As I have alluded to in some other posts, one of my wealth creation and income supplementation strategies is through building income producing websites.
By no means am I an expert on making money online. In fact, if you follow my “journey” through this blog post you may decide that this is not a particularly fast or easy way to make money. There are far more exciting rags to riches stories out there, and I have definitely learned things the hard way, and depending on your definition of success, I don’t have a ton to show for it.
With that said, I have had fun working on websites. The biggest success is that I managed to leverage my experience in learning search engine optimization (SEO) and affiliate marketing to develop a website for my off-line business (my law firm). My law firm’s website has had a tremendous impact on my bottom line, and if it wasn’t for the success that I developed through that website I am not sure I would have been able to develop a viable business as a solo lawyer opening an office right out of law school with no connections, moving to a city I had previously never been to before, with no money and a pile of debt. This is a story I touched on in my student loan refinance story post.
So I digress somewhat (as usual), but I think that this point is worth mentioning as I lay the background.
What is Affiliate Marketing?
First of all, I am guessing some people reading this article have not heard of affiliate marketing, which merits a quick explanation. Affiliate marketing is the process of attracting online traffic (people browsing the internet) and sending them to someone else’s website (like Amazon.com). If the people you send to Amazon buy products within a certain time period, then you earn a commission on that sale.
Everything is tracked through unique links called affiliate links. While I initially thought the whole “make money online” concept was some sort of scam (and it can be, if you fall victim to bogus make money online courses, pyramid schemes, etc), this is very much a legitimate means of generating income and people have made big bucks in affiliate marketing, selling display advertising, selling their own online products, etc.
My “Web Portfolio” Today
I have a handful of little income producing websites, and one larger website that by far generates the bulk of my online income. In 2015 I recognized approximately $16,000 in revenue through these websites, which is around $1,300 a month. Not enough to live off of, but a nice supplement to my income. It was also about twice as much as I made in 2014, so I am happy with the year over year progress (and would be extremely happy to see that number double in 2016, although I don’t think that will happen this year).
Needless to say, websites could be a real boon to someone who is looking to retire early. To generate $16,000 a year in income from a traditional portfolio following the 4% rule would require $400,000 in assets. And to generate that much free cashflow from rental real estate, you would need to manage a significant amount of real estate. Some investors try to generate net cash flow of $100 per month per rental unit (after vacancy, property management, capital improvements, etc), so under that assumption you would need a dozen rental properties to generate that level of net income. Hell, cut that in half and say you need 6 rental properties to generate $1,300 a month in free cashflow. That’s a lot of property to manage and dollars to deploy.
The point is, if you work hard and play your cards right, it’s possible to create a full time income through online businesses relatively in a manner that is relatively easy compared to earning your dough “the old fashioned way”. Plus, all you need is a domain name, some hosting, and a lot of time and energy.
Of course on the flip side websites can be far riskier investments than a traditional portfolio, and have other potential issues.
With all of that background out of the way, lets talk about my introduction to making money from websites. It started in the summer of 2010. I used to waste a ton of time on the miscellaneous section of the BodyBuilding.com forums. This was basically a huge time waster (like most forums), but it was pretty entertaining. Through that forum I stumbled across a thread on affiliate marketing, where one of the members shared an example for starting a small niche website that made money through Amazon.com’s affiliate marketing program.
Being somewhat entrepreneurial in spirit, and sorta tech savvy, I thought this was a cool idea and it made sense to me. After all, I bought stuff on Amazon all the time, and I used to make websites when I was in middle and high school (GeoCities anyone?). I knew that Amazon was a perfectly legitimate business, and the thought of earning a commission on sales sent to Amazon.com intrigued me. So a couple hours and a $10 domain later I had constructed my first niche website. The website was centered around a product I used myself and I built the little website as a proof of concept.
Low and behold after a few weeks I had made my first dollar online (my first $10.90, to be specific).
From there I was hooked.
I spent the next several months trying to build out more small niche websites (typically 5-10 page websites) focused around a single product. This was met with some level of success (around $100/month in earnings). Beer money for a broke grad student, but not enough to make a significant dent in my financial future. I quickly realized that unless I was in a position to hire people to generate the content and somehow scale this, I would have a hard time making a meaningful amount of money. Plus, little websites are all well and good, but it’s not something you can really devote a lot of creative energy to. I wanted to build something bigger.
I decided that instead of building tiny websites that focused on a single product, to target a broader keyword that had several products under it.
If I was targeting “Hamilton Beach Model XYZ 4 Slice Toaster” before, then I was going to target “Hamilton Beach Toasters” now, and instead of having an article on one specific toaster, I was going to write about several different models offered by one brand.
This seemed to work, and my earnings slowly grew. So I decided to target multiple brands on one website, and make an authority website. An authority website is exactly what it sounds like – an authoritative resource on a particular topic (or “niche”). So now the target was “Toaster Reviews” and under that I would have articles/reviews on several different brands, all different types of toasters, etc.
