Membership Sites – Ca$h Cows or a Gigantic Liability?

For anyone looking to make money online, 2011 and 2012 won’t be years to remember…

The days of making money by blogging about furniture, or acai berries, weight loss or some other high value topic are long gone. Instead REAL businesses are coming back in vogue. That means setting up an e-commerce store, or writing iPad apps, or setting up a membership site.

In 2012 I switched by online money making business’s main focus from information sites to establishing a membership site.

I’m not ready to reveal the URL of my membership site. Besides, it’s irrelevant really. There’s no way you’ll know enough about my particular niche, and I’ve got a three year headstart on you.

But I will reveal some of the growing pains involved with starting such a site!

Types of Membership Site

So membership sites…

What exactly am I talking about? There are all kinds of membership site you can start. Examples are:

• A site for WW2 aircraft enthusiasts.
• A dating site for goths.
• A forum for people to exchange money saving ideas.
• A social network for people who have or have had a particular medical condition.
• A jobs site where people can post jobs and apply for them.

Basically all they have in common is that there’s a means for people to register, upload content, and chat to each other.

Good Reasons for Starting Your Membership Site

I’ve pored over my Google Analytics. I have 30 websites, some dating back to 1999.

One thing stands out. Google consistently loves my sites that have a low BOUNCE RATE. Bounce rate is the % of website visitors who visit more than one page of your site.

While there is some dispute over whether Google can measure your site’s bounce rate and incorporate the data into its search result rankings, the fact is that sites with a low bounce rate send out all the right signals as far as people like Google are concerned. People keep coming back. They share the content, and build natural links to it.

So just for reference, my membership site has a bounce rate of just below 50%. My best information site has a bounce rate of 65%. A crappy blogspot blog I made in 2010 has a bounce rate of 81%.

Bounce rates depend on the niche and the type of query someone is looking for, but my examples show you what you should be aiming for on a site that isn’t just a one page micro niche site.

So membership sites have a good bounce rate. They also have a good return visit rate. On my membership site 27% of visitors are return visitors. On my crappy blogspot that figure is just 7%.

Check out my membership’s statistics. Do YOUR visitors spend an average of 5+ minutes on your site? If not, maybe you need to make your content more compelling…

Good bounce rates and good numbers of returning visitors – these are what you need to build an online BRAND. Forget WordPress blogs about patio furniture or cat beds – once you have a BRAND then you’re well on your way to building a long term, sustainable online business.

And long term can be a winner. I started my first online business in 2002. But it wasn’t until 2008 that I achieved my highest sales week. This business is also still making money. Not as much as it was, but any revenue earned now is almost 100% profit. Not even Walmart or Amazon achieve this.

The Learning Curve of Hell

So if a membership site sounds like something you’re gonna want to start, then what are the problems. Behold – here’s ten major, major experiences I’ve faced in establishing my membership site…

1. You Need to be Passionate!

First of all I would never even consider starting a membership site in a niche I’m not 100% totally passionate about. And nor should you!

It takes gigantic commitment to start a membership site. If you don’t live and breathe your niche then it’s not worth starting.

Sure, there are many underexploited and lucrative niches out there that are crying out for membership sites. But you’ll really struggle unless you have the passion to carry on when the going gets tough.

And don’t worry about monetisation. An associate of mine has a very popular forum in a niche that’s not particularly high value. Yet he manages to pull in a steady $1500 a month from his site.

So far my membership’s monetisation has been lacklustre. It takes a lot of commitment to work a 12 hour day when the previous day the site only made $0.12.

2. Niche Saturation

Choosing a niche is key. My niche is fairly saturated, but I felt I could offer enough unique selling points to make it worthwhile trying to take on the established players.

I thought long and hard about my unique selling points. These are what I decided on:

Cost

Every business and marketing course will tell you to try and avoid competing on cost. But it can be a good one for the smaller player to choose.

My site is currently free. At some point I’ll introduce some premium features, and for those members will need to pay for them. But I want to make as much of the site totally free to use.

Trust

My niche is a little shady, and there are some very suspect operators in the niche. Scams are common.

So I decided that trust was a major factor I could play on.

I’ve become the public face of my site – members can see that a real person built my site, and unlike the majority of my competitors I’ve not hidden my domain registration details or hosted my site in some scammer haven country.

