How do the top websites make money?


Date: 20 October 2021

A business set up as an Amazon trader

2020 saw a record number of new small businesses opening up. This was partly driven by the global pandemic, which pushed a lot of people to try new ways of making money. According to analysis of data from Companies House, a record 835,494 new businesses were established between January 2020 and January 2021, a rise of 41% over 2019 and 96% from 2018.

But experienced entrepreneurs know that the vast majority of these new businesses will either fold within their first five years, or will muddle along without making much of a profit.

It's not easy to hit on a business idea that will make your fortune, but with wise research and careful planning, you can increase your chances of success.

What you can learn from the UK's top websites

One of the best places to start is by looking at SimilarWeb's list of the top UK websites. The ranking shows which websites are the most popular in the UK, and you can learn a lot about how to set up a profitable business by reading between the lines.

When you look at this leaderboard, you can see some patterns emerging from the data. The vast majority of the top sites are either involved in advertising, or in online shopping. Let's take a closer look.

The top five websites are Google, YouTube, Facebook, the BBC, and Amazon. With the exception of the BBC, which is non-profit but which does earn ad revenue globally, all of them make their money from advertising or online shopping. Granted, you might think of YouTube and Facebook as more focused on entertainment and/or communication, but they actually make their money from advertising. Offering entertainment is just a means to that end.

Of the next five, only Wikipedia is the outlier as it's not in either the shopping or advertising sectors. While the list gets more diverse as you go down, there's still a clear trend. If you want to make a profit like the biggest players, you should get into advertising or online shopping.

But that's far easier said than done. Both are highly saturated markets with a lot of competition at all levels. When it comes to advertising, Google and Facebook have basically cornered the market between them, having become a "duopoly". They have been blamed for harming the advertising ecosystem.

And when it comes to shopping, every brand seems to have launched a proprietary shopping presence, while new dropshipping and other ecommerce businesses seem to appear on Amazon and eBay every other day.

But that doesn't mean that there's no hope for aspiring entrepreneurs. If you're determined to enter these lucrative markets and turn a respectable profit, there are steps you can take.

Here are some of the things to consider before you set up your new online business.

1. Check your capital

There's no getting around it; every business needs money. You need to make sure that you have enough capital to set up the business at the beginning in addition to a reliable sources of funds to keep the show on the road.

Establish lines of capital that you can draw on when you need them, whether it's to cover gaps in cash flow when payments get delayed, pay for repairs when there's a hole in the roof, or fund business growth when you decide to scale up and expand your business.

There are a few options, including saving hard for six months or so beforehand, taking out a small business bank loan, or selling some assets to generate a nest egg.

2. Look for gaps in the market

Just because the market is crowded doesn't mean that isn't space for another successful business. You just need to find a gap in the market that your business can fill.

Carry out deep research into the different competing businesses already in that space, as well as customer demands and expectations. Read reviews of the leading companies to see if there are any complaints that keep cropping up and could be your way into the sector.

For example, there are a myriad of shopping websites, but not all of them offer good customer support. Maybe there's a need for an online store with better customer experience (CX), faster responses to questions, a more intuitive interface, or a smoother and easier returns process?

Or perhaps you'll spot an opportunity for a niche business that's focused on helping only event planners to advertise more profitably online. The next profitable business could just be waiting for you to discover it.

3. Estimate your profit and expenses

You won't know how much capital you will need without estimating your profit and expenses. First, forecast your likely sales on a monthly basis for at least the first six months, allowing for a range, to arrive at an estimated monthly revenue.

Next, calculate your expenses. You'll need to include fixed expenses like rent; recurring expenses like electricity and gas; and intermittent expenses like buying a computer or an office chair. Don't forget to allow a regular monthly wage for yourself. If your business can't afford to pay you a wage, it's not going to succeed.

Now you can subtract your expenses from your monthly revenue to work out how much profit you might make.

4. Set up financial systems

There's a lot to handle when you open a new business, no matter what the vertical. Paying bills, invoicing clients, sending receipts, and recording transactions for tax purposes can all be time-consuming, but it's crucial to get it right.

You don't want to end up spending all your time pushing paper and tackling bookkeeping, so set up streamlined financial systems right from the word "go", to save you time and effort.

Automate as much as possible. Online cloud-based tools charge you according to the size of your business, so you only have to pay for the service you use and keeping it in the cloud ensures that your financial records never get lost. Alternatively, you might want to outsource some of the tasks to a freelance accountant or bookkeeper.

The leading websites can point the way to success

Opening up a new business is never easy and turning a profit from it is even harder. But when you take clues from the UK's top websites, as well as securing funds, hunting for hidden opportunities, calculating profit and expenses, and getting your financial processes off on the right foot, you could still succeed as an entrepreneur.

Copyright 2021. Article made possible by Jeff Broth, business writer and advisor. Jeff has consulted for SMB owners and entrepreneurs for seven years mainly covering finance, stocks and emerging fintech trends.

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