calculating potential website profit?

Question

this question goes out to those with experience owning websites and who make money off advertising.
I'm am trying to calculate the potential profit off advertising from a website I am going to make but my calculations seems unrealistic to me. I have 8 keywords I plan to be the focus of the context, 4 actually with a plural version of each. These 8 keywords have a combined average daily search of 4.38 million in the US. According to google's traffic estimator each keyword has a CPC rate range of around 2-5$, if you take the low range CPC number of each keyword and find the average it is 2.48$. the average range CTR is 2-5% for a successful site, so the average of that is 3.5%. Granted I take the right SEO options and get my site listed on the first results page for each of these keywords, if I aim to just get 1% of those 4.38 million searches a day that brings me to 43.8k daily viewers, if I achieve the average CTR on that figure of 3.5% I have 1533 ad clickers a day, take that number and multiply it by the average low CPC I calculated earlier and that's 3800$ a day before taxes.. seems like way too much? Plus this formula has left out some other factors that could bring that number higher and used only averages of all numbers to compensate for low traffic days etc.

Answer 1

I earn money through online advertising, and I take it that you're thinking of monetizing through Adsense. $3,800 PER DAY is very very high -- doable, but you've got to have massive traffic and attract the right type of people to earn that much.



It may be worthwhile to lower your expectations to more realistic level. Your little exercise reminds me of the rush to build websites on the topic "mesothelioma" when it was revealed circa 2004-2005 in a New York Times article that this keyword in Adwords cost about $105+ per click. So a lot of publishers went to create websites focusing on this keyword, dreaming that they can get rich quick



However, Publishers who built sites on the topic NEVER saw the $105 per click, and were lucky if their sites got them $1 per click.



What's missing in your picture is SMART PRICING -- the big unknown in advertising (at least to the publishers). Adsense uses it, as well as Chitika.com. I think Kontera now has their form of smart pricing as well.



Smart pricing can affect the pricing of the ads on your site. If the advertiser paid for $0.50/click - but your site is smartpriced - then the cost may be discounted lower (e.g. $0.25). So you may try to develop a site based on high paying keywords but if smartpricing gets to you, then you may not get as much per click as what you are expecting from your keywords.



Here is Google's explanation of smart pricing https://adwords.google.com/support/bin/answer.py?answer=9562&query=smart+pricing&topic=0&type=f



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Google's smart pricing feature automatically adjusts the cost of a keyword-targeted content click based on its effectiveness compared to a search click. So if our data shows that a click from a content page is less likely to turn into actionable business results -- such as online sales, registrations, phone calls, or newsletter signups -- we reduce the price you pay for that click.

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Another factor missing is the responsiveness of your audience to the ads



A travel website that provides information on travel to Spain will attract visitors looking for ways to arrange their travel and spend money on their vacation to Spain. Your site provides the info, but the ads will provide hotels, travel agencies, tourist destinations, car rentals -- ads that are likely to get the attention of the users of your site. This is a site that will most likely do well with Adsense. However, if you are a gaming website where the main purpose of the user is to play games on your site, then Adsense will not perform as well.

Answer 2

A rule of thumb conversion rate factor for sales pages is 1%. I don't know how adsense compares but I believe it's lower than you are thinking, some 10s of thousands of visitors seem to be needed to earn the min payout. You might earn 10x more with affiliate links instead of adsense ads.



There's a chart out there somewhere showing the relative amount of traffic sites get according to search result position, that would be an important factor to plug into your kind of estimation, almost all of the traffic goes to the top 5 positions, getting ranking is the most important factor, advocates of niche marketing might suggest that targeting keywords with millions of searches might actually be the most challenging, they are more likely to be competed for by large well funded sites. It's hard to apply broad search result to real world, it's more accurate when you use exact match figures in your estimates.



It's not an accurate gauge, but one can divide the number of searches by the number of search results Google displays, to get the average number of searches each result gets.



Rather than starting with projecting the size of the search pie you might get, consider analyzing the assets of the competing sites on the first search results page, Yahoo site explorer tells you the number of pages and backlinks sites have, if the field you selected has 1000 page sites with 10,000 links in position 10, you could be looking at a long career to get onto page 1.

Answer 3

Don't you think you should study up about options before you do this? Options are priced off a "volatility surface" that extends to all strikes and dates. The shape and level of that surface is determined by the market. For any given volatility, strike, and date you can then use Black-Scholes to calculate an option price. Time decay can be predicted on any option using the Greek theta. There are tons of on-line option calculators that can help you calculate theta. In general, I can't tell you what would be wise except don't do this until you know much more about options than you know now. Unlike equities, options are a zero-sum game. For you to make money someone else has to lose money. Most other people in the market know much more about this than you. That means you are going to get killed. Edit: Raysor has this mixed up. Time decay on an option has little to do with the time value of money. An option has time value because the longer the time to expiration the more the underlier might move into the money. Of course, it might move out of the money too but the payoffs are asymmetrical. If it moves lots into the money the option owner maks out big. If it moves way out of the money the option owner loses only the premium.