The margins were ok. Ranged from 15% to 40% due to client acceptance rate on the leads. Clients in the industries I was targeting always reserve the right to reject leads and never want to pay in advance.
The problem came in with anticipatory purchasing. Let's say I need 45 graphics templates, 24 domain names, and capacity to host 1,000,000 daily impressions. I also need to buy premium CPM media for the next month on specific websites. You pay for that stuff up front. So, that runs you $12,000 (just a guesstimate). You have to do this stuff before you launch the campaign or issue a full invoice.
You launch. You generate leads, and at the end of the month you invoice for $35,000. But before you even invoice at the end of the month, you have to start purchasing for the next month. Targeted media buys, additional server capacity if necessary, creatives, and so on. If you are growing, you might spend out $24,000 in the second month.
You are generally two months out on spend if you are growing. If they are stable you are spending a month ahead. This means you will pay for one to two months of expenses before you receive the payment for an invoice in the first month.
If the business starts to shrink, you have to take a hit on pre-purchased creatives, equipment, etc. This is where I got caught. When things started shrinking, I had already acquired capacity and services I could not refund. As revenue each month declined, the ability to pay off previous purchases in full declined.
Once it seemingly stabilized, I was able to start predicting purchases again and continued acquiring placements and media for November and December. Then the clients pulled the plug.
Now, having already purchased and placed creatives for the last week of November and all of December, I am now stuck with paid for graphics with no clients and media buys that I can only get partially refunded.
Just thought I would explain how it is possible to be profitable while operating, but get stuck with debt when things get shut down.
I do have to say, if I do this again I will definitely insist on minimum notice clauses in the placement orders and service contracts. No more of this "turn it off" same-day, phone call BS.