Since the revenue model of most niche social networking websites is advertising, you’ll want to understand how ads work on such sites. For starters, you should be familiar with Google’s Adsense program as one alternative.
But there are others, including direct sales to advertisers and ad networks. Here’s a link to 34 mainline ad networks, and ImediaConnection’s description of the differences between them.
I asked several pros to comment on alternative approaches to selling website ads and their revenue potential. The team atRE:INVENTION Marketing, a marketing and PR firm that specializes in marketing to women using Web 2.0 and Mark Szolos, of EC Next, “making e-content work for you” have weighed in. (The latter answered my posts in the SmallBusiness Online Community.) While my questions related to niche social networking sites, much of what they say applies to website advertising generally.
Systems for Charging
1. Flat Rate: an advertiser pays you a flat rate to display their advertising on your site for a certain period of time.
2. CPM (Cost Per Thousand): an advertiser pays you a certain rate for every 1,000 ad impressions.
3. CPC (Cost Per Click): an advertiser pays you a fee every time a user clicks on one of their ads.
4. CPA (Cost Per Acquisition or Cost Per Action): an advertiser pays you a fee every time a user clicks on their ad and continues onto their site to perform an agreed upon action (such as purchasing a product or registering for an e-newsletter).
Direct Sales Approach
According to RE:INVENTION pros,
Selling ad space directly to individual advertisers is the most lucrative online ad option, but you have to have a talent for snaring them… If you bypass ad-serving companies, your ad rates will depend on your content and ability to deliver a responsive niche audience, as well as your negotiation skills. In the end, it is all about conversion (results). If you do sell your own ads you’ll also need software to keep statistics for yourself and the advertiser.
Typical Traffic Requirements
How much traffic do you need to sell ads on your website, blog or social site through networks other than Adsense?
The anonymous responder Wannabe in Small Business Online Community had this to say about traffic requirements:
I realize you have a very big target market, but until you prove to your customers that you can drive traffic to your site, it will be pretty difficult to ask for a high price. Now that doesn’t mean you can’t then increase prices as your traffic increases and you can prove the benefits of advertising with your site.
I place ads on some smaller sites and pay between $850 to $4,000 a month. $850 gets me many directory placements with a couple of small banners and text links. The homepage banner ads start to rack up the pricing. These sites get about 100k impressions a month though, which is pretty good traffic.
On a homepage placement on a newer site I would start at a couple hundred dollars for the month- $250. You can base it on a monthly basis or by 3 months. Typcially I’ve been asked to committ to 3 months at least, but I never want to because it’s too long especially when I don’t know what kind of response we’ll get.
Marke Szolos adds:
When can you sell site sponsorship or direct banners? Depends on how targeted or niche focused your site is and what audience it reaches. For example[an advertiser might be interested in] a site that gets 20K unique [visitors] for a specific disease and only that disease…but a site that has 20K unique for all diseases wouldn’t be interesting at all….
Ballpark Ad Pricing
In his post Will Social Networks Remain Lo-Ad Districts, David Hallerman estimates that in 2008, “average online advertising revenues per unique visitor” was $12.85 for MySpace and $11.79 for Facebook. He also cautions “When marketers look at what ad placements most influence consumers to make an online purchase…only 1% of respondents in a DoubleClick Performics study cited ads within social network sites.”
To get a feel for Adsense revenues in your niche, determine five substantive keywords (other than your business name) that will appear frequently on your site. Use the Google Adwords Keyword Tool and enter those terms, one at a time. The default result is search volume, but you can click the dropdown column that says “show estimated average CPC” (cost per click.) That is what advertisers bid on average for this keyword.
Adsense or Ad Networks?
Ok, which makes more money on small biz sites, running Adsense or placing ads through ad neworks? These pros recommend that startups use Adsense.
Third party brokered ads will give you higher earnings per click but because Google’s targeting is designed to show what ads fit the page and what ads are most likely to get a click, AdSense will most likely give you better revenues. Your revenues depend on your Adsense optimization, traffic levels, keywords, your “click through rate”, and responsiveness of your audience to ads. With AdSense you have greater assurance that the ads will match the content of your site (a boon for branding). The reporting function is also clear and easy to use.
Mark Szolos advises:
The network ads are most likely going to pay you very little. To get into the premium networks you’ll lots of traffic and data (like Comscore) showing you have business users etc. Without knowing anything about your site – my guess is you would end up with like 30 cents to $1.20 CPM.
I would start with AdSense if I were you…. Then you can concentrate on building great content and let the advertisers come to you….
How to Chose?
How does one chose between the various approaches and networks? RE:INVENTION responds:
“Trial and error. That’s the beauty of online ads – you can use multiple providers typically without long term contract obligations. It’s a lot for most small biz owners to muddle through (but they don’t have to). When in doubt, contact a consultant that specializes in Web 2.0.”
Nathan Gwilliam has a detailed post answering the question “Which Ad Network is the Best?” His advice in summary:
1. The” best” depends on your niche.
2. “Select a larger ad network if you can find one that sells ads in your niche.” In the post, he’s got a chart showing the largest ad networks, ranked by unique visitors, as of January 2008.
3. Consider growth trends as an indicator of quality and innovation.
4. Understand the ad behavior of your site visitors, for example repeats versus new.
5. Provide a variety of ads on your site.
When I posted above questions on business forums, Raymond from Indiana responded in Yahoo Answers with a free ad recommendation:
I have a lot of experience marketing small companies online (I have 3 companies). One of the best ways is to sign up at business directories and portals. These are basically listings of businesses (similar to the phone book). The advantage is that these portals usually get a lot of traffic and they’re ranked high on Google because of all the quality links they contain.
If you are a website publisher (i.e. selling ads on your site based on its contents) what’s your opinion? Your experience? I’d love to hear in a comment.
Are you another media expert? If so, how about a comment to advise small businesses and entrepreneurs about selling ads on their sites?
See all 18 Posts in This Series. And More on Business Models.
How to Create a Social Networking Website Series has 18 posts on various aspects of this topic.
See also this page of related posts on social network business models.