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Today’s Realities With Paysite Entrepreneurship

Today’s Realities With Paysite Entrepreneurship

June 27, 2016
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Will virtual reality boost the paysite market?
Yes, it will soon
  40.00%
Yes, but in a few years
  37.14%
No
  22.86%
Out of 140 votes. Results based on votes submitted by members of XBIZ.net social network.

" Over the last couple of years, things have stabilized, the fat has been trimmed from our industry so to speak, and we’ve seen a steady influx of new producers, solo models and online entrepreneurs building adult paysites. "

The online adult entertainment industry has come a long way these last few years.

We weathered several storms in the form of content saturation and devaluing from a decade of low barrier to entry, rampant piracy, free tube sites, a bad U.S. economy (and all that comes with it) and trying to sell to jaded, fearful and more educated customers.

I’ve never used overinflated sales counts or boasted about how well my CMS software was selling in the face of competitors, and when they did, I knew they were lying.

There was a time (it lasted a few years) when some months we lose more customers than we gained and were either growing very slowly or in a holding pattern where for every new client who came on board, one went away. People weren’t defecting to other platforms or jumping ship, they were going under. We saw hundreds of people go out of business and there was nothing anyone could do to prevent it from happening.

Over the last couple of years, however, things have stabilized, the fat has been trimmed from our industry so to speak, and we’ve seen a steady influx of new producers, solo models and online entrepreneurs building adult paysites.

In the past, in the pre-fallout days, most of the uncertainty people had revolved around best options, strategies and best execution of their ideas. These days much of the uncertainty revolves around cost, calculated risk and what to expect.

This is a real email I received last week:

“Hey AJ,

I read one of your articles about mistakes new paysite producers make. Very interesting article. At the end you offered to give advice or suggestions to anyone thinking about starting a paysite so if you don’t mind I’d like to take you up on that offer.

The site I am thinking about starting is a gay, athletic niche site, kind of similar to one of your clients, **** . I don’t know how familiar you are with gay porn but I’d be curious to hear any opinions you have on these type of sites. I think I got a good domain name **** that’s short and easy to remember I’m thinking I might be able to turn this into a good brand.

I’ve started filming some models, but after reading your article I am a little nervous about proceeding or what my expectations should be. I have website design and video production experience so I’ll be able to do a lot of the work myself. I don’t think I’ll need to drop $50,000 into this like the guy in your article but I’m planning to spend at least $10,000 to launch the site.

One of the biggest concerns I have is not knowing how long it will take to recoup my investment and start turning a profit that I can reinvest into the site. If it’s just a few months that’s great, if it’s a year or more not so great. I would think that finding enough subscribers to generate $10,000 would be easy but after reading your article I’m not so sure.

The frustrating thing for someone like me interested in starting a paysite is that it’s very difficult to find verifiable sales figures from established porn sites so I would know what my potential return might be.

In a mainstream biz like opening a coffee shop or service biz there is plenty of info available that provides income potential and business plans, but not in porn, or if there is I haven’t found it. People in porn are very tight lipped about how much they make.”

This was my response:

“Hey Scott,

Glad you emailed me to ask questions and ask for feedback.**** is a great name and definitely brandable if you plan to stick with an athletic theme. If you’re already shooting and are happy with the content you’ve produced I would continue to go in that direction and launch the site. Content will be your biggest expense by far. Aside from that, the next biggest is the “high risk” fees charged to adult merchants by both Visa and MasterCard. If you go with Elevated X as the software to build and run the site and get your own dedicated server you’re looking at less than $450 including software, high end hosting and video encoding and streaming video delivery.

Upfront cost is about $1,500, a far cry from $10,000 unless you go crazy and get a total custom site design or start getting into custom feature development but neither of those are necessary and a lot of very large scale sites don’t even spend on those things.

The big question is: How much will you spend to launch, including content and what amount do you need to make back to recoup and see a profit when including your ongoing monthly operational expenses?

Is $10,000 easy to make? Depends who you ask. If you have good content and great marketing, you can make that much in a week. If not, you could make that in two years. It’s a risk in any case but I think for you it’s a reasonable one and a very calculated one.

The reason you don’t see sales stats out there is competition. You knowing what the local corner Starbucks makes might help you decide to open shop, but you’re talking about a gigantic investment and major risk putting up capital, getting a loan, risking collateral, whatever. The barrier to entry in porn is pretty low aside from the cost of content really. It comes down to marketing honestly.

Here’s a formula that might help:

If you price at $X/month and make X sales a day:

Gross: $X

Remainder after third-party processing fee (14 percent): $X

Net monthly revenue before operating costs: $X

This doesn’t include rebills, sales from video-on-demand content (we just added store functionality to the CMS for this), affiliate sales to other sites, sex toy or supplement sales from members area banner ads, etc. This is just your baseline if you can make a minimum average number of sales a day inhouse without an affiliate split.

What you’re left with will depend on your hosting costs, marketing/advertising costs (if any) and how much you spend on content.

I suggest thinking worst-case scenario and how confident you are that you can bring in X number of sales a day whether it’s 1, 2, 5 … whatever a reasonable baseline goal is for you.

Hope this helps!”

Scott then wrote me back with a one-liner that said, “sales per day is the big mystery question. I really have no idea if 1, 2 or 5 sales a day is normal, low or high, and so far I haven’t found a site owner willing to tell me. Guess the only way to find out is to take the plunge and try a site.”

That’s really the bottom line. When an experienced business person or entrepreneur sets out to do something, of course they have a lofty goal. Even those with tons of experience must calculate costs, assess risk and decide what’s acceptable. Anything beyond that may be desired but not expected and will be taken as a bonus.

For example, even if someone like a Richard Branson or a Donald Trump is investing in something, they first obtain some idea of what their minimums and averages must be just to break even. They also have an exit strategy to ensure they don’t take a loss if something unforeseen happens.

Paysite owners should do the same. The problem with most new paysite ventures is that most new site owners (just like Scott in the emails above) have no idea what they can rely on as a guaranteed revenue baseline.

Due to this, my advice is always to grossly underestimate. Use the formula above based on just 1 or 2 sales a day. With a decent, steady (but not costly or excessive) marketing effort, a site with good quality, appealing content should be able to attract at least 1 or 2 people daily.

This is not a big goal, mind you, just one used to help you sleep at night knowing what you need to bring in to avoid losing money as you learn, master the game and work your way to big sales. Your real goal might be to pull in 10 sales a day or 20 or 200 but whatever it is, you still need to start with what is the absolute lowest baseline number that will still leave you (at worst) breaking even and not at a loss.

Paysite ownership has got to have a failure rate close to that of restaurant and bar ownership. I would peg it at about 90 percent which I know sounds negative, but I believe that if more brand new site owners and startup producers based their initial budgets and site execution plans based on their minimum goal instead of their vision of the Ferrari and Bentley parked in the driveway of their mansion, far more would still be in business 6, 12 and 36 months after they start.

Sometimes it’s important to dream small in preparation for dreaming big. After all, one of the keys to making the big money we’re all after is to not lose it to begin with.

AJ Hall is a 16-year adult industry veteran, winner of the 2016 XBIZ Tech Leadership Award and CEO of Elevated X Inc., a provider of popular adult site CMS software. Hall has spoken at industry trade shows and written for several trade publications. Elevated X software powers more than 2,000 leading adult sites, has been nominated for more than a dozen industry awards and won the 2012, 2014 and 2015 XBIZ Award for Software Company of the Year.


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