While browsing the Flippa marketplace, it is tempting to look only at a site’s final revenue numbers rather than where the revenue comes from. After all, any revenue is good revenue. However, there are three very different types of revenue that a site can produce, and they factor differently into the site buying process.
The three types of site revenue that you’ll see on a Flippa listing are advertising, services, and products, as seen below.
Advertising revenue can come from variety of sources, including Google Adsense and/or private banner sales, but can also be in the form of text link sales through a broker like Text-Link-Ads.com.
If your goal is to build a site and hold onto the cash stream, or if you’re hoping to flip a Snowball Site, then it makes sense to monetize using advertising.
Advertising can be advantageous for Snowball Sites, because the revenue is relatively stable as long as the traffic is consistent. It is the easiest way to suck easy revenue from a website, because it can be plugged in at will using a third party service like Adsense or Adbrite. However, it is much more profitable to work out private advertising deals or selling affiliate products with the same banner space.
While it makes sense to build and flip sites that have advertising revenue, it would be foolish to attempt to build a long-term Tycoon site off of third party advertising. Not only does the third party take a large chunk of the revenue, but sending traffic to other people’s sites builds their business instead of your own.
Advertising can add revenue to your site, but it is ultimately more profitable to funnel that same traffic back to your own product or service. That is why Tycoon sites should be built around selling your own products rather than selling advertising.
Products and services are often lumped together as the same type of revenue, but they have a very distinct difference: product sales can be automated, while services cannot. For example, a website that sells a link building service must be fulfilled by humans, while an ebook on obtaining links can be delivered instantly without any effort on the part of the webmaster.
It is very important to keep this in mind when you are purchasing a website. If service revenue is the main income for the site, then that service needs to be fulfilled on a regular basis. Regardless of if you fulfill the service or a team of outsourcers does the work, the time required increases along with the number of sales that are made.
On the other hand, product sales can be completely automated, especially when the products are digital. Websites that sell ebooks, audio courses, or online videos require no additional time to fulfill unless customer service is necessary. Instead, you can focus on marketing while the website fulfills all of the orders.
This is why it is highly recommended that your Tycoon sites be built around the sale of products rather than advertising or service revenue. It’s very difficult to grow a website that is based on advertising revenue, although they can produce significant and stable income in some cases. On the other hand, product sales can be scaled infinitely without increasing overhead, allowing you to continually grow and market the profit of the business.
It’s important to look at the amount of revenue that a site is making, but the type of revenue that it is earning reveals much more about the business. Advertising revenue can add to the bottom line, but the same traffic can be much more profitable when funneled into product sales. Selling services cannot be automated and often must be fulfilled by yourself or one of your employees. However, product sales can be completely automated, and it is recommend that your Tycoon sites focus on product sales rather than seeking other forms of revenue.