Chapter 1

Determining Your Revenue Model

IN THIS CHAPTER

check Acquiring and reselling tangible products

check Finding revenue-sharing opportunities with affiliate sites

check Selling your professional services

check Distributing information for profit

check Creating a revenue stream with online advertisements

Face it: Whenever you start an online business, you must answer one question before you answer any others — how will you make money?

You can have the most brilliant, original, or quirky idea ever conceived, but the concept doesn’t hold water if you don’t have a viable plan to bring in dollars. The good news is that, as the web continues to mature, a number of viable ways to make money have emerged. In this chapter, we break down the various revenue models on which you can base your online business.

Selling Tangible Products

A natural choice for making money online is to sell some sort of product. You might already have a fantastic product, or you might need to search for a mix of products that you can buy and resell to others over the web. Either way, selling a tangible product over the Internet has proven to be a successful online earnings model ever since e-commerce began taking off in the early 1990s.

Projecting how you’ll make a profit

When you deal in tangible goods and services, the question of how to make a profit often boils down to a simple four-word phrase: “Buy low, sell high.” As entrepreneurs have always known, you have to sell something for more than you originally paid for it to make money. Even if you’re able to catch fish from the sea and sell them to big food suppliers, or if you’re able to create works of art with the fruit of your talent, you still incur business expenses. A fisherman has to pay for a boat, fuel, and equipment. An artist has to buy paint, brushes, and canvas. No matter what you sell, you have to project how much you’re going to spend in acquiring or producing the product, and how much you can reasonably get for it in the marketplace. The difference is your profit.

Before you even spend your first penny buying or producing tangible products to sell, take a moment and ask yourself some basic questions that will help you project your potential revenue:

  • What does it cost to produce or purchase my product?
  • How much is my overhead: the cost for utilities, rent, salaries, and transportation, for example?
  • Can I price the product in such a way that it covers my overhead and purchasing costs and still remains competitive with similar products?
  • Will added shipping costs skew (or diminish) that competitive price point?
  • What volume of products do I need to sell each month to reach my desired profit margins?
  • How much traffic (how many visitors) must I drive to my site and convert to customers in order to reach those sales goals?
  • How much do I need to spend on marketing to attract that level of traffic?

Write all the projected expenses and income on a piece of paper or using your computer. Do some in-depth thinking about whether you can make your business plan (that’s what this is, after all) work successfully. If your profit isn’t enough to make a living or at least make enough for your immediate needs, make adjustments now. That might mean finding more products, raising prices, reducing expenses, or all these. Run the numbers past any experienced businesspeople among your family or friends who can serve as mentors.

remember Knowing for certain whether a product-based revenue model will meet your financial needs is difficult — a lot depends on the product itself. In Chapter 6 of this minibook, we show you how to research and further test your product ideas — whether you created the item or are buying products for resale.

Manufacturing and selling your own goods

In terms of sheer profit margin, you can rarely do better than creating your own products for little money and selling them online. If you’re creative and enterprising, you can sell your own work by using e-commerce sites, auction sites such as eBay, and social media channels such as Instagram. Websites set up to act as an online marketplace specifically for artisan wares are also available, such as Etsy (www.etsy.com) or Aftcra (www.aftcra.com), where artists and hobbyists can list their own handmade or vintage works for sale.

The kinds of items you can sell online is limited only by your imagination. You might sell delicately smocked dresses for children or funky, hand-strung beaded jewelry. Or maybe you want to develop an original board game or peddle custom-designed iPad covers. Rest assured that all these products have a place on the innovative Internet.

As you might expect, a few characteristics give your personal handiwork a leg up on the competition, including

  • Quality: Without exception, consumers expect a product that’s worthy of its price tag. When you’re creating your own products, you have total control over quality. Make sure your designs are finished and your workmanship is of a high level before you put items up for sale.
  • Originality: If your handmade product is a unique twist on a mass-marketed type of product, you can have rewards. Internet shoppers are always looking for products that are slightly different from the items available in most retail stores.
  • Appeal: Maybe your handmade product isn’t unique but is part of a specialized, hard-to-find or popular group of products (such as personalized cellphone or Android phone cases). Narrowing your product’s appeal by audience is a good way to increase revenue potential. We discuss niche markets more in depth in Book 10.
  • Built-in customer base: Perhaps your product is designed to appeal to a specific group of people, such as a religious group that makes woven altar cloths for churches. Having a clearly identifiable existing customer base that you can market to makes selling your product that much easier.

When you’re making a product from scratch, the way in which you earn money can vary. If your product meets one or more of these descriptors, chances are good that you will do well. At least you’re off to a good start!

Buying tangible goods and selling them online

Even if you don’t have the creative ability to craft your own products, you still have plenty of options for making money online. The overwhelming majority of online entrepreneurs are people who buy tangible goods at low prices and sell them online for a profit. You can either sell directly from your own website or allow another website to market your products.

