This post is part of my series on digital investment. See here for an overview.
Many people think a website is a domain name. Like "MyCompany.com". You go to a service like GoDaddy (or Hover, my favourite), pay $15 or so, and it's yours for a year.
But there's so much more to an "investable"* than a domain name. An investable website is a website in which you can invest, and so it has to have more things going for it.
* Investible = something in which you can invest, but investable means something that you invest, like cash.
A website is essentially non-existent if people don't visit it. This is "traffic" (more on this later in the intro to metrics). So a website that's worth anything has to have traffic from somewhere — search traffic, an email list, or social media groups.
And finally, from an investor's perspective, a website has to make money.
So for the purposes of this series of articles on investing in online businesses (mostly website-based ones), I'm going to say a website is place on the internet that has dependable traffic and one or more income streams.
Let's make it clear:
An investable website has dependable traffic and one or more income streams.
In this guide...
- Common types of investible website-based businesses
- How does a website get traffic?
- How a website makes money
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What are some common types of website businesses?
Any business can have a website — an oil and gas company can have a website, as can a consulting firm, or a bookstore.
But what I'm focusing on is traffic and income that's independent of its owner. So if you're a doctor and you have a website for your clinic — that's not a website you can sell — the business is your clinic, not the website itself.
Further, most people who want to buy websites want to be able to run them from anywhere.
So if your website is really just the interface for an online business that at the back end has a factory and employees... well, that's much more complicated. You may find a buyer, but most buyers won't be interested in something with so many operations.
Websites that make money by themselves generally are one of the following kinds:
- Blogs (making money through advertising, affiliate sales, and/or sponsorships)
- Shops (either drop-shipping or selling their own products)
- Amazon FBA sites ("Fulfillment By Amazon", basically their own shops, placing orders on behalf of customers)
- Services/Apps, charging either one-off or monthly fees for access
- Private communities, charging for membership
- Newsletters (charging subscriptions)
- Online courses teaching something specific, charging for the course
I've ordered these roughly in order of complexity for a new owner to manage. Also, it's usually the first four types of businesses I see for sale. Newsletters and online courses are harder to sell because they rely on so much specialised knowledge.
Each of these websites makes money in a different way (and often in a combination of ways). See the below section on how websites make money from their traffic for more info.
How does a website get traffic?
There are lots of ways in which a website can get traffic.
The principal ways in which a website gets traffic are from search, social media, email, and recurring traffic from members and fans.
Here's a quick rundown on each one of these.
- Search (mostly Google): If a website has really unique content, then people will visit it when searching for things. Getting your website to rank on google for unique search terms is itself quite a dark art. It comes down to a) how good is your content and b) how good is all the other content on the internet. If you are consistently better, then you'll outrank others.
- Social media: Some websites come with social media accounts (e.g. Facebook pages) with very large and active followings. Food and travel blogs may be attached to accounts with large Pinterest followings. These can account for a huge part of traffic — e.g. 40% for one of our properties. I've heard of social media being 80-90% of the traffic of some other profitable properties.
- Email: Some websites are primarily email driven. A good example of this is The Hustle. If you search for the news they write about, you never see them in any good position — but with over a million email subscribers, they're a huge business without needing to target search.
- Memberships: Member sites, or those that host courses, get their traffic from people who just type in the URL and come back. Of course, massive sites like the NY Times or The Verge also have recurring traffic from fans.
There are other traffic sources too, of course. There are other search engines, there are forums, Reddit, and others, but the above sources of traffic are the most commonly mentioned and most profitable traffic sources.
How does a website make money from its traffic?
As we said above, a website that has no traffic and isn't making ANY money isn't a business most people would buy (unless you're just buying "aged" domain names).
Websites typically focus on one way of making money. But it's common for a website to have two or more. For example, many travel blogs make money out of a combination of advertising income, affiliate income via booking partners (e.g. Booking.com and Airbnb associates), affiliate income via Amazon, and maybe a couple of other sources.
How each of these money-making systems work is worthy of an entire article in themselves (and I will go over some of them in detail), but in a nutshell, some of the ones that may be new to you are:
- Advertising: This is usually done through an ad-placement platform like Google Adsense or Mediavine. You sign up to them, and then ads show up on your site. These earn you between $5 and 25 per thousand pageviews (sometimes much more, if it's the right industry and the right time of year).
- Affiliate income: This is where you link out to a product like this gold bullion on Amazon. People click on it and buy it, and you get between 1 and 5% of the sale price as your advertising commission.
- Drop shipping: This is where you have a full on shop and check-out system in your website, but you place an order on behalf of your customer to a third party provider who ships something out.
- Commercial advertising fees: Some websites focus on a niche service in a region, like "Boston Plumbers" for example. They're a directory service. They charge every person who has their listing on their a fee — like a very focused Yelp site.
- Marketplace transaction fees: This is less common, but I've seen some small marketplace sites that charge commission for listings posted by sellers. These are like small versions of a car or real estate sales site.
The other ways a website in which can make money with which you might be more familiar are
- Charging membership fees (e.g. for a newsletter)
- Subscription fees to a site or app, or maybe recurring revenue for a product
- Selling products that the website owner makes or sources (including e-books or physical products), or
- Selling a course
There are undoubtedly others, too. But the above are the main ways in which websites make money. (If you have others that have slipped my mind, please remind me — use the contact page.)