Monetizing websites with ads
There are a variety of online advertising approaches, but display ads are the most ubiquitous. Here the website owner is paid in exchange for presenting a sponsor’s ad. There are different payment models through which the website owner can be compensated. The most common approach is cost-per-click (CPC). In this case, the advertiser is billed only when a user clicks on the advertisement, usually linking them to the business’s website. Another approach is CPM (cost per mile) ads. Here the advertiser is billed per thousand ad impressions. Because impressions do not guarantee the user saw or engaged with the ad, CPM ads generally offer much lower payout. Nonetheless, this payment structure is more appropriate in situations where a business is trying to build general brand awareness instead of selling a particular product. Recently, Google has introduced a new compensation format that address the limitations of traditional CPM ads, “active view” CPM ads. Here the advertiser is only billed when users actually view the ad. This is defined as at least half of the ad being visible on the user’s screen for at least a second. A final, less common bid type is CPE (cost-per-engagement) where the user must perform an action on the ad unit for the advertiser to be charged.
Ad revenue under regular content addition
The number of articles written per month (J) is a key parameter in this model, whose cumulative effects become increasing large with time. If we continue to suppose RmA = $1/month and we vary J:
Reputational and audience growth
In conclusion, the pageviews of new/emerging websites are expected to increase at some exponential growth rate, g (expressed monthly). For instance, a website whose reputation/audience grows 1% per month would have g = 1.01. Now the average monthly revenue of an article increases with time:
We can also calculate how exponential website growth affects the total cumulative revenue (RcT):
When does a growing website become profitable?
If the business’s only expense is recurrent fees, such as website hosting and renting a domain name, then we have constant monthly expenses (Em). The monthly profit (Pm) is given by the difference between that month’s revenue (Rm) and expenses:
To develop an intuition for this relation, I show calculations below assuming Em = $10/month and varying J, M*P:
Reaching the first profitable month is a key milestone for the viability of an online business. However, considering all the months of financial loss before this point, it does not demarcate net profit. To calculate when a net profit (Pc) is attained, we must consider the cumulative finances.
The present value of an article
Forecasting pageviews through seasonal periodicities
Since my website’s content is technical/educational in nature, much of my views are from students. It isn’t surprising that I see peak traffic in the middle of the fall and winter academic semesters. Google Trends data corroborate this trend. For instance, below I summarize the annual periodicity in search volume for the term “enzyme kinetics,” a term related to several of my articles. I’ve averaged Google’s worldwide data from 2012 to 2018 and normalized the values to have a monthly average of 1.
Most websites target narrow niches. A consequence of this is that much of the content may share a common seasonal periodicity in pageviews/ad revenue. This is something that website owners should be aware of and anticipate, since unexpected drops in revenue can be discouraging. If consistent ad revenue is desirable there are strategies available to mitigate these fluctuations. Writing some content that targets keywords without much seasonal variance would help. Alternatively, producing content with opposite seasonal periodicity would counterbalance the existing bias.
It is possible to include the seasonal periodicity of pageviews in the revenue models, if data on the periodicity of each article are available. This is easy to get a hold of for organic search through Google Trends. However, this does not necessarily faithfully represent periodicities in other traffic sources, like social media or direct traffic. For these, the accumulation of your site’s own analytic data over years is the best source. Nonetheless, in lieu of these data the search data is a viable proxy. To adjust the pageviews for seasonal periodicity, we merely multiply its annual average (P) by the month’s search frequency (f). This works because we normalized the monthly average frequency to “1.” An article’s ad revenue at month ‘i’ is still the product of its pageviews and revenue per pageview (M). However, the number of pageviews is now a function of month through the search frequency:
Lastly, the overall seasonal periodicity in a website’s earnings can be determined by averaging the revenue distributions of all its articles:
-Produce quality, new content regularly and in sufficient quantity. This is ultimately your business’s product. Ad revenue will be in proportion to how much you’ve written and how much value you’ve provided users.
-Be patient. All the processes which develop a new website into a profitable business require long periods of time to get going. With regular writing, the passage of time is still required to amass a large body of content. Furthermore, reputational/audience growth also takes time. Since this process may be exponential, the initial period can be discouragingly slow.
-Minimize monthly expenses. This can dramatically decrease the amount of time it takes for your online business to become profitable.
-Be aware of seasonal periodicity in organic search/audience behavior. Minor fluctuations in traffic or revenue are often misleading, it is best to not over-analyze them. Recognizing the seasonal contribution to this offers some predictive power and can be reassuring.