Selling directly online means that customers come directly to you (by way of your website) to buy an item. There’s no middleman. The marketing, publicity, and fulfillment are up to you — in other words, it’s a lot of work, but the rewards can be great. If you don’t have any experience selling, it makes sense to allow other websites, such as eBay, to market your products. The website brings you customers and provides you with systems for creating sales descriptions and receiving payments. Your host website charges fees for its services, but you don’t have to do all the work.

Whether you sell directly or sign up with another website to sell your goods, you have to find a source for your products. Three of the most popular options — finding your own merchandise, finding a wholesale supplier, and finding a drop shipper — are described in the sections that follow.

Finding your own merchandise

Many people who sell online begin at home or close to home. They clean out their closets, their garages, and their attics, and then sell the extra merchandise. Then they move on to the homes of their relatives.

Others scour flea markets, estate sales, garage sales, secondhand stores, dollar stores, and many other marketplaces, looking for treasures they can sell online at a profit. Sellers who are lucky enough to find a reliable source of desirable merchandise can make part or perhaps even all of their income. The problem is that the time spent searching, hauling, and bringing home the items to sell is considerable. Not only that, but there’s the question of where to store all the products and the boxes used to ship them: You either have to delegate a room in your house for this purpose or rent warehouse space. It’s hard to build up a sufficient inventory to make a living at selling online.

Buying wholesale

Owners of traditional retail stores are accustomed to buying their inventories wholesale or becoming distributors for particular products or brands. The same option is available for your online store. When you buy wholesale, you purchase products at a discounted price and then resell them to your customer base at a marked-up price. You’re responsible for ensuring that these tasks are completed:

  • Purchase inventory in bulk. You can’t buy just one hair dryer. You have to commit to an entire case (or several cases) to get a discount.
  • Warehouse the inventory. Wholesalers don’t let you keep all those cases of products at their place. You’re expected to store the inventory you purchase for your site, even if you have to keep it around for several months. You have to find space for it in your home or rent a warehouse, and because online merchants tend to buy higher quantities of merchandise at wholesale than they do scouring flea markets, this proposition can turn into an expensive one.
  • Ship the products to your customers. Because you keep the merchandise at your place of business, you have to handle packaging and shipping each item (unless you hire employees to help you). See Chapter 7 of this minibook to find out more about packaging and shipping your products.
  • Handle returns and exchanges from customers. If a customer is unhappy with a product or the item is damaged, it has to be shipped back to you to be dealt with accordingly.

The drawbacks for a small online business are probably obvious. Among the biggest is that your out-of-pocket cash commitment is hefty. If you’re just starting out, you take a financial hit right off the bat.

Of course, you have to have a place to store all these products, too. A garage or spare bedroom might suffice for some, but others will eventually need to rent storage space. That overhead expense certainly eats into your profitability. Many online merchants find that the third option listed for sourcing merchandise to sell — drop shippers — enables them to market their products without having to deal with having to store and handle inventory.

remember When you purchase merchandise from a wholesaler, you typically must provide some form of proof that you’re a legitimate business (and that you’re not buying for personal use). Wholesalers might ask you for a state-issued reseller’s certificate or a federal tax ID number. And if the wholesaler doesn’t require these items, you might not be paying truly wholesale prices.

Going inventory-free: Drop shipping

For many online entrepreneurs, the ideal setup is working with a drop shipper, a company that sells you merchandise at wholesale prices but only when you sell to a member of the public at a retail price you specify. You don’t need to spend lots of money building inventory with a drop shipper; you’re billed only when you make a sale. And the drop shipper stores the inventory for you and ships your products as you sell them. Drop shippers are ready to provide you with a steady stream of merchandise, and you don’t even have to worry about warehouse space. When you use drop shipping, you can select products from other manufacturers, set a price for each item, and then turn around and offer the products for resale on your site. You’re able to focus on presenting and marketing the products while the drop shipper handles fulfillment.

The factor that makes this model especially attractive is that you don’t buy or hold any inventory. Instead, you wait until a customer places an order from your site. After the payment has cleared, you forward an order to your drop shipper and pay for the product. (You’re charged a wholesale or discounted price, whereas your customer pays you full retail price.) The drop shipper then sends the product directly to your customer. You make money on the difference between your cost for buying the product from the drop shipper and the price you charge your customer. As far as your customer knows, the merchandise is coming directly from you. Other perceived benefits include being able to offer excellent customer service and concentrate on marketing, rather than on manufacturing, the product. You don’t have to deal with the headaches of managing inventory and shipping products. You can focus on the front end — the sales process.

