Money

I started using Adsense on my sites, way back in September 2004. I never really had any sites as such, and until around June 2006, I was just experimenting around with the whole content publishing, and advertisement area. It got my first payout from Adsense in September 2007. That means, effectively, it took around 13 months for the revenue to go over $100.

Then, in just about 6 months, I got my second payout.

I know, this is mere peanuts when compared to what others are earning from Adsense. (And it is also a lot more than what many others are earning). That is not the point of this commentary, because I did not actively work on this. The ads were placed just for the sake that I can cover the domain name costs and the server hosting costs. And I do get some extra, with which I treat myself.

Here I am trying to analyze and find out why my websites payed out faster the second time, when there are several news stories going around in terms of reducing advertising budgets world wide.

Why did I get the second one faster?

Here is my understanding on what happened. This is result of the analysis of the logs and statistics. Take it with a grain of salt.

When I started out, I had just one website - WiseTome.com. It did not have many pages, and that resulted in lesser number of ad impressions. And that meant, the revenue accumulated at a rate that would be slower than if there were more pages. And on an average, when I started out, I would update the website with a new page, once every week.

Gradually, I moved on to blog regularly at Splat under WiseTome, and later at KalaaLog.com. In effect, I was averaging on publishing around three to four pages every week. This was a increase, but according to the logs, this alone was not directly affecting how much revenue came out of advertising. There was something else in the equation, that make the earnings in the second phase grow faster than the first one.

Advertising Revenue Equation

Before I get to what happened, here is a simplistic view of the Advertising Revenue Equation for CPC (Cost Per Click) advertising options.

R = P x i x c x e

R is the revenue in a month (in dollars).

P is the number of pages in your website that have advertisements.

i is the percentage of these pages, that gives the number of page impressions.

c is the CTR - Click Through Ratio. This gives how many number of clicks were made on the advertisement for one page/ad impression.

e is the effective revenue per click through in dollars.

So, for illustrations, let us say you have 100 pages in your website that have advertisements on them.  If i is 1000%, then in a month, you had around 1000 page views, and thus, there were 1000 page impressions. The click through ratio varies depending on the audience. Let us say, it is 5%. Then, the number of clicks on ads would be 50. If you get an effective revenue per click of 20 cents ($0.2), then in that month, you make $10.

Compounding Effect

The P in the equation, sort of explains why you are likely to reach the second Adsense payout faster than the first one.

Remember that as you start publishing more number of pages, the ones that you had already published stays. It will still be available to all search engines, and they have a potential of getting page impressions.

Hence, for the last earning period, if you had 100 pages, and the next month you added 20 pages, you are effectively having 120 pages. Instead of a $10, you have a potential of earning $12 instead.

This compounding effect results in faster accumulation of revenue the second time than the first.

Cavet

There are some factors that go against the compounding effect. The older the page gets, especially in a blog where it falls back into archives, it does get a bit less likely to get visitors. This affects even more, when the published content is time oriented - news and similar content are only useful when they are published.

One thing you could do, is link back to older pages from the newer pages, whenever it is relevant. That way, even the visitors to your new pages are driven back to the old ones. Another option is to create content that are more time-less or time critical. That way, they will be relevant even after the date or month of publish. When you have such content, you can create and keep updating a single page, that will gain traction and trust by the visitors. They will keep visiting these pages and be driven to other parts of your website. (Read about Reference Pages by Maki).

Note that the earnings mentioned above are for illustration alone. The rates i, c and e, are dependant on factors like type of content, and the demographics of the visitor.

This is another commentary similar to the other one.

It has been a little over a year since I have lived in US now, and one cannot help but notice the cultural differences in terms of finance between India and US. This seems to put the two countries on opposite ends of scales in terms of savings or more specifically, house hold savings. And some of my recent visits to the bank, resulted in some raised eyebrows at the amount in my checkings/savings account. In my opinion, I am not that very consious about my spending and savings. If my father were to look at my cash flow and balance sheet every month, I am sure to get an earful of scolding and advice.  Thus, it roused my interest, and I did a bit of research.

Statistics

A little search, and scan of the public documents provided me with these details.

India is one of the high saving economies of the world. The rate of gross domestic savings (GDS) (i.e., GDS as a percentage of GDP at current market prices) has recorded a steady increase since the 1950s. The savings rate has increased from an average of around 10 per cent in the 1950s to over 23 per cent in the 1990s. It crossed 25 per cent in the mid-1990s and reached its highest level of 29.1 per cent in 2004-05.

RBI Annual Report 2005-06 (PDF) Page 30 | More latest data in RBI Annual Report 2006-07 Page 30-31

According to OCDE measure, the savings percentage of household US has fallen below the zero line in 2005-06.

Reference data: Household Net Saving Rates - XLS | Graph

What Does It Mean

I am no economist. And I am sure the way of mesuring, and the definition for 'household saving' differs between RBI and OCDE. But it is very clear that the household in India puts a major chunk of its income into savings (and investments). Where as, lately, the spending of a US household is more than what it earns. Ouch.

As an aftermath of this, I am now interested in what the ideal savings to income ratio is? Is there some ideal number? Or is it dependant on the person, and the kind of lifestyle?

After much prodding by friends and cousins, I finally opted for a secured credit card.  It should help me build my credit history.

So, why do I need a credit card or credit history, when I did not bother about it for my stay here in US for a little more than a year? I live very well with in my means. Around 30% of my income go into savings. Although, I have not put an effort into asset growth by investing the savings, I consider that I am finacially healthy. I have taken a vehical loan, to buy a Royal Enfield bike when I was back in India, but I was out of it in 11 months.  Othere than that, I have not been in debt to this day. I really do not need one.

But, as some have explained it to me, it would help me quite a bit if I were to take a loan here, if I had a good credit score. More over, as Trent says:

Here’s my advice. If you’re in a bad financial situation, get rid of your credit cards. Lock them up somewhere where you can’t get at them and don’t use them for a long while. However, if your finances are under control and you’re in good shape, the convenience, consumer protection, and bonus rewards offered by credit cards make them a worthwhile tool.

Hence, I thought I should try and build my credit history. But to build credit history, I need a credit card. To get a credit card though, I need credit history. To alleviate this Catch 22 situation, there is something called Secured Credit Card.

For a secured credit card, the card holder must deposit an amount, which is usually between 100% and 200% the credit limit desired. So, if I deposit $100, I will get a credit limit of $50 to $100. The monthly payment needs to be done like for a normal credit card. This should put me on the track to get some credit score.

I visited my local Wells Fargo Bank, where I have my checkings and savings account, and applied for the secured credit card.

The whole process have roused my interest.