Lesson #3 - How much money can you make with a web site?

There are two reasons why you would spend the time that it takes to create a web site:

1. You enjoy it. For example, you might enjoy bicycling as a hobby and you enjoy writing about it to spread the word.
   
   
2. You have read How to make a million dollars and you are thinking about starting a web site as a business -- specifically to generate revenue.

When I started HowStuffWorks, it began strictly as a hobby. I worked on HowStuffWorks because I enjoyed it. Eventually the site had so many visitors that it had to become a business. So, sometimes, you end up moving from #1 to #2 whether you like it or not.

In Lesson #2 - the different types of web sites, you learned that there are different kinds of web sites and they generate revenue in different ways. For example:

• Retail web sites generate revenue from sales
  
  
• Content web sites generate revenue from advertising
  
  
• Dating and porn web sites generate revenue from subscriptions
  
  
• Transactional web sites like Ebay generate revenue from each transaction.
  
  
• And so on...

Let's start by looking at content web sites that make their money off of advertising revenue. How much money can a simple content web site make?

Right now, if you look in the right sidebar of WebKEW, there is a single sidebar ad being provided by Google. This is called a Google AdSense ad, and these ads are incredibly easy to set up and use. How much money can a single sidebar ad like that generate?

I have a friend with a small web site that uses AdSense. On his site he has placed a Google sidebar ad like this. Google provides statistics for his site on a daily basis. Looking at his site's performance between April 1, 2005 and April 21, 2005, here is what we find:

• On average, his site displays 3,100 sidebar ads per day. We know, by looking at the log file statistics on his site, that he receives about 1,000 unique visitors a day. So each visitor looks at about 3.1 pages each, and that means roughly 3,100 ad impressions per day are displayed on his web site.
  
  
• On average, those 3,100 ad impressions per day generate 60 clicks. With Google AdSense, you get paid only when someone clicks.
  
  
• On average, each one of those clicks generates 15 cents.
  
  
• So, on average, his site is making $9.00 per day.

Another common way to talk about the revenue of his site would be to say that, "He is getting a $2.90 average CPM." CPM translates into "Cost Per Thousand", when the M is the roman numeral for thousand. That means that, for every 1,000 ad impressions he displays, he is receiving $2.90 on average. Between April 1 and April 21 he displayed a total of almost 67,000 ad impressions. So:

67,000 / 1000 x $2.90 = $194

In a typical month, he normally receives about $270 from Google.

Your mileage will vary depending on the type of visitors that your site attracts, but those results are fairly typical. A Google AdSense ad tends to generate between $2 and $3 CPM on average. Here are some scenarios:

• If your site has 1,000 visitors a day and they read 3 pages per visit, you get 3,000 page impressions a day and make about $270 per month.
  
  
• If your site has 1,000 visitors a day and they read 5 pages per visit, you get 5,000 page impressions a day and make about $435 per month.
  
  
• If your site has 10,000 visitors a day and they read 5 pages per visit, you get 50,000 page impressions a day and make about $4,350 per month.
  
  
• If your site has 100,000 visitors a day and they read 5 pages per visit, you get 500,000 page impressions a day and make about $43,500 per month.
  
  
• And so on

Typically a site will put several ads on a page. For example, there might be a banner ad at the top, a sidebar ad along the side and another ad at the bottom. You cannot simply multiply by three to calculate the revenue -- banner ads tend not to perform as well as sidebar ads, ads at the bottom of the page tend to perform not as well as ads at the top, multiple ads on a page tend to dilute the click rate of other ads on the page, and so on. But let's imagine that you put three Google AdSense ads on your pages and you get a total of $5 CPM as a result.

If you can build a site like About.com with an Alexa Rank of 100 or so, you can see that there is a lot of money to be made. 15 million visitors come per month. They read 5 pages each. You make $375,000 per month just off of those 3 ads. You are making 2.5 cents every time someone comes to visit. By adding other features to your pages, like Google search boxes, small affiliate ads, pop-under ads, etc., you can push the revenue-per-visitor number up towards 5 cents per visitor on a large site.

Here is a funny side note that is interesting. Wikipedia.org is a very large web site. It has about 8 million pages and an Alexa Rank of about 100, meaning that it gets about 10 million visitors a month. Right now, Wikipedia has zero ads on the site. If they were to put ads on their pages, and if the average visitor reads 5 pages, it would mean that Wikipedia could be making somewhere between $250,000 and $500,000 per month, or $3 to $6 million per year. Pretty amazing.

What about a retail site? In this case, calculating revenue ahead of time can be trickier because revenue per visit can be all over the map. But here is a way to think about it. Let's say that you put up your retail site and attract some visitors. You find that, for every thousand visitors who come to the site, two of them on average make a purchase. You also find that, on average, you make $5 profit from a purchase. So you are making $10 per 1,000 visitors. In other words, the amount of money you make tends to be not that different from the money made on a content web site. You might make between $1 and $20 per one thousand visitors. It depends on what you sell, how much profit you make on each sale, etc. Of course, there can be niches where far more than two people per thousand make a purchase. I know of sites where the number is more like 10 or 20. If you can create such a site, then you are in very good shape.

One thing that you learn from this discussion is that revenue all comes down to visitors. The more people who visit your site, the more money you can make. We will start discussing how to attract visitors in Lesson #4.