What’s the downside? Lots of companies claim to be reputable drop shippers, but many aren’t trustworthy. You have to scrutinize certain issues to create a realistic picture of your income potential:

  • Lack of control: When you work with a drop shipper, you don’t control how the merchandise is packed or shipped or how quickly it arrives. Discuss with the drop shipper which shipping method should be used.
  • Possible inventory problems: You depend on your drop shipper to have the inventory in stock when someone purchases it. If it’s not there, you have to explain delays to your customers.
  • Return policies: Make sure your drop shipper accepts returns. If the drop shipper doesn’t, you’ll be stuck with the bill when the customer expresses dissatisfaction and wants to send something back.
  • Dealing with a lack of volume discounts: Because you’re not purchasing products in bulk, the discounted retail price is typically higher than when you buy wholesale. This price difference can translate to lower profit margins for you. If you sell consistently, you may be able to negotiate a lower price eventually, but at first your profit margin is less than if you purchase at wholesale and sell directly to the public.
  • Handling less-competitive pricing: To offset lower profit margins, you might be tempted to mark up the product’s price significantly. The risk is that your product might not be price competitive in the marketplace. That’s not a bad thing — as long as you can balance it with another value proposition (such as excellent customer service or a huge product selection).
  • Balancing demand and value: With profit margins a little tighter, you might search for drop-shipped products sold at the deepest discounts. Although your profit margin can rise because of this factor, the product won’t sell if it doesn’t have mass appeal.
  • Driving traffic: When you pay more for a product (in exchange for the convenience of on-demand ordering), your profit becomes a true numbers game. You have to attract a much larger number of visitors to your site and increase the rate of conversion to realize the same, or similar, profit margins as a site that’s buying wholesale (see the preceding section) or selling custom products.

Identifying drop shippers and wholesalers is the first step when using this strategy to earn revenues online. Several reputable resources for product sourcing, or locating a drop shipper, are available — at a price. For access to a directory of drop shippers and wholesalers, you may pay a one-time fee or a monthly fee that also includes access to various support and marketing tools. Some drop-shipper resources also allow you to integrate with your eBay store, letting you push product descriptions and listings directly to the site. The same type of integration is sometimes available for e-commerce solution providers and storefronts, such as Shopify (www.shopify.com), 1ShoppingCart (www.1shoppingcart.com), and BigCommerce (www.bigcommerce.com). You can learn more about using storefronts in Book 8. Here are a few good resources for finding suppliers that drop-ship products:

Selling Your Professional Services

Sometimes the issue isn’t which types of products you have to offer. Instead, you have to ask, “What can I do for you?” Another source for making money online is selling your services. There is a rising movement of using independent contractors or freelancers for a wide variety of jobs. Yes, freelancing, or selling professional services, is not a new concept, but it has never been as prolific or accepted as it has been in recent years. Sometimes called the “Gig Economy,” this services-based market is growing at a phenomenal pace. By 2020, it’s expected that 40 percent of the U.S. workforce will be independent contractors, according to research by Intel. Most online services fall into one of five key areas:

  • Creative: These products are delivered as a service. For example, you might be a graphic artist who develops logos, a writer who is paid to create ad copy, or an artist who paints portraits from photographs that customers upload to your website.
  • Organizational: If your site is an organization based on paid memberships, we consider it a service website. Typically, your members pay for access to a group of services in exchange for a renewable fee.
  • Hospitality and labor: You may rent out your apartment as part of the online marketplace for vacation rentals using sites such as Airbnb (www.airbnb.com). Or you may compete with cab companies and offer your services as an independent driver through mobile apps such as Uber (www.uber.com) or Lyft (www.lyft.com). These are examples of a quickly expanding segment of the gig economy and are considered part of the online services industry.
  • Professional: These folks are accountants, attorneys, public relations agents — you get the idea. Whatever the service, not only do you market it online, but your customers can purchase the service over the Internet.
  • Software-based: A variety of websites provide software online that their visitors can use with their web browsers. Sometimes called an application service provider (ASP) or software as a service (SaaS), it’s almost a hybrid of a service and a product. A company uses a website to sell software or a process that’s delivered or managed as a web-based service. Some examples are an online payroll-processing firm, a website hosting service, and a shopping cart program.

Whatever service you want to promote online, you need to have a clear picture of the benefits and downsides so that you can maximize your chances of success.

Understanding the pros and cons

You gain a distinct benefit, geographically speaking, from offering any type of service-driven revenue stream online. For example, if you’re a graphic artist living in a small rural town, the number of people who regularly need your service is limited. By selling your services from a website, you can quickly broaden your prospective customer base.

Selling your professional services online has a downside, too. As you know, revenues from most service-based business are limited by the products you can produce — there are only so many hours in a day! Your final output (and income potential) is based on your, or your staff’s, available billable hours. You can take the following actions to minimize this type of effect on your revenues:

  • Increase your hourly rate
  • Hire additional staff
  • Replicate your service as a web-based deliverable product
  • Add complementary sources of revenue (other services or products)

For many professionals, the added visibility that comes with a website outweighs the disadvantages. And these days, professionals need to be on the web just to keep up with the competition.

Building credibility

One of the most important issues for anyone who sells his services online is credibility. What experience or credentials do you have that help you stand out from the crowd? Although you can reach a larger number of prospective clients on the web, you’re also up against more competitors. And when people purchase services over the Internet, they look for indications that you’re legitimate and skilled.

