You can’t build an online business on Ad revenue… or can you?

One of the biggest things that would-be internet entrepreneurs seem to neglect, when hatching their master plans to conquer the online world, is how their business will make money. The fact that thay have more chance of winning the national lottery than becoming the next Facebook always seems to be a mere technicality in their plans. I really admire this determination but when I have probed a little deeper it seems the default response to the big “How will you make any money?” question seems to be “Advertising!” with no further thought given.

As anyone who has ever installed Google Adwords on their site will know, you get very little money from it. To put this into context at the time I tried out Google Adwords on my old blog back in 2007 I had on average roughly 400-500 unique visitors a day which may not sound a lot but is a fair bit of traffic for a blog made up of nothing but random bits of program code. And the average payout from Google was…

… a measly $2 a month! I certainly didn’t head for the nearest bar and splash the cash on a bottle of Cristal! No, the time you convert that to good old british sterling, I was lucky to buy a McDonalds Hamburger [That’s right, not even a BigMac]. I would actually need to be generating 10x the traffic to earn enough for Google to make a monthly payout, 100x the traffic for me to think “Wow, this advertising on my blog malarky is worth it” and 1000x the traffic for me to think “Hey! Now I can give up my day job!”

But… you can make good money from advertising, can’t you?

Well yes, if you can build your traffic, you can. In fact, as your site grows, you will find that your traffic will open doors to greater yielding advertising networks. Back towards the end of 2007 I switched from Adwords to ValueClick Media and that proved to pay out 3-4 times more that Google Adwords. Not only were the costs-per-click higher but because of the quality of the adverts were better, the click through rates were also better.

There is a better way. While you are still small, there is a way to make money from advertising and that is to build your own advertiser portfolio. However, building your own portfolio of advertisers takes time and effort and is best suited to sites with a well defined or niche subject. It involves researching potential advertisers whose own target market are your website visitors. Then by approaching them directly, you can cut out the middle man and sell advertising space on your site directly to them; negotiating a much higher fee per month per advertiser than you would otherwise get a year for all advertisers.

When building a web application, the advertising revenue business model is still an option but it is not the best option if you want to build a livelihood from it. I originally based Stubmatic (when it was originally launched as Tkt It in 2007) around an advertising business model but the figures didn’t stack up (and if I was ever going to give up my day job) I needed to rethink potential revenue streams. I was offering a service that people were willing to pay for and finally settled on the monthly subscription plans we still have today.