Re: Building Financial Plans

From: Kim Brooks <kbrooks_at_bardo-brooks.com>
Date: Thu 06 Apr 2000 14:37:57 -0700

TAYLOR KEARNS WROTE:
> I am creating a very large content web site that will
> serve as a portal to a targeted population. This web
> site's revenue comes strictly from advertising. I
> project that we will have 1000's of potential
> advertisers who would be very interested in putting ads
> on our site. I also project that we could get 5
> million people per month to use our site, and this
> population would visit this site almost daily due to
> our content. I am currently putting together a
> finaicial plan and have NO idea how to project
> potential revenue. Does anyone have any
> info/samples/contacts where I could get this info?

Sounds like a great opportunity in terms of audience.
But there are a few glitches already.

* To me, "Targeted population" means a niche with
  specific interests. "5 million people visiting daily"
  means generalized, mass audience - not targeted.
  (Doing the math, let's say you have 5% daily mindshare
  in your ideal audience, which is pretty good. That
  would mean your projection represents gaining 5% of a
  total population of 100 million users. 100 million is
  not a targeted population.) Which are you? Mass &
  general, or small & targeted? Either is good, but
  clarify your strategy.

* Let's say 5 million is your -potential- audience
  size. Not your size at launch. How long will it take
  you to ramp up to target? And how will you get there?
  If it takes you 2 years to reach 5 million daily users,
  remember that your revenue the first 2 years will not
  be based on 5 million impressions sold per day.

* THOUSANDS of potential advertisers?? Makes me hugely
  skeptical. At present, there may be a few thousand
  online advertisers TOTAL.

* There is no concrete data on the future of this
  stuff. Not the CPM rates, not the population growth,
  not reenvue projections. Two years ago, everyone
  thought CPM rates would climb and ads would become de
  facto. Instead, ad rates have plummeted and everyone is
  struggling to invent new revenue streams. Base your
  projections on today's market and your own intelligence
  because you probably won't find hard data. Be prepared
  to rewrite your business plan every six months as the
  market evolves, and be flexible. That said...

* Ad rates for a general site are about $15 per
  thousand impressions. Targeted ads can run $75 and
  higher. Targeted, opt-in email can be $100-300 CPM.
  So pick which kind of ads you will offer, how targeted,
  the net value per user (eg, doctors are worth more than
  students), and what rates correspond.

* Remember that a fair portion of your ad inventory
  will go unsold. Anywhere from 10% to 40% may be
  remnant, which can be a loss, a bartering value, or
  sold at a lower remnant rate.

So what projection would you guess? Optimistically,
with good sales and a good CPM rate -- let's say at 1
year, you expect 2 million users; they visit weekly for
a total of 8 million impressions per month (8,000 Ms,
or blocks of a thousand impressions). You think you
can sell 80% of your inventory at $30 CPM. You will do
all ad sales in house so you get to keep all $30.

  $30CPM x 8,000 Ms = $240,000 potential monthly revenue
                                           
         x 80% sold = $160,000 monthly revenue.

A warning from an ad-skeptic: I have worked with
multiple investors on up-and-coming sites this year,
and I can tell you that investors get mighty
uncomfortable when you base 100% of your revenue on
banner ads. They just do. The ad market has gone down
and competition gets fierce - the more targeting &
reporting you offer, the more everyone else does. And
the number of sites with ads continues to increase
faster than the number of paying advertisers. In a
highly unpredictable market like the web, investors are
reassured by revenue backup plans, like having banner
ads, email ads, commerce, licensing & partnerships,
etc. I had a conversation with Naveen Jain of
InfoSpace about 3.5 years ago, at the birth of their
first site. I asked, "What's your revenue model?" And
he said quite seriously, "To make money any way people
will give it to us." I thought it was a bizarre model,
but they are quite profitable and have been from the
start - because they are flexible, with eggs in lots of
baskets.

Good luck developing the plan!

Kim Brooks



Received on Thu Apr 06 2000 - 16:37:57 CDT