Unlike meeting with a potential customer in your offline business, you don’t always have the opportunity to establish a direct relationship with a prospective client. Your website serves as that introduction and relationship builder. If information about your service isn’t available (or obvious), your potential customer will click through to a competitor’s site. Similarly, there are more opportunities for customers to use online reviews to rate the quality of your service (and your attitude, timeliness, and other factors). Reviews and ratings are also visible within mobile apps. Before you have a chance to make an impression on a new customer, you can bet a previous customer has rated you. Customer reviews can boost up or bottom out your revenue-generating potential.

Establishing your credibility isn’t difficult. Your website can feature any or all of these items, to help solidify your reputation and put potential customers at ease:

  • Degrees or certifications: Adding this information to your bio on the About Us page gives prospective customers a sense of security. If you have certifications in niche areas, this information is especially effective for building credibility.
  • Company history: The issue of the number of years you’ve been in business is especially important if your website services are new but you’ve been in business offline for quite some time.
  • Clients: Even if you don’t have any heavy-hitter clients on board, a short list of named clients illustrates your legitimacy (and the fact that people hire you).
  • Case studies: Describing how your service was used to help solve a customer’s problem is an effective way to communicate a success story. A case study demonstrates the different ways your services can benefit someone.

  • Testimonials: Whenever you finish a project that has gone well, ask your client to provide a testimonial or online review. One or two sentences (or four or five stars flagged in a star rating system) are plenty to let others know that you did a good job.

    tip When developing your own client testimonials and case studies, consider delivering the information by using videos, which continue to increase in popularity. The most effective videos are short (under 90 seconds) and easy to consume. Plus, you don’t have to pay high production costs — with inexpensive equipment, you can easily make low-budget but professional videos.

  • Social media endorsements: Sites such as LinkedIn offer the opportunity for clients and customers to recommend you. The process is simple and is much like a traditional testimonial that happens to be accessible online. Don’t hesitate to ask for that recommendation. Similarly, use other social media sites, such as Twitter, Facebook, Google+, and YouTube, to spread the news of your successes. Or eavesdrop on these open communications and find people who are already saying good things about you.
  • Recognition: Any awards or kudos you receive definitely build confidence in your capabilities.
  • Press clippings: Don’t be shy. If you appear in a newspaper or magazine article, shout it from the rooftop or from your home page. Links to this type of publicity serve as validation from a third party.
  • Reviews: Unlike testimonials vetted by you and posted on your website, you can’t control the public reviews left on third-party sites (such as Angie’s List) and within mobile service apps (such as Uber). Don’t let that stop you from encouraging happy customers to take a minute to leave a positive review on these sites. Often these external reviews show up in search engine rankings ahead of, or inline with, your website. These reviews often are considered to be more credible than those posted to your website or in your marketing materials because you haven’t controlled them. For that reason, it is particularly important to have good reviews floating out in cyberspace, so don’t hesitate to ask for a positive rating.
  • Referrals: Similarly, if other experts, service providers, or organizations tout your skills, let site visitors see that you’re considered a leader in your field.

tip Add a link to your membership organizations at the bottom of your website’s home page. Making these elements highly visible on your front page can encourage a new visitor to your site to hang around a little longer.

Adding the items in the preceding list to your site also helps you deal with another issue: When you run an online service company, you have to market yourself, just like you would market any product. Being hesitant about promoting your talent affects your earnings.

tip If you’re not comfortable blowing your own horn or you just don’t have time, hire a professional. Count it as part of your marketing expenses, as you would when you buy banner ads or Google AdWords.

Selling Information

The Internet holds so much information that simply finding the data you need the most is a time-consuming process. Some of the most successful businesses on the web got their start by simply organizing the mountain of online content and making key information easier to find. The two most notable examples are Yahoo!, which developed one of the first indexes of websites, and Google, which created one of the most effective search engines ever. Both companies have been around for approximately two decades and continue to successfully use information and profit from it online — but in very different ways. Whereas Google has dominated the pay-per-click ad market (with Google AdWords) and moved into video (purchasing YouTube), social media, voice services, and more, Yahoo! has been a news and media platform generating most of its revenue from ad sales. The point is that developing and profiting from information is still a viable online business moneymaker — and it’s a matter of choosing which type of information provides the best opportunity for you.

When it comes to content, almost anything can be converted and packaged into some sellable format. Newspapers, such as The Wall Street Journal (www.wsj.com), charge a subscription fee for accessing some or all of their articles, including articles from their extensive archives. Well-known magazines are readily following suit. But not just words are being sold. It’s possible to charge money for music, games, videos (film), research data, mobile applications, and, well, you name it.

remember The subject of providing saleable content online holds so much promise that we dedicate an entire chapter to it. If this area interests you, check out Chapter 3 of this minibook to find out how to transition your expertise into e-books, webinars, and other online content-based products. Whether you create a website that organizes information or you sell articles or other information online, developing marketable content requires only four initial steps:

  1. Originate.

    In this step, you create the product. Converting and saving your words, music, or images to a media format is a fairly simple and straightforward process.

