Seth Godin brings us this gem of an article that is very useful when you want to analyse whether a website is a good investment.

It’s tempting to believe that any website can become a perpetual motion machine of profit. But before you start one, invest in one or go to work for one, a few things to ask:

1. What’s the revenue per visit? (RPM). For every thousand visitors, how much money does the site make (in ads or sales)?
2. What’s the cost of getting a visit? Does the site use PR or online ads or affiliate deals to get traffic? If so, what’s the yield?
3. Is there a viral co-efficient? Existing visitors can lead to new visitors as a result of word of mouth or the network effect. How many new visitors does each existing user bring in? (Hint: it’s less than 1. If it were more than 1, then every person on the planet would be a user soon.) This number rarely stays steady. For example, at the beginning, Twitter’s co-efficient was tiny. Then it scaled to be one of the largest ever (Oprah!) and now has started to come back down to Earth.
4. What’s the cost of a visitor? Does the site need to add customer service or servers or other expenses as it scales?
5. Are there members/users? There’s a big difference between drive-by visits and registered users. Do these members pay a fee, show up more often, have something to lose by switching?
6. What’s the permission base and how is it changing? The only asset that can be reliably built and measured online is still permission. Attention is scarce, and permission is the privilege to deliver anticipated, personal and relevant messages to people who want to get them. Permission is easy to measure and hard to grow.

Do the math on successful companies online and compare it to those that are struggling and these six metrics will help you understand the difference. For example, if the RPM is less than the cost of getting a new visitor, you’ve got trouble. If the site is relying on fads and occasional PR but isn’t building a permission base, that’s trouble too.

The good news is that each of them can be changed if you’re alert and willing to do surgery on the business model and structure of the site.

The ideal structure is a business that’s a platform, not merely a place to stop by. Once people move in and become members, they’re hesitant to leave, they share permission over time, they tell their friends, their RPM goes up and the cost of acquiring and hosting members goes down. The real question is: are you on that path?

Interesting in investing in websites? If you want to get into this but have no idea how to search for, value, evaluate and manage a website, give us a call. We’ll work something out.

In this economy, where do you invest your money? What gives the best returns? We still believe that one of the best, least-known investment opportunities is investing in websites.

In fact, over the last few months, we have been quietly purchasing websites both for ourselves and some clients. Why do we think this represents a good investment? Here’s a quote from an earlier article:

A little-known way of making money online is that of investing in virtual real estate i.e. buying websites.

I know you are conversant with the idea of buying land or houses so I will use that as an example to make a point. If you buy a house at Kshs 5 million and then rent it out, the monthly rent that you can charge is usually 1% of the buying price (this sometimes varies but it is the average). Therefore, the expected rent of a house worth 5 million would be Kshs 50,000 a month or Kshs 600,000 a year. To get back your 5 million investment, it would take 8.3 years. This is considered a good investment.

A better one would be to buy a small business. The average rate of return on a small business is about 20% – i.e. if you buy a business at 5 million, you should expect to make 1 million a year. This means that it would take you 5 years to get back your investment.

What about buying a website? The strange thing is that the value of a website is usually only about 12 – 24 times its money income. That is, if a website makes Kshs 10,000/- a month, the selling price should be a maximum of 240,000/-. This means that it only takes you two years to get back your initial investment.

Sounds like a good investment to you? (Read More)

Think about that. If you spend Kshs 5,000,000 on a website you should expect to make up to Kshs 500,000 every month. And, guess what? Some types of websites require NO input from you. Can you imagine making a passive 500k every month? I don’t know what to say – I simply cannot think of a better investment in this economy! Can you?

Let me share with you a snapshot of recently sold websites to further drive the point home:

Recently sold websites

From the above, the average cost of purchasing a website is about 10.7 times its expected monthly revenues.

This means that if a website makes $100 (about Kshs 10,000 currently) every month, then its expected purchase price would be $1,070 (about Kshs 100,000 currently).

A website that cost you $1,070 (about Kshs 100,000 currently) will earn $1,200 (about Kshs 120,000 currently) in one year.

Sijui if this makes any sense to you. Personally, though, at Nickel Pro we have been aggressively investing in websites to the point where now a significant part of our revenues is on “autopilot” (it comes whether we work or not). Hakuna pesa tamu kama hiyo, let me tell you!

So, as you are thinking of where to invest your money. Spare a thought for websites. In my opinion it is one of the best investments out there. If you want to get into this but have no idea how to search for, value, evaluate and manage a website, give us a call. We’ll work something out.

Cheers!

I’m writing this blog post cuddled up in a tent in Naivasha’s Crayfish Camp while attending the 2011 Kenya WordCamp.

WordCamp Kenya is a conference about the world’s most popular blogging software WordPress. Developers, designers and users will come together for talks and workshops related to WordPress and to publishing on the web, and to network.

WordPress, of course, is the rockstar of online web publishing. It is so good that it is used to power 14.7% of the top one million world’s biggest websites. In the USA, WordPress has been used to create and manage 22% of all new websites in the year 2011. It is used in 8% of the websites on the entire web. Clearly, WordPress is the one of the biggest and most widely used CMS.

I’m here primarily because I am one of the speakers at this conference. I had an interesting presentation on DukaPress yesterday. If you are not attending this event, well, pole kwako.

I would say the majority of the people who made it are bloggers from Kenya – very prominent Kenyan bloggers. It has been wonderful meeting some of the people I look up to. It is very good to see that Kenya has a very strong and thriving blogosphere.

However, I am disappointed in that I found that the number of WordPress developers here is relatively small. In fact, my observation is that in Kenya, generally, WordPress developers are few and far between. For example at DukaPress last year we wanted to hire a number of WordPress developers but could not find more than one or two who actually had experience with WordPress from all those who applied for the jobs.

I feel that this represents a massive opportunity for developers in Kenya. WordPress is HUGE. In fact, on almost all of the “freelancer” websites (like freelancer.com, guru.com, elance.com etc) the vast majority of all programming/web development jobs are related to WordPress. If as a developer you know how to work well with WordPress, you can easily make money online, offline or both. Just look at what our small team has been able to do with DukaPress.

Think about it. Can you take advantage of this opportunity?

PS: You can get more information on WordCamp Kenya here. You can follow the event live on Twitter by following @WordCampKE or #WCKE which is the official hashtag.