Online real estate: a huge opportunity
As investors, we’re all familiar with investing in real estate.
Real estate is a solid investment but the ROI is toward the lower side. In the age of the internet, a new kind of real estate is now available for investors: online real estate.
The online real estate is websites and online businesses. The ROI potential is far greater than the traditional real estate, and growing the value of the asset is directly in our hands.
We can buy a business that is earning $3000 in net profit per month for just $100,000, work on it for a year, increase its earnings to $4000, and flip it for $120,000.
That’s $36,000 in net profit from the returns of the business, plus another $20,000 capital gained. Considering we spend $500 per month on growing and maintaining the business, that’s still $30,000 + $20,000 or $50,000 capital gained in just one year!
The internet abounds with potential businesses. The ones we focus on most are affiliate marketing and display advertising.
What is affiliate marketing?
“A marketing arrangement by which an online retailer pays commission to an external website for traffic or sales generated from its referrals.”
The idea is that you promote other people’s products using your websites or network of websites and receive a commission.
If you have a product to promote you look for folks to market it for you, and share the revenue. If you do not have a product yourself, you use your networking skills to market other people’s products, with the agreement to share a percentage of the proceeds.
- The Merchant.
- This is the party who has products to sell. They can be Fortune 500 companies or solo entrepreneurs. They have a product to sell.
- The Affiliate.
- This is where the marketing happens. The affiliates convince the potential buyer to purchase the product using a variety of promotional vehicles, like websites, SEO, social media, etc.
- Their role is to attract and convince potential buyers to the value and use of the Merchant’s products.
- They will run reviews of the Merchant’s products in order to sell them.
- The commissions can be from a few hundred dollars to millions of dollars. Theoretically, there is unlimited potential.
- The Consumer.
- The consumer is the main ingredient in this menu. They complete the cycle. If no one would buy the products there would be no commissions to hand out.
- The consumer may or may not know that there is an affiliate marketer involved.
- The consumer will not pay a higher price for the product as the commissions and other costs are included in the retail price.
- The Network.
- There is some controversy whether the Networks is a part of the affiliate marketing system or not.
- The Network is the go between the affiliate and the merchant.
- Examples of Networks are CJ, ShareASale, Clickbank, etc.
Taking the affiliate route is the easiest way to get into the business. There are challenges like creating a website, building traffic, and getting people to actually buy the products through your channel.
These are the challenges that we specialize in overcoming. We create websites and promote them by networking with other websites and using social media.
The techniques we use for networking are the same used by the biggest names in the online marketing space.
There are hundreds of sites that offer to pay a commission to promote their products to potential affiliates. E.g., Clickbank, Amazon, ShareASale, Commission Junction, etc. These are major players in the field. A quick search on Google will yield hundreds of potential affiliate networks.
Amazon is the largest of them all. From the growth graph, it appears that it will keep on growing for the foreseeable future.
Display advertising is showing ads for companies on your website. If you have a website that gets a lot of traffic, you can monetize that traffic by putting companies ads on your website.
Getting ads is quite easy – there are a number of ad networks that take care of delivering the ads, collecting payment from the company, and disbursing the payment to you.
Combining display ads and affiliate marketing: what we do
We use our expertise in internet marketing (10 years of experience) and purchase already-running websites.
These websites and online businesses are already generating revenue, so the moment the website comes into our possession, we’ll start seeing earnings right away.
These websites are well-established and receive regular amounts of traffic from multiple sources. Most of the traffic is from Google and search engines, but sometimes it is also supplemented by other sources such as social media.
We then make a 1-year growth strategy for the website. We target low hanging fruit opportunities and use the 80/20 principle to get the highest potential returns. This is essentially growing the websites content and/or services to serve a wider audience.
We also maintain the website to try and keep ahead of any competition.
Risks and how we mitigate them
A parcel of an online real estate is only as valuable as the amount of revenue it receives. In the businesses we target, the valuation of the business is between 30 to 35x monthly net profit (as of late 2018).
If the business loses traffic and revenue, the valuation of the business falls. We use the most up to date marketing techniques to ensure that this does not happen and we always stay ahead of the game.
However, we also hedge against any potential downturns using the following strategies:
- Diversifying revenue sources: if the business was only doing affiliate marketing, we expand to include display ads for example or vice versa
- Branching out to other traffic sources: we’re not too keen on relying too heavily on one traffic source. From day 1, we’ll try to diversify traffic sources so even if one source is impacted, there are other sources that will maintain and continue to grow the business
- Planning an exit strategy: we don’t stay in one vertical for too long. Every property is held for 1 to 2 years at the most, after which we flip it and invest in a new property. We do this unless there is huge potential in one niche, in which case we would hold on to it for a little longer.
The above is an overview of the services we offer. The potential in Affiliate Marketing is unlimited and growing. This is the best time to take action and become a part of this evergreen business.