  2. Replicate.

    After you have an information product, your next step is to package it for resale by converting the content into a type of downloadable file distributed over an Internet connection. The file might be a PDF document, an image file, or even a link to a password-protected website that contains the information.

  3. Disseminate.

    After the content is stored in the preferred format, you’re ready to put it up for sale. You have lots of ways to make the content available for download: You can use standard shopping carts that integrate with content products, or you can use web-based services that distribute content on your behalf. You may prefer to deliver your content through popular social media channels, such as Instagram, and profit not from the sale of the content itself, but from selling sponsorships of your content brand. (We discuss this idea further in Book 10.)

  4. Update.

    Making minor revisions or updating content is a matter of returning to the original document or file. After the corrections are made, you save the changes and then replace the old media with the most recent version.

Ease of production aside, you’re probably curious about how much you truly can earn. That number is hard to pinpoint because you can charge in several ways and because getting consistent numbers for this new industry is challenging. That said, from year to year, analysts gauge a steady increase in revenues from paid content, with totals reaching several billion dollars. As Google’s changing rules for online search results put more and more emphasis on quality content (in order to rank high in results), and as audiences worldwide can’t seem to quench their thirst for online content (especially videos), there doesn’t appear to be a ceiling for revenue generated from some form of content. Consider that Huffington Post, essentially a news-style blog site, was sold for $315 million. Re/Code, a website filled with content for technology enthusiasts and developers, was purchased by Vox (another online media conglomerate) in a deal valued at nearly $20 million dollars. And in 2016, Microsoft announced its intent to buy LinkedIn for more than $26 billion — in cash! While LinkedIn is a social media network, the heart of the platform is based on the content and user data it owns.

Equally encouraging are reports from industry analysts showing that global revenues from mobile apps continue to grow, with revenues of $45 billion in 2015. In 2017, that number is expected to hit nearly $77 billion, including app purchases, advertising, and in-app purchases that are expected to add up to more than $32 billion. Moreover, social media heavy-hitters Facebook and Twitter continue to pay millions — and even billions — for start-up app companies and sites that focus on all types of content.

Companies such as YouTube, Apple, Netflix, and even traditional media sites for major networks have expanded the meaning of content. Apps, videos, and music have already skyrocketed into the arena of sought-after content. The new demand has caused a tug-of-war between two strategies: offering paid content versus offering free content subsidized by advertising. (We think paid content will continue to grow.) Prominent media organizations are leading the way and establishing a legitimate (and lucrative) market.

Perhaps responding to growing preferences, content distributors big and small are also offering content in single quantities. One of the best-known examples is the Apple iTunes Store, which struck a chord with fans when it started selling downloadable songs for 99 cents apiece. Online bookstores, such as Amazon and Barnes & Noble, also offer paid content that’s immediately downloadable for use with their respective media or e-readers. Note that your price point and potential revenue for this model largely depend on three factors:

  • The type of content you’re offering (and how it is traditionally packaged)
  • The popularity of your content
  • The way your content is being sold by your competitors

Placing Ads for Profit

Although paid programming is undoubtedly expanding on the web, it’s not the only game in town. Content is being used to sustain another tried-and-true web business model: advertising. When you attract enough visitors to your website by providing marketable content, you can place advertisements and earn money from advertisers.

Looking at sites that sell

We know that you recognize the online billboard model of providing content, attracting visitors, and then selling advertising space on the site (thus, the term billboard). In this model, the content is typically good quality and free. Articles, tips, videos, and other types of content are used to draw visitors to a website. Typically, the more eyeballs the content attracts, the more money that can be earned by selling ad space. Sometimes, websites offer niche content to a targeted audience may be able to sell advertising even if the site doesn’t have a high volume of traffic. Either way, the right type of free content is turned into money in the bank. Several popular types of sites support earning revenues from ad dollars:

  • Community: The online community is modeled after one of the original web business models, the website portal. This type of site provides a host of information, articles, and resources on a specific area of interest, usually to a targeted audience. For example, The Knot (www.theknot.com) provides information to engaged couples and newly married couples. Mashable (www.mashable.com) provides information and resources for people focused on digital trends and pop culture. These sites attract millions of unique visitors each month, and have a rapidly growing base of followers in social media.
  • Classifieds: Personal ads are among the fastest-growing categories in this market. Sites that promote listings for jobs, household goods, or businesses for sale (such as Craigslist) also attract visitors.
  • Video channels: Video content has become increasingly popular. YouTube reported that it has over 1 billion uploads and the amount of time watching videos has increased by more than 50 percent year over year for the past three years. Facebook’s video usage from users has also grown by a staggering amount. In 2016, the company announced it generates 8 billion video views per day! While Facebook and YouTube are obvious leaders in video consumption, almost any type of video-centric site is ripe for high traffic and ad-based revenues.
  • Information exchange: This area includes blogs, user groups, and review sites such as Angie’s List (www.angieslist.com) and Spiceworks (www.spiceworks.com).

