If you begin to think about expenses right after your income prospect, congratulations, your idea is one step closer to real business.
[+] Pageview-based advertising income
As a matter of fact, your income and cost are known as soon as you get the most critical information: user number. With regard to income, the most important thing is the business mode: are you choosing advertising-based or subscription fee-based (e.g., VIP subscription fees or virtual items sales income) revenue model, or both?
The fact is, in some sectors, charging your users (e.g. white collars), would be very hard, while in other sectors, your users (e.g., blue collars) would be of high value in terms of fee charging, but little appeal to advertisers. It is hardly possible to develop both, particularly for highly sector-specific Web 2.0 sites.
What's more, there are often conflicts between catering for your users and your advertisers. Obviously, the later prefer large-size, eye-catching ads, while the former hate the disturbance of such ads. If you decide to cater for your advertisers, the possibility of charging your users would diminish, or vice versus.
Therefore, instead of rough estimation of the proportions of income from both modes, we might better start the process from the very beginning. First of all, we need to estimate the average pageviews per user each month. Then we could multiply it by the average user number to get the total pageviews of your website of the month.
For example, your website has 100,000 users as of April 30 and 140,000 as of May 31 (obviously, you get 40,000 new users in May), and you have 20 pageviews per user, then your total pageviews in May would be:
[ ( 100,000 + 140,000 ) / 2 ] x 20 = 2.4 million pageviews
If 80% of your webpages are used as the ads inventory of Google Adsense, or if you have a known click-through rate of 0.1%, you could easily get the total number of clicks each month. As the price of each click is no secret in the industry, you can easily get an estimate of your advertising income.
[+] Estimating the proportion of fee-based subscribers in total users
This advertising income is just a bottom line. If you are an Internet startup, and you do not have the budget to hire an ad sales person at this stage of business, or you have too few users to attract large advertisers, you have at least this amount of income. You could expect to launch ads at higher prices later when you grow big enough.
The key is: how to estimate pageviews per user per month? Similarly, it depends on whether your website is a tool site, or a content site, or a community site. Data for these sites are no secret in the Internet industry.
The total pageviews of different types of websites might be close, but they do have different meanings. A user might view only 2 web pages on a search engine, e.g., Google, but would come back a lot of times each day. For a community site, however, it is just the opposite.
Now let's discuss the possibility of charging your users. The simplest way is to divide your features into free ones and fee-based ones. For the later, you can offer different grades, such as platinum subscribers and diamond subscribers and charge them at different rates.
In this case, what you need to estimate is "the proportion of subscribers in total users". Generally, you should be satisfied with 3%. Then you should estimate "how much each subscriber spends per month". Multiply the two and you will be able to get your income from the subscribers each month.
As an Internet business operator, you would then begin to weigh how much resource you need to invest in your subscribers? Is it feasible to offer free contents and bet your income completely on ads? Why not increase your income by securing more users, since the proportion of subscribers is fixed? However, securing more users means more costs?
[+] The estimation of marketing and expenses
If you begin to think about expenses right after your income prospect, congratulations, your idea is one step closer to real business. In fact, the expenses of an Internet company usually include a few parts: marketing, bandwidth and others (including personnel and office expenses, which are beyond the scope of discussion here).
One cost-effective marketing approach might be to purchase ads from Google Adwords or some other ad networks. The best modes for startups are to charge by clicks or by results. Multiply your clicks by your conversion rate, and you would get your user number, and then a clear picture of how much you need to spend each month.
As to the bandwidth cost, the first thing you need to figure out is the total data volume your users would consume each month. Multiply the known pageviews per user per month by the average Kbytes per page, and then by the number of users per month, and the result is here (should be in GB).
ISPs offer two types of bandwidth prices. Perhaps we can explain them better with a comparison to water pipes and water volumes. You can either limit the total volume of water each month, e.g. to 120GBytes, or limit the diameter of the water pipe, e.g., to 1M Bits. The thinner your pipe is, the slower the speed.
How thick does your water pipe need to be? Let's make an example. Assuming that your total data volume is 120GB per month, of which, 45% take place in 10 given days, while 50% of the volume each day happen in 8 given hours. To be able to handle the peak volumes, you need an instant bandwidth of 0.768M Bits per second.
{ [ ( 120 x 45% / 10 ) x 50% ] / (8 x 60 x 60 ) } x 1024 x 8
The above estimation is for general HTML web pages. If you offer upload/download of a lot of photos or movies, that's another case. The method is still to calculate the data volume of average photo/movie upload/download per user. However, if you are not able to get particularly favorable prices from your ISP, it is highly possible that your business end up in failure.
[+] The development of strategies - right in these calculations
So much estimation, would that work? As a matter of fact, hardly any winner in the Internet community relies on such estimation for his/her business success. Sometimes, what's behind a successful business is sheer guts, which might be what's appealing to adventurers.
However, if you intend to mortgage your house or your car to start your business, instead of just giving your ideas or comments on your Blog, thinking about it a little more will do you no harm. Yes, you are a hero if you burn your money and succeed. What if you burn your money and end up in failure? (It depends on whose money it really is….uhm).
The Internet is a semi-traditional industry. Using the experience of others to do the calculation and to improve your chance of winning is, after all, rewarding. Just think more about the way to reduce your bandwidth cost, or stunning viral marketing skills to save cost, or raise more money in the initial stage for advertising. The development of strategies lies in these calculations.
2007/07/22 - By Digitalwall.com - Way to
China Internet/Telecom )
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