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Pay Site Revenue Streams: Part 4

Pay Site Revenue Streams: Part 4

February 5, 2002
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" This of course leads us to the consideration of whether or not your site is your business, or a hobby. "

As I continue to work the numbers, more and more revelations are coming to light. Now that I have a better understanding of the income and expenses of her pay site, I can offer Dawn Elizabeth a little more input on her new pricing and marketing models.

In my last installment, I began asking myself a series of questions, the answers to which will provide insight into the inner workings of Dawn's site. Today, I want to look at the concept of "profitability," but first I have a question that I think is important to consider at this point:

Hit and Run:
Question: A surfer with a 3-Day Trial Membership sucks down our entire site with his speedy cable modem, then cancels his trial. Did we still turn a profit on the $2.95 sale?

I ask this question as it seems to be an increasingly common occurrence as more 'Net savvy surfers become broadband enabled. Heck, even if I was really interested in a site, I could join Friday night, glom everything that wasn't nailed down, then cancel Sunday night. Thanks, you can keep the $1.95 or whatever, and I'll see you again in 3 months when I'll give you another $1.95 for all your updates. I can assure you that I'm not the only one to think of doing that, and so I want to make sure that even if someone does it to ME, I'm still making a "profit."

On the face of it, the 3 Day Trial ($2.95) sale nets about $2.20 after processing. With our previous example of a "100 MB" content base at $1.69/GB, it should cost about 17 cents worth of bandwidth to deliver the goods, and even if I spent 3 cents on a PPC Search Engine click to get that surfer, there is still a net profit of $2.00 on that sale. Heck, even if I got that new surfer through ibill's 50/50 RevShare, I'd still have a dollar more at the end of the day than I started with, so YES, even a hit and run site vampire can put money in the bank.

I could likely go on at length about the psychological aspects of trial memberships from the consumer's point of view and the various "buttons" that different price points push, and indeed, there is now considerable debate between Dawn Elizabeth and I over the price and length of trials, and whether we should even offer one, based upon her previous "real world" experiences. I think that will wait for another day though, as I build up a database of historical and price point testing results to validate my assumptions with.

Examining Site Profitability
Profitable adult site operation is a numbers game, and traffic analysis will reveal how much traffic you need to generate the sales required to support the income you wish to receive. There is a co-relation here that we need to investigate in as much depth as possible, for it is the key to future sales forecasting.

In other words, a Web site is like a machine where you pour money into one end, and hope to see more out the other end... Depending on how well you understand this machine, and how well it's set and "adjusted," you will either make or lose money; and the best part is that you can predict with some reasonable certainty a range of outcomes that you can track your own course through over time.

When examining "profitability" we also need to define the concept in much more personal terms. For instance, to be technically accurate, a site may be profitable simply by generating more revenue than expense, even if the net revenue is insignificant. While even this "insignificant" revenue stream will render your site technically profitable, is the whole process "worthwhile" to you? This to me is the true test of profitability, and it is one that can't be measured in merely financial terms. After all, your site might just be "a labor of love." This of course leads us to the consideration of whether or not your site is your business, or a hobby.

A Business or A Hobby?
For my purposes, if it's a real business, then you should at least be able to support yourself on it. How much money do you want to make? Consider your rent and day to day living expenses. Add this to the total cost of running your business, and toss in a hunk of change for profit (20%). This is your "Target Income Level."

For us, the amount of money that we wanted to pull from this site was relatively modest, as it is not our only current source of income. Let's say we just want to cover our rent (at $2,000 /mo. a not inconsiderable sum), plus a 20% margin for "net profit." With an expectation of around $2,400 per month in our pockets from the operation of this site, we felt that accomplishing our goal was both realistic and attainable. But what would it take to actually do it?

Now, as you may have already noticed, I tend to round off my calculations, and leave "holes" here and there, holes that can be filled in as we progress and collect historical data on the new site. The beauty of this is in that I tend to leave a bit of meat on the bone, so that the ultimate "real world" figures are likely to be better than my typically "conservative" estimates. ...the answer is "YES" this membership level is both realistic and attainable. But attainable HOW? So, let's start by taking our "Target Income Level" of $2,400 and dividing it by the monthly "member net" (the current payout on a typical monthly membership sale) which in our case is $22.90. Doing this gives us the average number of monthly members (105) that we must maintain to support our Target Income Level.

Is this membership level reasonable and attainable?
Fortunately, 'Kitten' (in a past life) had a previous pay site under a different name, one in which she maintained an average membership that was much higher than our initial target level, and did so with much less knowledge about the business than she has today. So then, the answer is "YES" this membership level is both realistic and attainable. But attainable HOW?

In my next installment, we'll look at more figures while I analyze our traffic needs. ~ Stephen


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