The online ad-based business model has been around practically since the birth of the Internet. As the industry has matured, it has become standardized to a large degree (although it continues to evolve). Today, the ad-based business model has generally accepted rules or guidelines concerning advertising, such as

  • Which forms of online advertising are acceptable
  • How results of an ad campaign are measured
  • Why and how a site should be audited by a third party to validate its traffic
  • How much advertisers are typically prepared to pay for ad campaigns

tip To discover more information about current advertising guidelines and standards for the web, we recommend visiting the Interactive Advertising Bureau (IAB) at www.iab.net.

Analyzing traffic patterns

After you examine websites that attract ad revenue, you need to improve your own website and analyze it so that you can determine whether it’s attracting enough attention to make ad revenue a viable proposition. For the most part, your income is connected to the level of traffic, or number of unique visitors, your site receives. The level of traffic you receives depends on two factors:

  • Value: The quality and appeal of your content have a direct effect on the number of visitors your site receives. Sites that have engaging content or deal with highly popular subject matter are more likely to attract and retain visitors.
  • Promotion: Because even good sites can go unnoticed, your number-one job (following content creation) is to market your site. This task runs the gamut from search engine optimization to public relations. You have to attract eyeballs to make money. (When you’re ready to get serious about boosting sales by promoting your site, check out Book 6.)

If your site has been up and running for a while (preferably, several months), you can use your traffic analysis data to gauge future traffic patterns. This strategy works even with a limited amount of historical data. Specifically, look at the percentage of growth in the number of visitors from week to week or from month to month. By multiplying this figure over several months, or even a year, you create a baseline calculation of the growth you can expect — assuming that no negative trend in visitor traffic takes place. This calculation doesn’t account for spikes in visitor traffic following a higher search engine ranking or from marketing activities to promote your site.

How do you know when you reach a number of hits that’s sufficient to start generating revenue from ad sales? Consider that most online ad networks (organizations that sell ad inventory on behalf of web publishers) require that you meet a minimum traffic count before they will work with your site. For most websites, this cutoff is between 3,000 and 5,000 unique visitors per month. That’s an average of approximately 100 to 166 visitors per day to your site.

With a start-up business, you obviously don’t have the hard, cold data to estimate when you might hit those magic numbers, so you need to project your site traffic. How? Take a look at the traffic patterns of sites that are similar to the one you’re building. You can find some of this information from a third party, such as Alexa (www.alexa.com). This site, owned by Amazon, provides traffic rankings as well as fee-based tools for competitive intelligence and on-site metrics and monitoring (for your own site). To access the information on Alexa, you must sign up for a paid account, which ranges from $10 to $149 per month.

tip Alexa offers a free 7-day trial of its low-end basic plan (you must submit credit card information). However, the trial should provide enough information to offer some initial competitive data.

After signing up for a paid or free trial account, you can compare sites by following these steps:

  1. Log in to your account at www.alexa.com and go to My Dashboard.

    You see different sections featuring tools you can use to track information on your website as well as tools to compare other sites.

  2. Under Competitive Research, in the left sidebar, click the Site Comparisons link.

    The Site Comparisons page appears.

  3. At the top of the page, enter the URL of the website you want to compare.

    The report is run and you see a 6-month graph detailing historical traffic trends for the site. (With a Pro account, you can adjust this time frame.) Available traffic trend information includes Alexa traffic rank, page views, and time on site.

  4. If you want to compare multiple sites, enter the URL for the next site in top-left Enter Site box.

    You see a graph detailing recent traffic patterns for all sites selected. You can choose up to 10 sites to compare with the basic or trial account.

tip You can save time setting up your Alexa dashboard with competitor information. Once your free trial or paid account is approved, Alexa.com shows you a pop-up screen to let you immediately enter the name of the website you own or manage, and then the name of a competitor’s website that has an audience you want to target. It takes this information and sets up your dashboard for you (then you can add other competitor sites later).

Having access to competitive information provides a good overview of traffic patterns for sites similar to yours. These results are in no way a guarantee of your level of visitor traffic. Many other factors influence the results, such as

  • Age of the site
  • Organic search rankings (in Google and Yahoo!)
  • Amount of marketing designed to drive traffic

Additionally, keep in mind that the figures from Alexa are only estimates, and data may not be available for low-traffic websites.

