How To Not Worry About Whether Your Niche Site Will Succeed
Yesterday’s article wasn’t just an aberration of mathematics on an otherwise non-mathematics blog.
It was instead a background article for some of the other things I’ll talk about. This article is one example.
A lot of guys have commented, emailed or otherwise talked to me about various things stopping them from starting their niche sites.
I’ve tried to answer a few questions about said things in these articles:
- Is making money with niche sites unrealistic?
- Reader Question: Should I Stop If There’s Competition?
- Reader Question On Niche Site Research, Keywords and Competitiveness
However, having experienced what (I think) a few of these guys are feeling, I’ll put it all these questions down to a single thing: Fear.
Except fear isn’t the word. I’m not trying to say people are actually “afraid” of starting niche sites or anything else business-wise. It’s not the same as being face-to-face with a grizzly bear or something.
Still though, people get nervous about wasting time, money, effort and – perhaps more importantly- getting it wrong. Nobody wants a failed project because they’ll feel stupid.
Maybe I’ll write about that in psychology terms at some other point.
This article is about expected value and niche sites, or, how to completely side-step the psychological fear of starting an online project entirely.
How To Use Expected Value To Determine Whether You Should Create a Niche Site (Or A Hundred)
If we remember back to yesterday’s article, the expected value of an action is a case of working out the money-value of the positive and negative outcome and then weighing each of those up based on the probability that they’ll happen.
So if you have a 90% chance of making ten dollars on a bet and a 10% chance of losing ten dollars, you’d do (90%*10)-(10%*10) = 9-1 = +8.
Whenever you get a positive Expected Value, you should probably do the action.
This sort of calculation is fantastic for people who are naturally cautious. For an entrepreneurial type, I’m really quite risk averse. Since learning about expected value from a friend a few months ago, I’ve used it for a ton of things.
When it comes to building a niche site, you probably think about it from an emotional and psychological perspective.
- “Does anyone else on the planet collect rare comics?”
- “What if I get no traffic?”
- “It costs like $10 a year for a domain and $36 a year for hosting!”
- What if I write my articles and it’s a waste of time?
I’m not going to tell you that those thoughts are going to go away. They probably won’t. Sometimes, I feel like I’m wasting time building niche sites, sometimes I write niche sites off as failures long before I should.
What you need to do isn’t get over the fear. It’s also not about doing the Tony Robbins “Feel the fear, embrace it and burn your feet on hot coals” thing about mental-fortitude tricks.
Instead… let’s literally weigh up the upsides and downsides.
Niche Site Mathematics According To Expected Value
The potential downside of building a niche site is losing money and wasting time.
To simplify things, I’m going to eradicate “wasting time” from the equation. The reason for this is that I’m also going to eradicate “Gaining a ton of data” and “learning how to write sales letters” from the positive side of the equation. These things aren’t really quantifiable.
Needless to say, if you are currently an Investment Banker earning seven figures a year, then you should probably not spend your free time building niche sites.
With that out of the way, let’s work out the cost of a niche site.
Domain: $10 (My real domain cost.)
Hosting: $60 (Let’s say $5 a month. I pay $280 a year for unlimited domains hosting. We’ll come back to that.)
So, your potential loss is $70.
Let’s look at the potential upside of a niche site that earns $50 a month.
Why? Because $50 a month is something that virtually nobody would say is impossible.
That’s selling two products a month with a $25 commission. There are thousands of products with those margins.
So the upside is $600. We’ll only include the first year’s revenues for simplicity’s sake. Bear in mind your niche site might make money year on year.
What Probability Of Success Would Make Building A Niche Site Worth It?
$600 upside.
$70 losses.
If you had a 50/50 chance of your niche site hitting that $50 a month point, then your expected value would be (50%*600)-(50%*70) = 300-35 = +265.
So for every niche site you started, you’d expect to gain $275.
However, there might not be a 50% chance of success. Let’s work out an 80% chance of failure.
(20% * 600) – (80% * 70) = 120 – 56 = +74
So with an 80% failure rate, you’d still expect each niche site to be worth $74 to you in its first year.
In fact… you’d need a 90% chance of failure before you got a negative expected value.
(Remember… you can also adapt, adjust, learn copywriting and stack everything in your favour.)
How To Scale A Niche Site Empire
The power of the expected value calculation is that you’re working scalability into each equation.
If you have an expected value of +$74 with an 80% failure rate, then you know that you can continue to build niche sites. The more you build the more seventy-four dollar payouts you can expect. If 8/10 niche sites fail entirely, then you don’t have to worry because you’ll still come out ahead on average.
(Side note: I have a reseller hosting program so that I can host unlimited sites. This makes the equation different entirely because I only take into account the $10 domain cost. If one site makes me $500 a year, then I can afford 49 other non-performing domains.)
Final Thoughts
This is a real example of expected value and how I use it to get rid of the niggling feelings that enter my head.
If you’re on the fence about creating a niche site, use expected value. Even with pretty dismal predictions (like I’ve provided here) you’ll find that it’s not likely that you’re going to lose a ton of money anyway.
Using this sort of emotionally-detached approach is also a pretty useful thing to get into practice with. When you start to learn about paid advertising, product creation or other business things with a higher risk, you’ll need to divorce yourself from “What if it all goes wrong?” thinking. Expected value will help with that.