I've had numerous conversations with web entrepreneurs about this topic and many of them agree that the revenue models for web business are often poorly thought out and depend too heavily on advertising for success. Back in the DotComBoom it was accepted that you didn't have to worry too much about your revenue model, it was all about investment capital and IPO's. Of course this eventually led to a crash and nowadays web business, like normal business, has to show sound revenue models and profit forecasts. They need a sustainable way to make money - who would have thought that!
The Internet has largely been driven by free information. Users expect services and information to be provided for free and are very reluctant to spend. Previously entrepreneurs used the logic that they could capture the market benefiting from network effects and then worry about making money either from advertising or by charging for services.
Unfortunately many web businesses quickly realised that advertising revenue sometimes wasn't enough to even cover costs let alone make a significant profit and as soon as they started charging for their services their audience quickly ran off to the nearest copy-cat free service provider out there.
So what is a web entrepreneur to do? You have a brilliant idea that will likely find an audience but how can you make money from it?
Before I go on I want to state that I do believe advertising revenue is a viable business model if you can balance your costs, establish a niche market and use innovative delivery methods. I know because I have made money from advertising myself. However it's probably not the ideal method to become really wealthy because generally the labour and resources required to feed your audience tends to grow proportionally with the amount of advertising revenue you can generate. There are exceptions to this rule of course, I just suggest you carefully monitor your real results and don't invest heavily expecting advertising revenue to make you a millionaire.
Here are a few alternative strategies you can employ to generate cash:
An obvious solution is to sell something. Look at your audience, or if you are at the business planning stage, your potential audience, and think about products or services they would be interested in. You might have an idea for a product or service you can produce yourself and then sell directly from your website. Alternatively buy wholesale products from a supplier and then ship them yourself, or if you want to keep start-up costs down use a drop shipper.
Key Term: Drop Shipping. A drop shipper is a supplier or wholesaler that provides products to resellers. As a reseller you advertise the products for sale on your website, mail order catalogue, newsletter or other means. When you make a sale you don't have to ship anything, you complete the order with the drop shipper and they send the product direct to your client. This means you don't have to hold any inventory. This is a good method to start with if you are new to the industry or want to test your market's response to products without heavy investment.
There are literally thousands of affiliate programs out there that offer products or services (courses, eBooks, software, anything really) that you can resell to your audience. You earn a percentage of the fee from every sale you make. Some programs will simply pay you for sending traffic to their website.
The benefit of this method is you can search for products ideally suited to your target market that have proven value. Often affiliate programs give you direct links to professionally produced and tested sales pages, all you need to do is drive your targeted traffic to these sites.
Key Term: Affiliate Marketing is a widespread method of promoting a website, in which an affiliate is rewarded for every visitor, subscriber and/or customer provided through his/her efforts. Compensation may be made based on a certain value for each visit (Pay-per-click), registrant (Pay-per-lead), or a commission for each customer or sale (Pay-per-Sale).
Affiliate programs are extremely powerful methods to sell products or services. Many of the web's most successful entrepreneurs leverage this method to increase the exposure of their information products. When this system works it's a win-win situation, affiliates make money and the seller increases sales and exposure. As an affiliate it's not too hard to test a product or service on your market, send a few links through a newsletter, write a review piece that links to an affiliate program or just stick some links on your site and see what happens.
A word of warning though, you must have a targeted audience and it has to be of significant size (try 1000 uniques a day at least) before you should expect good results. Let's say you do some conservative math - 1% of your visitors will click through an affiliate program, and then perhaps 1% of those visitors actually make a purchase. If that calculates into some reasonable moolah based on your traffic numbers then perhaps you have a potentially reliable revenue stream. Of course you may experience conversion rates much higher than that and you should always aim to improve conversion rates through testing different methods and sales copy, but by planning conservatively you know what to expect in worst case scenarios.
Premium Content and Subscriptions
Over the years I've seen many of my favourite hobby sites I frequent go through a genesis. They start off small and provide quality content which is updated daily. Their audience expands. Costs start to get prohibitive and they need to generate more income because plain old advertising banners are not cutting it anymore. The next step? - offer a paid premium service for members only. They still provide some free content but those willing to pay have access to extra articles and other special features. This is not a bad option if you believe you can provide something of value to your members that is worth paying for above and beyond the free services. The good thing is you won't necessarily loose your existing customer base because you still offer free content and hopefully you can convert a reasonable number to paying customers. The trick is to meet needs in both areas - the free customers and those that want more and are prepared to pay for it. You can't offer too much or too little in the free area, it's a fine balance. Take a look at one of my favourite tennis sites for an example, www.TennisReporters.net, which is run by a tennis journalist. It's a good example because the division between subscription and free content is clear and the site itself is hardly professional looking. It's all about the content, that's what brings in the moolah.
A possible problem is how to implement a membership system on your website. The simplest way is to set up a password protected area on your site with the premium content. This is easy to do on most hosting accounts and if you don't know how ask your hosting provider. Once you have the password protected area you simply set up a purchase link and then send the new member the appropriate password and username. Using an autoresponder/shopping cart such as Marketer's Choice makes this process completely automated and simple enough. You could also just have a Paypal.com purchase link and then manually send out the password as each purchase is made. The only problem with this method is your members can share the login details with each other rather than each buying a subscription each. Alternatively you could investigate hiring a freelance programmer to build something custom for you or search online for a subscription management system. The InvisionBoard.com forum system has an inbuilt subscription upgrade package which controls subscriptions using member groups. The problem with this is you have to manage your content via the forum, which if your site is intended to be community driven may be a viable option.
The Secret - Multiple Streams of Revenue
I'm sure you can see where I am going here. The smart entrepreneurs don't plan to make money from just one channel of income, they employ many. You should provide advertisers with comprehensive campaign options including different banner positions and text links. Offer a newsletter and eCourse, sell your own products and services, sell other people's products and services and join affiliate programs. Mix in a subscription based service and/or premium content and you have a collection of 4-5 sources of income from your audience. You must skilfully interweave all your content with these different advertising methods to create a seamless revenue generating machine AND valuable service to your clients. You maximise the return on your audience and are not dependent on one stream of income. Best of all most of the income methods I've mentioned can be systematised which means once you have the systems in place you just sit back and feed more traffic to your site. You spend your time working on growing your audience which will runoff into revenue growth as well.
About the Author
By Yaro Starak
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