Your Website Needs to Have a Business Model

Our host today is Kevin Muldoon. If you're interested in getting in front of the readers of Site Sketch 101, check out our guest posting invitation here.

Nicholas recently spoke about how you are not selling out if you are making money on the web. This is something I agree 100% with and something which I think everyone who works online needs to understand. You should never feel guilty about making money from the work you put in online, you should revel in it.

I’ve worked online for years and I love what I do. Perhaps I appreciate the job more than others because I worked in an office job for a few years after University and saw what that life is like. My job isn’t perfect though, no job is. Sometimes sitting on front of a screen can be very boring, however no other job allows me to be this creative, no other job gives me the freedom to work my social life around my work, and no other job puts me in charge of my own destiny.

As I commented in Nicholas’s article; if I couldn’t make money online then I would probably sell all my websites except my personal blog. Bottom line, working for free on the internet doesn’t pay the bills!

What is a Business Model?

One of the first mistakes most people make (myself included) when trying to make money through the internet is lack of direction. Their enthusiasm gets the better of them so their website gets launched within a few days of thinking of the website idea. This is how many of my websites got started in the early years. Enthusiasm is a good thing, though it pays to step back and do a little research into how your website is going to make money. And to do that, you need think of a viable business model.

I love it when a plan comes together

A business model is simply a long term strategy to make money from your website. Depending on what type of website you create, there could be dozens of models with which the site could be profitable in the long term.

Let’s take a blog for example. The short to medium term strategy could be to reach a subscriber base of one thousand, five thousand or ten thousand subscribers (depending on your blogs topic). This goal could be the level in which you think you can start to apply your business model successfully. So once you have reached your RSS subscriber goal, how do you make money long term? Well, there are a number of things you could do.

• Sell products or services directly to customers (tangible goods or digital)
• Make money through consulting (directly or via another website or service you heavily promote on the blog)
• Use a freemium model and offer premium content to paying members
• Rely solely on advertising sold on the blog and/or newsletter

Most blogs tend to use a combination of the methods noted above to make money though some don’t. For example, many bloggers don’t place advertisements on their website so that more exposure is given to the product or service they are trying to promote. Likewise, many blogs income comes solely from advertising and affiliate sales.

There is not a right or wrong way to make money from any website. It depends on the sites traffic, the niche the site occupies, the owners time and expertise, and much more. Most websites can be made profitable in a variety of different ways.

The most important thing to remember is that your model should make you money now or in the future (depending on your short and long term strategy).

Case Study: Smashing Magazine

I was really surprised to read on Monday that Smashing Magazine have been having money problems. For those who haven’t came across the site before, Smashing Magazine is a design blog which boasts over 200,000 daily RSS subscribers and over 150,000 Twitter followers. So reading that the site is having money problems was a shock to say the least.

You can read how Smashing Magazine got into this mess in their help request article. Essentially, they were living beyond their means. They took on a lot of high profile designers and developers as writers. The increase in writers paid off in some respects since traffic increased, but as traffic increased, so did hosting costs. During all of this they released their Smashing Magazine Book, however the costs of writing the book and getting it published appears to greatly outweigh the money it brought in.

Reading between the lines, it appears that they didn’t plan a lot of their recent moves too well. By the sounds of it the book deal has lost them a lot of money. It does make perfect sense to bring in more writers to maintain the posting frequency if your blog traffic and income is increasing month by month, but perhaps they took on too many writers or paid them too much.

To bring in some much needed revenue Smashing Magazine redirected all articles on their site to their help request for 24 hours on monday, which asked readers to purchase a 242 eBook for $9.90. I have no doubt that this will have brought them thousands of dollars this week, though many regular readers were annoyed that they couldn’t view any content for a full day.

What this whole ordeal highlighted was that no website, big or small, is guaranteed to make money if the business model is wrong. It doesn’t matter how much traffic you have. If money going out is more than money going in the site is only going to go one way.

Even still, it boggles the mind that a website of this size can be struggling to make money. I have to agree with the comment Scrivs made on Dan Denneys article about the whole thing. He noted:

I have seen mentions they make anywhere from $20k-$50k a month. Do you really think you can’t run a site that has nothing more than an article a day and a forum on that kind of budget?

It’s important to invest profits so that your website grows. Though it’s even more important that you make sure you get a good return for your investment. Clearly, throwing money at writers isn’t always the way to go, particularly if you can’t afford to do so.

Smashing Magazine is a great blog so I do hope that they get their act together shortly and start turning a profit. The site is definitely going to be here for years to come as it would be snapped up quickly if it ever went on sale. If you were the owner of Smashing Magazine, how would you make the site more profitable; I’d love to hear your thoughts on the issue.

Overview

It’s important to understand how your website can make money. At it’s basic level, a good business model is one which keeps costs low and turnover high. Simple as that.

Please don’t let the Smashing Magazine situation dissuade you from investing profits back into your site though, just make sure you get a good return from it. Websites can grow quickly organically but sometimes a little investment in advertising, design, products, writers etc; can give the site the kick start it needs.

If you are struggling for ideas on how to best monetize your site then my advice to you would be to study a dozen or so popular sites within your niche. Examine how each one makes money online and think about what you would do to improve them. Then see if the same techniques could be applied on your site.

Best of luck

Kevin