In this day and age, if you still think you’re going to make any real money selling ads on your website/blog, then you’re a fool. Harsh words but let me explain.
Look, I’ve been in online advertising for nearly a decade and have seen the Mic.com, Medium.com, LittleThings.com, and other businesses either die or get acquired for little to no value.
For example, several years ago the CEO of Mic.com came to speak at one of my business school classes lead by our amazing Professor Greg Coleman, then president of Buzzfeed. Since then, Mic.com sold for pennies on the dollar and Professor Coleman was let go at BuzzFeed.
Several of my colleagues have either lost their jobs or been forced to live off a meager salary as a result of the long-awaited realization by many that if you’re not FB or Google, you’re probably not a profitable ad-based internet business.
These are just some of the big name companies full of really smart people with talented employees that couldn’t turn a profit. So, realistically, what chance do you or I have?
Still not convinced? Ok, let’s do some simple math. Let’s say that you want to quit your job and live the rest of your days running your own online business. Let’s also assume that you’ve decided it takes 100K/year in order to live comfortably while saving enough for retirement.
There are a number of viable business models from which to choose, but just to disabuse you of the notion that you’ll make any real money selling ads, let’s go through the numbers.
I’ll assume you have a bit of knowledge on internet math if you’ve chosen this route:
- Target: $100K/year(~$8,500/mo.)
- Average RPM: $10 (could be much higher/lower dependent on your niche).
- ($10CPM * 425K monthly visitors * 2 pages/user)/1000 = $8,500 monthly
Do you have any idea how hard it is to attract 425K visitors?
Now, you could pay for them via social ads, Adwords, Taboola etc…but you’ll never make a profit if you’re only monetizing your site via advertising.
Ok, so you’ll rely on SEO to get traffic for free, right? There are millions of websites on every topic imaginable so you won’t be coming up with something new most likely. This means you’ll have to beat out the existing sites that currently sit on page 1 of Google. Matter fact you’ll need to be in the top 3.
You can learn SEO via a number of different channels but in essence, what separates the wheat from the chaff is the keywords that they rank for, and the quality and quantity of their backlinks.
Are you ready to spend countless hours acquiring a backlink profile that rivals that of sites that generate that much traffic? You’ll basically be working for minimum wage so I hope you have a job to support yourself in the meantime.
Ok, I don’t want to beat a dead horse so I’ll stop but hopefully you now know to stay away from working for yourself or any company that solely relies on advertising to generate revenue.
Now, what business models make sense for the average self-employed person? Ecommerce and affiliate ads. Again, the assumption here is that you are not someone with time and millions of VC money that can be invested in hiring developers to create an amazing platform, technical solution to a real problem, or link acquisition.
Realistically, there are basically three options for you: Ecommerce, Affiliate Ads, Website/Domain Flipping.
Ecommerce
This is the arguably the best way to make money online. Fundamentally, the internet is a cheap distribution channel. It has driven the marginal cost of distribution to zero. The hard part is coming up with a business that solves a real problem. As Mark Cuban likes to say, there are no shortage of ideas, but it’s the execution that counts.
If you can come up with a solution to a real problem that exists, your best bet is to go direct to the consumer in order to preserve your profit margin, control your brand, and maximize your exposure.
You no longer need to rely on mortar and brick stores to distribute your widgets. Setup a website and invest in one of the aforementioned traffic acquisition strategies.
But let me be clear here. The internet is merely a cheap distribution channel for your business. There are many internet-enabled businesses aka ecommerce only business. But there are also many businesses that stand on their own without the need to rely on the distribution power of the internet.
There is a lot of hype over the gig economy. Dreams of working off sandy beaches with merely an laptop and an internet connection. If you think that you can quit your job, and cover your mortgage, insurance, and other needs without steady and solid income from the service that you offer that’s consistently better than the millions of other freelancers around the world…I urge you to take a look at this article. But I digress.
Back to ecommerce.
Now, let’s do the same math on the widget example with some conservative assumptions.
- 425K visitors.
- $25 widget (again varies on the product/service offered).
- 3% Conversion rate (how many visitors actually buy your widget when visiting your site).
- 30% NET margin (what you keep after production, marketing, legal costs etc…)
- (425,000 * $25 * 3% * 0.3) = $95,625 monthly profit = $1,147,500 Annual Profit
Congratulations, you’re a millionaire!
The key here is the economics that are vastly different for users that are willing to pay. Hell, even Medium.com, with all their fancy tech finally realized that it wasn’t going to make any real money until it started charging for content.
- Advertising is bought and sold in 1000s (cost per mille (CPM)). 1,000 people to your site = ~$10.
- 1,000 people willing to pay a single dollar for whatever you’re offering = $1,000.
Restaurants, laundry cleaners, pharmacies, doctor offices etc…would all be insanely profitable if they could get 425,000 people to visit their respective businesses.
Affiliate Advertising
Now, if you’re like most of us, you haven’t come up with a great product and/or service and that’s fine. The key is that the businesses who already have are willing to pay you to reach their end customer because, as we’ve just shown, the more visitors they can attract, the more money they make.
Paying you is basically a marketing expense for them. They pay retailers for shelf space and media companies on and offline for access to their customer. If it’s online, it’s called affiliate advertising.
Basically, you partner with a company to review or promote their product and you simply link out to the various products and/or services that your consumers might like in exchange for an agreed upon fee.
There are numerous free programs out their via established companies such as Amazon, eBay, or Commission Junction.
So you have a blog that has managed to attract 425K visitors? Hats off to you because that is not at all easy. Again, don’t believe the hype.
Let’s walk through the same math again with some conservative assumptions.
- 425K visitors
- 10% commission (from your affiliate partner on products sold via your website visitors).
- $50 (average cost of your affiliate’s product)
- 1% of visitors convert and purchase your affiliates’ product(s)
- (425K * 0.1* 50 * 0.01) = $21,250 monthly profit = $255,000 Annual Profit!
Congratulations, you may now quit your job!
There are obviously other business models that I’d be glad to cover in another post, but these three are the most common and accessible for the average person. Hopefully we’ve demonstrated some of the fundamental numbers you need to keep in mind. Good luck!
