Can you tell how much revenue a website has?

July 13, 2008 7:44 AM

I was discussing with someone a certain website, which they say has revenues of at least $20 million a year. They made a claim that by looking at the ad rates of the ad network the website is using, the number of ads per page, and the traffic of the website (via things like Quantcast; it's in the Alexa top 500), it is possible to make a rough revenue estimate without access to any internal data. Is this so? If so, what formulas are used?
posted by Charmian to computers & internet (10 comments total)

Assuming the ad network pays out on a per-view basis, rather than a per-click basis:

gross revenue = (average ad rate) X (ads per page) X (number of page views)
posted by b1tr0t at 7:58 AM on July 13, 2008

You can estimate the rough traffic of that site using Google Trends. Then refer to Google Adwords and try placement targeting for that website.. you'll know the suggested CPM rates for that niche..
posted by labnol at 8:08 AM on July 13, 2008

it is possible to make a rough revenue estimate

...of course it is. The real question is how "rough" are you comfortable with? If the website is a publicly traded company, you can get more than a rough estimate.
posted by toomuchpete at 8:36 AM on July 13, 2008

Thanks for all the answers so far.
By rough, I mean within maybe about 10% margin of error?

I'm not sure whether it is a company or not, but it's definitely not a publicly traded one.
posted by Charmian at 8:45 AM on July 13, 2008

Not within 10%. Look at the accuracy of the component numbers... Ads per page is probably accurate. Average ad rate is lucky to be within 25% of correct. Number of page views you'd be lucky to be within 50% of the right answer. Multiplying them just broadens the range. The right answer is probably within that range, but it's a huge range.
posted by smackfu at 9:16 AM on July 13, 2008

It's so much more complicated than it seems...

Most sites don't deal exclusively with an ad network; they only use the network to farm out their "remnant" inventory, i.e. the inventory that they didn't sell directly. The inventory that they did sell directly goes for a lot more money.

Then there are non-banner sponsorships, advertorials, co-branded ads, ads exchanged with partners, ads that are added-value as part of some other business deal, ads that are bought for a CPM of practically nothing because the advertiser has committed to spending a million dollars over the next year (but if they hadn't, those same ads would have sold for much more), ads of different sizes, shapes, and capabilities that go for different amounts of money.

And finally, there are ads that cost more because the advertiser wanted to target specific pages, or geographies, or times of day, or wanted a pop-up. Or the site might have sold them special behavioral targeting or surround sessions, or any one of a thousand other little features that sites use to keep themselves from being seen as a pure commodity.

What's more, those traffic estimates are very often off by a lot. Alexa, Comscore, Nielsen, whatever. The only way to accurately measure a site's traffic is to have access to its servers (and in some cases, that isn't enough either).

I have been on both sides of this equation in a professional capacity. Guessing within 10% is completely out of the question. The person you were discussing this with is just as wrong as they would be if they said that the sky is black at noon.
posted by bingo at 11:19 AM on July 13, 2008

You can make a "guess" using the numbers. I disagree with bingo that the other person is wrong. The other person just said "rough", and rough it would be.

You can use the traffic & other data to come out with a number. That will give you a ballpark. If there are other ads not using the ad provider (positions specifically bought by a company), those generally pay better. Then at least you'll have a ballpark.

All it really does is let you know what order of magnitude their profits are in. IE, 100k -> 1M -> 10m, etc. Probably could say "Somewhere around 1M, not likely less than 500k, not likely more than 1.5M.
posted by ceberon at 12:44 PM on July 13, 2008

bingo's totally right--if it's a publicly traded company (or more to the point, if they have a dedicated "media" agency doing their buying), then there are a _lot_ of complicating issues. The main thing is just that the vast majority of buys for a large-ish advertiser are really all the outcome of horse-trading.

For example, just this week, I was locked in a room for 4 hours while a media buyer made a million phone calls negotiating prices for a last-minute, home-page roadblock buy on one of the big portals. In the end, the CPM he got was more than 50% under the "book" price, because of things like (a) the size our client's annual media budget, (b) the volume of other buys his agency does, (c) the possibility that another big buyer had backed out for that day at the last minute, and (d) the fact that our media buyer and the ad sales guy on the other end of the phone probably sat together in a luxury box at Yankee Stadium a couple of weeks ago.

The key thing is that the actual price any public company pays for media insertions is probably way, _way_ below the book value of any placements, but--as bingo points out--there's really no way for you to know how _much_ below.

To be clear, this is totally on purpose. The media markets right now--online and offline--are driven by private agreements and individually negotiated contracts. There's nothing inherently wrong with that, but it makes it almost impossible to do thumbnail estimates within 10% like the ones you're talking about. If you're dealing with public companies, you're much better off looking at the annual filings, and seeing what they've claimed to spend on media, after the fact, year over year. (If they roll up the related expenses, like agency fees and production costs, then the industry rule-of-thumb for those expenses is 5-10% of the total spend.)
posted by LairBob at 4:28 PM on July 13, 2008

I had might as well say what the website is. It's fanfiction.net, which is not a publicly traded company. It is a big point of contention among some people how much revenue (roughly) it is getting, and how much profit (if any) it is making, so I was wondering how accurate the numbers people were tossing around were.

So you say by 'rough' in general, perhaps within 25% then?
posted by Charmian at 4:39 PM on July 13, 2008

fanfiction.net looks like a really unsophisticated site, in terms of its setup for ads. They are probably not targeting them at all, and they are probably using an ad network for everything. So, just find some estimates of their monthly pageviews (best done with Nielsen or Comscore, both of which you have to pay for), and then estimate a $0.50 CPM.

However, outside of all that, I'll just eyeball it and say that they're getting less than $75k per year. Maybe a lot less.
posted by bingo at 5:26 PM on July 27, 2008