I liked this approach over the little 5 page websites, as I felt it scaled better for me, and that I could put more eggs into one basket. This is all well and good… until the basket breaks.
Now I have neglected to mention that while I was learning about SEO and Affiliate Marketing, I was getting into some of the underbelly of search engine manipulation. Specifically, I was using paid services to try and game my way up the search engine results, so that my website would get more traffic faster, and make me more money.
This was going great. My little website was exploding with traffic and my income was climbing to $500 a month, and then almost $1000 a month. As a broke grad student, this was starting to make a real difference for me. It paid my rent and then some. Sweet! I was on top of the world.
Then one fateful day in April 2012 disaster struck. I checked my stats one morning to find that my traffic was demolished. It was 1/3 of what it was the day before. Horrified, I checked the SEO and affiliate marketing blogs and forums to see what happened. Apparently, my website was hit by an update to the Google search algorithm called “Penguin”.
Penguin was designed to penalize sites that did shady things like buy links. Unfortunately, that is exactly what I was doing. Overnight my traffic and income took a huge dump. Needless to say, but this was a depressing time for me. But this was also a valuable lesson.
The Slow Climb Back
Smarter people would have abandoned this project and simply started a new website. I know plenty of people who did that.
The problem was, that I am stubborn as hell and I really liked my website and the topics I was writing about. I had started to build a “brand”, and I didn’t want to give it up. So I stuck it out over the next several years. I did all sorts of things to try to get my site out of the Google doghouse, and I vowed to never use paid SEO services again (specifically, link building services).
I slowly built the website back up over the years, and in 2014 I got the traffic and earnings back to where I was in 2011, and then last year I had my first year of continuously making over $1,000 a month online (which is a nice milestone).
In many ways the project was a failure. My hourly rate would be laughable (I have probably spent thousands of hours on the project). But I learned a lot and was able to take the lessons learned, apply those lessons to my law firm’s website, and generated hundreds of thousands of dollars in revenue. Plus, my hobby website continues to generate an income.
There is a great allure to seek “passive income” through online businesses. People have these same dreams with real estate. Anyone who has been in this business (or the real estate business) for any length of time will tell you that passive income is mostly a myth. Sure, if you can bootstrap a business to the point where you get over the hump, to where the business begins to develop significant positive cashflow, then you can reinvest those proceeds into tools, employees, and other investments. Eventually you can develop passive income. But to get there takes a lot of time, effort, and mistakes along the way.
And there are dangers with online businesses. Affiliate offers can fold, search engines can change their algorithms, and competition can try to undercut you. The internet has changed dramatically since I started, and those who can stay at the front of the wave can make big money.
I will say that this website has developed into a great asset for me. My day job involves exchanging my time for money. I can scale through employees to some extent, but if I don’t drum up the business, lock in the client, and do the work, then I don’t get paid. With my affiliate website it does generate income every day, and if I decided to stop working on it the website would likely still generate a healthy income for the foreseeable future. The $16,000 generated last year definitely made its way to my bottom line.
As I look to the future I want to continue to develop my online businesses. My “job” has shifted more from author to editor (although I still regularly write articles). I realize that I only have so much time that I can dedicate to projects, so I am trying to be cognizant of that as I juggle my various obligations.
Ideally, I would love to get to the point where I am generating $10k a month in revenue through online businesses. If I was doing that well I would be tempted to either pull the plug or at least scale back on my law practice pretty seriously. Presumably by then I will have built up substantial assets and paid down all of my debts. Then maybe I could experiment with slow travel, or at least take more than a long weekend off.
That would require increasing my business by a factor of 10. I think that is possibly with my current website, but will not happen overnight. Lets just say I don’t see myself quitting the ole day job any time soon.
So that was a rambling introduction to my experience with online businesses. I think it’s a fantastic hobby, and has the potential to be a real business. In fact, people are now viewing websites as an asset class. There are brokers that help buy and sell websites, and income producing websites regularly sell for multiples of 20-30x their monthly earnings (which is a pretty sweet ROI, provided that the website actually maintains its income). There are predators who build websites with dubious SEO practices specifically to sell the websites (the ole “pump and dump”) so like with any investment, do your diligence and caveat emptor. It’s not all puppies and rainbows when it comes to buying income producing websites.
While I don’t intend to turn this into a “make money online blog” I think using websites to accelerate (or support) financial independence is an interesting angle that I haven’t seen much of in the personal finance community. Which is odd, as most personal finance blogs make money (in fact, that is the point of most of these personal finance blogs – it is an entire industry). And there is nothing wrong with building websites to make money. Websites can provide value to their readers, and the owners should be compensated.
At any rate, I am happy to dive further into the subject if there is interest.