Choosing ad formats

The types of advertising formats you choose to offer influence your ad revenue. Although a banner ad continues to be an old standby, savvy advertisers (and experienced media buyers) expect a variety of ad format options so that they can mix and match to find the best value for their investment. These ad formats include video ads, social media ads, and mobile-ready ads. Here are some common ad types:

  • Banner: This standard boxed ad appears almost anywhere on your website, including at the top of your home page, in the sidebar of your site, or embedded in content sections on your site. Dozens of ad sizes are available; you can see samples of the most basic banner-ad sizes in Figure 1-1.
  • Rich media: Displayed like a banner ad, rich media uses images, Flash, or other dynamic programming (including video) in the ad. Rich media is sometimes referred to as an interactive ad.
  • Display: This type of ad uses visual imagery. Rich media can be used as a display ad. Display ads also can refer to ads that can be shown in Google’s display network (which is made up of a variety of websites across the Internet).
  • Pop-up: This type of ad appears on the website page that your visitor is viewing.
  • Pop-under: This type of ad opens behind, or underneath, your primary website. Visitors usually don’t notice that a new window is open until they close or minimize the browser window.
  • Native ads: Rather than offer a standard banner ad, your content-rich site can allow advertisers to sponsor certain sections. For example, on a site about raising children, a diaper company might want to sponsor the section targeted to infants or toddlers. The ads are considered part of the user experience and are in context with the content being consumed by your website visitors.
  • Text link: You can embed a paid text link anywhere in your site. A visitor who clicks the link goes directly to the advertised site or product page.
  • Takeover: This type of ad is focused on one product or brand. It is usually a collection of ads (including everything from banners to integrated content sponsorships) that uses up all ad inventory on a single page (often the home page). In other words, anywhere an ad is usually placed on the web page is now dedicated to one product. The entertainment industry often uses this approach to promote a new movie or television series.
  • In-stream: These ads are shown within a video.
  • Referral: Also called a lead generator, this format is usually set up as a form page that a visitor from your site completes and submits to the advertiser. The form information indicates further interest in the product and provides a sales lead.
  • Retargeting: This type of ad targets website visitors after they leave a site and follows them to other sites (including social media sites) they visit. For example, someone visits your site and views content about a particular product but leaves without taking any action. Next, the visitor goes to Facebook, where he or she sees an ad related to the product viewed on your site.
image

FIGURE 1-1: Common banner ad sizes.

Naturally, you might ask, “How much do I charge for ads?” Answering that question is tricky: Rates vary tremendously for the different online ad formats and your site’s advertising clout. We can tell you that all formats are typically sold in one of three ways:

  • CPM: Cost per thousand impressions. An impression is a single appearance of an ad in someone’s Web browser window.
  • CPC: Cost per click, or click-through. A click-through occurs whenever someone clicks an ad and goes to the advertiser’s website.
  • Flat rate: A fixed dollar amount that’s paid regardless of results or number of click-throughs.

Although it’s nearly impossible to say how much your specific site can charge, we can give you a typical range. For example, an average rate paid on a cost-per-click basis can run from several cents per click to a few dollars per click-through. A text link might bring in a flat fee ranging from $25 per month to several hundred dollars per month, regardless of the number of impressions. On the other hand, sponsorships or takeover ads might net anywhere from a few thousand dollars to six figures.

remember The magic variables to a profitable ad-based site seem to be both traffic and site topic. The more visitors you have and the more popular your site’s topic, the more people pay for advertising on your site.

According to some industry reports, smaller sites, those with fewer than 1 million page views per month, can earn as much as three times that of large, high-traffic sites with more than 100 million page views per month. The smaller sites are typically niche sites with highly targeted content that reaches a targeted audience who are more likely to click through on ads. You can find out about what it takes to start a niche site in Book 10.

Estimating your revenue potential

To find the ballpark amount of what you can eventually earn, we recommend researching your closest competitors. Although this method is far from scientific, it’s a start.

Begin by checking out your competitors’ ad rates. You can usually find a link from the site’s home page labeled Advertise with Us or similar wording. The link helps you find information that advertisers need to know, such as

  • Number of unique visitors
  • Visitor demographics
  • Size and cost of available ad formats

Also note the type and number of ads running throughout the site. A quick calculation (multiply the number of ads by the ad rate) provides a general estimate of possible ad revenues for that type of site.

Managing ad space inventory

You can choose to sell your site’s entire advertising inventory. Nothing’s wrong with managing that kind of campaign yourself, but companies (especially agencies) purchasing ad space from you expect the process to be smooth. They want verifiable data that the ad ran and the impressions were served by your site to those who visited it. You therefore have to

  • Place the ads efficiently.
  • Monitor the campaign.
  • Report your progress to your advertiser.

To make this process easier to manage, you need to implement a good ad server program for your site.

An ad server program can be software that you install or a web-based product supported by a third party. To make your task as simple as possible, we recommend the latter.

One ad server program for publishers (or website owners) that has been around for a while and is well respected is DoubleClick, now owned by Google. By using this hosted ad server program, you can manage and serve ads on your site. You can find more information at www.doubleclickbygoogle.com/solutions.

Another alternative is using a service we like from ValueAd (www.valuead.com/adserving). It offers two products, ValueAd Network (for global audiences) and AdXpress (an enterprise ad-serving network).

