calculation of the returns.

Calculating the ROI

First and most important advice which comes to my mind is:

Do not calculate and offer fixed ROI!

This is so important. You can't know what exactly the profits from your venture will be. You may hope for some figures or even make very good forecasts, but the truth in 99% of the cases differ from the forecasts. If you think you'll win more by offering low fixed ROI and making much more than that, you most probably will be screwed if the things go wrong.

There is another reason to avoid fixed ROI is that the investors will immediately label you as ponzi. Remember, you are doing with HYIP investors here and most of them are not too knowledgeable about investing - they just know the ponzies offer fixed ROI and if you do it, you run a ponzi, period. (And the truth is that I have never seen a real high yield investment giving fixed ROI).

Leave fixed ROI to the banks. Calculate your returns each period (usually month) and post it for the members. At the time of positng state what is gross and net ROI. You'd better be transparent and let your investors know what your fee is.

Creating Reserve Fund

There is quite a lot of controversy if the programs should manage reserve funds or not. The arguments not to have one is simple - if your program is real, you can just post losses when they occur. Everyone will understand and accept that. In theory.

The truth in the business world is different. A small loss will be accepted as part of the game, but a big loss will throw most of your members in panick. This should not happen as it can have very negative impact on your business.

To avoid that, simply maintnain a reserve fund. Set 10% of the profits aside even before you take your cut. Then use this fund to cover big losses in case they occur. There is no exact formula how to distribute it, but it's recommended not to keep it too large. Otherwise investors who joined earlier and withdrawn part of their funds may feel to be threated unfairly - because part of their money would have gone to cover losses for other members. That's why 10% is more than enough for a reserve fund. And if your program makes no losses, don't hoard millions in that fund - just distribute it as bonuses.

Maintaining The Payments

This is an easy part as long as you have decided on the payment methods you will use. You just need to do it on time and to avoid making mistakes.

Since the real business is not like running a ponzi, you can't just take the money out at any time to pay profits. If your program is based on day trading or betting you can simply remove some funds from your trading/betting account. However what to do if you invest in real estate? You can't sell just 5% of the property to pay out.

The solution comes at the time of calculating the profits. If you *think* that you can sell the property (or website, or business) for 20% higher than the purchase price, does that mean that you should report 20% profit? Not, of course!

You should report the profits only when you have them in real hard cash. For example the rent that you receive from a property or the Adsense revenue from a website or the monthly profits from the restaurant are real profits which can be reported and distributed. However the increase of the price of your asset is NOT profit until you sell that asset.

Principal Withdrawals

The HYIP investors like it very much when they can withdraw their principal at any time. They go even further and label many programs as scams just because they lock the principal for 6 or 12 months. However this is how the real business work.

If you have just funded a startup business with 99% of the money which your fund owns, how could you pay out someone's principal? The answer is simple - You can't.

And the solution is simple - don't allow principal withdrawals at any time, unless you can liquidate the assets needed to pay the withdrawals. The programs based on day trading can do this, but it is much harder if you invest offline. You should think very well about this before offering principal withdrawals even if you take a percentage fee for that.

If you want to keep your members happy, you can open a withdrawal "window" for principals. This can happen when property, business or website from your assets is sold, when you close trading positions or simply when the HYIP has free money.

Calculating the ROI and maintaining payments is a very important part of your HYIP business. You can't afford losing your customers because of poorly managed finances. It takes work and money to attract your customers and you should keep them happy.

Speaking about attracting members, in the next article I'll give you some ideas how could you do it. Each member of a profitable investment club brings profits to the club owner (YOU), so it makes sense to attract more and more of them.

The next part is now available - Creating A Real HYIP - Advertisement and Referrals

Published at Aug, 17 '07 ; read 761 times;

If you liked this article subscribe to the Free HYWD Newsletter

   

User comments:

AV2 at Aug, 18 '07 05:54
Great like always ;) Thanks Clifton for sharing this collection of articles about "REAL HYIP". Very positive mind . Best wishes. AV2.
Reply to this comment

clifton at Aug, 18 '07 08:33
Thanks AV2 :)
Reply to this comment

Now get syndicated content on all recently published or updated articles!

Or add to your favourite RSS readers: