Earlier in the year a good friend of mine asked for my advice around generating some revenue for his website. This was back in February of this year.
The site is a music destination and reasonably popular. It generates around 100,000 people a month. It’s not going to change the world but it has a regular audience and solid content.
I put him in touch with some third party sales groups. Basically – for those not in ‘the biz’ … these are operators that sell sites owned by other people. They don’t actually own anything, but supposedly add value by aggregating a whole lot of sites and using this scale to make a dent in the market.
One group jumped at the opportunity. My friend started talking with them and this group came back with some pretty solid estimations based on revenue.
In month 1 (April 2009) they estimated $5,000+ in revenue … this would grow to $12,000 per month within 12 months.
Based on this my friend decided to go with the group in question. They estimated he would see after all expenses and the sales houses costs $81,000 within 12 months. For the sales house they were looking at around $52,000. 35% commission. Not bad considering this group has a minimal market presence and resource.
On June 11 I get the following email from my friend.
These guys are useless.
When we did the deal they sent through revenue projections and by this stage (3rd full month of agreement) they estimated they would be delivering over $6k per month, not $85.
We currently allocate 50% of our impressions to them and keep the other 50% for ourselves to sell to indie labels, bands etc.
You are reading correctly – my friend was generating $85 worth of revenue when he entered into the agreement based on estimations delivered by the sales house of $6k.
Their “Site Compensation Report’ was a flimsy document with no background on where the revenue figure came from. How it was made up. What the average CPM was. Who the advertisers were. It was amateur and embarasing.
I was a little taken aback. This guy is a good mate and I felt like I’d led him up the garden path. So I emailed the MD and asked what the situation was. The following came back.
I appreciate the referral & I do think I was quite open & frank with (name withheld) – it has been a very tough time for smaller networks like ourselves pushing the CPM line .. I give revenue projections based on what I think is possible at the time & what I think is sellable to our client base – however despite my length of time in the industry I wasn’t able to foresee the impact of the GFC or the accelerated trend in the market towards performance based advertising ; perhaps if agencies weren’t such keen promoters of performance based advertising we’d be able to deliver better results for website clients.
Lets look back at 3 things
– The projections were made in February. This was when the market and the economy were as bad as they got.
– You have to wonder what expertise this company brings when they make an error of projections $6k and delivering $80. That is barely 1% of projected.
– Performance based advertising is not a new phenomenon.
Despite wishful thinking that the GFC would sort out the shysters, they’re still around. Watch out if you’re looking for representation.