Selling the space

Of course, part of handling your site’s advertising involves selling it. You’re completely responsible for these tasks:

  • Seeking advertisers
  • Responding to ad inquiries
  • Managing the back-end functions of each campaign that’s run on your site

You might also have other responsibilities, such as

  • Negotiating ad rates
  • Invoicing advertisers
  • Seeking renewals for ad campaigns

If your time is scarce or you would prefer to not handle these functions, you can contract with an ad network, a company that handles the advertising for your site from start to finish. Most networks work with you only if you provide a minimum number of page views per month, usually starting at 3,000 to 5,000. If you’re interested, check out these established ad networks for traditional content and video content:

As long as you can attract the eyeballs, using an ad network can be an effective way to increase your revenue potential. That’s certainly the name of the game for using an ad-based earnings model.

Establishing an Affiliate Advertising Program

One of the most effective ways to take advantage of online advertising to enhance your income online is to set up an affiliate program. An affiliate agreement enables other sites to refer traffic to your website, usually in exchange for a small commission on each sale that originates from its referral traffic. You can set up an affiliate program based on one of these methods:

  • Pay per click: You pay each time a link to your site or product is clicked.
  • Pay by lead: You pay whenever a referred customer completes an online form, for example.
  • Pay by flat rate: You pay a set fee as opposed to a percentage of each sale.

You might be interested in becoming an affiliate for others as a way to earn revenue, too. In Chapter 2 of this minibook, we show you how to start adding existing affiliate programs to your website.

A big benefit of establishing your own affiliate arrangement is that you maintain control over how your product is distributed to your customers. You’re still the one handling and shipping the product, even though both you and your affiliate are likely to have contact with the customer. Another inherent benefit is that affiliate programs serve as a cost-effective marketing tool for building awareness about your product or website.

Setting up an affiliate program isn’t complicated, although you’re responsible for keeping up with some critical functions:

  • Create and review affiliate guidelines. You establish your terms and conditions as part of a legally binding affiliate agreement. You also must review affiliate sites to make sure that they comply with your guidelines for affiliates.
  • Track affiliate sales. Providing working links for routing and tracking affiliate traffic is an essential part of your offering. You also need to keep up with ongoing totals of affiliate sales.
  • Report affiliate income. In addition to providing regular earnings reports to your affiliates, you have to report their income for tax purposes. That process requires sending 1099 forms to affiliates each tax year and reporting their income to the IRS.
  • Offer marketing materials. An affiliate program is more effective when you provide your resellers with enthusiastic support, including everything from banner ads to electronic newsletters advertising special promotions.
  • Keep in touch. Affiliates are like any other type of customer: If you want them to keep doing business with you, you have to service them. Your job is to communicate with your affiliates to keep them interested in, and (you hope) successful in, your particular program.

Setting up and maintaining any one of the preceding items for your affiliates can appear daunting at first. Dozens of legitimate companies are available, however, to manage affiliate programs for you. These pay-for-performance marketing firms not only run your program but also actively solicit and qualify new affiliates on your behalf. Of course, they also take a cut of your sales in exchange for this service.

If you prefer to manage an affiliate program in-house, plenty of software programs can make your job quite easy. The affiliate-management software available from AffiliateWiz at www.affiliatewiz.com has lots of features, and installation support is included when you purchase the software license. Its software starts at $699.

tip If $699 is a little steep for you, consider an alternative, such as iDevAffiliate, available from www.iDevDirect.com. This company offers its basic affiliate-tracking software starting at $199 with no monthly fees or setup charges. You can also get a hosted plan (run on its servers) for $39 a month.

remember You can set up an affiliate program for any type of product or service your website offers. As long as you can afford to offer a percentage of sales anytime a “buying” visitor is referred to your site, affiliate programs can be effective.

Putting It All Together: Multiple Revenue Streams

Online ad revenues have continued to soar over the past few years, reaching a record-breaking $59.6 billion in 2015, according to a report from the Internet Advertising Bureau (IAB). This steady growth, up 20 percent over 2014 revenues, marks 6 consecutive years of double-digit growth and helps to prove that online advertising is an exciting business model for your site. Who says that you have to choose only one source for earning the big bucks, though? Merging different online business models is smart business. The catch is deciding when and how to add different revenue streams to the mix. In our experience, you start by striking the right balance between your core customer base and your primary earnings strategy. At the same time, remember not to bite off more than you can chew. Also focus on the sales strategies that you can handle comfortably so that you don’t become overwhelmed.

Begin by identifying your earnings anchor. This primary moneymaker provides you with a steady source of income and is the type of business most closely linked to the identity of your site — and your target audience.

After you establish an anchor, you can look for complementary products or services. These items extend the value of your site and increase your earnings potential.

tip When you’re determining what revenue streams to add to a site, and when, we recommend these two philosophies:

  • Any added sources of income should complement, rather than take away from, your core business model. Always remember your target audience, and make sure that you’re appealing to their preferences or needs.
  • Although a single earnings source might be necessary initially, it pays to diversify. For example, try not to depend on one revenue stream (or product or service) for more than 60 percent of your total sales. If one of your sources suddenly takes a nosedive in its earnings potential, the rest of your revenue mix can compensate — at least temporarily.
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