I’ve also worked hard to keep my site safe and free of the spammers and scammers that plague my niche.

Reputation is becoming VERY important online, and it’s a good thing to get right. And when you get it right, TELL PEOPLE!

A Custom Built Site

The majority of bloggers use WordPress. WordPress is great, but most sites end up looking pretty samey.

It’s much the same with forums and dating sites.

So I’ve completely built my site from scratch. As a result, my site looks different, and I’m absolutely free to build any new feature I can think of.

3. Advertising

If you build it they will come!

Yeah, right.

The problem with a membership site is that you need to push that boulder down the hill. You need to build up momentum from day one.

It’s no use hosting a forum with three posts. It’s no use having a dating site with 12 members.

To get your site looking busy there are two approaches:

1. Make content yourself
2. Advertise

I chose the latter option. Sure, you can seed a forum with some sample threads, but it’s not gonna be too hard to work out that the same person has written all the postings. And it’s hard work to start a forum that way.

For a social network or dating site, unless you’re already a major player in your niche, you’re gonna have to advertise.

I chose Google AdWords for my advertising. I’m really pleased with the performance of AdWords campaigns. For a few hundred bucks, I’ve been able to gain over 1500 members to my site in less than three months. That’s a solid return on investment.

In time my site will rank well in organic search results. But for now I need to get my brand recognised. And that means spending money on advertising.

You can do all the article marketing in the world. But you’ll never achieve anything like the number of sign-ups that you could achieve with a well run AdWords campaign.

4. Custom Build or Off The Shelf?

I’ve used ASP.NET to build my site, although I could have used PHP. For the database I’ve gone for mySQL. SQL Server is my main area of expertise, but it’s hard to find affordable SQL Server hosting. I was hesitant about using mySQL, but I’ve really been impressed with what it’s allowed me to achieve with my site.

ASP.NET is nice. The code editor is top notch. Code and HTML are separate, so it’s really easy to re-skin your site with a new look and feel. ASP.NET is compiled, and the compiler makes a thorough job of checking for basic coding errors. It’s practically impossible to build ASP.NET sites with stupid errors you’ll see on ASP or PHP sites, like unassigned variables or missing include files.

By the way, while it’s nice to have a custom built site, it is EXPENSIVE. Be very careful choosing a developer to build your site. Most people hire a $10 an hour developer on oDesk then 6 months down the line realise the site is a pile of rubbish.

You’re better off hiring a very experienced software developer like me. You’ll find people like me on oDesk. I won’t work for less than $30 an hour. I won’t build you a membership site for $1000. I won’t even bid on your dumbass project if I don’t think it’s viable. But I’ll be able to build a site 5-10x quicker than a cheap developer. And the site will be safe, secure and usable.

5. Server Reliability

Reliability was an issue with my site at first. I found out I wasn’t deploying my site properly. ASP.NET can be quite confusing at times. But that’s a price worth paying for a development platform just oozing with features.

Generally I’m quite pleased with my site’s reliability now. I’m still on a shared hosting plan, so I have to expect a bit more downtime and slow performance than had I chosen to host my site on a dedicated server. But my site will have to grow significantly before I can justify the expense of that.

As to my hosting company, I’ve found that GoDaddy were laughably bad for providing WordPress on ASP.NET hosting plans. But custom built ASP.NET sites do very well on GoDaddy. I must also congratulate them on their mySQL hosting. I got several 1Gb databases included as part of my shared hosting plan, and their performance has been excellent. I calculated that my database should be able to hold the data for at least 750,000 users.

6. User Generated Content

A problem I quickly spotted on my newly released membership site was that people would sometimes upload dubious or offensive content to the site.
If you allow people to upload content (movies, photos, text) then you’ll need a way to moderate that content.

Three months into my site and I’ve had people upload:

• Nude photos of kids.
• Sexually explicit photos.
• Text in foreign languages.

Why is moderation essential?

Put simply – THE INTERNET IS FULL OF JERKS.

If you have advertisers on your site, then you run a big risk by allowing their advertising materials to be seen next to dubious content. This is an especially big risk if you’re using one of the higher paying advertising programmes. Get banned from one of these and you’ll end up having to put far less lucrative advertising on your site.

So how do I moderate my content?

I now manually review all profiles. I flag them for review if the profile is created or the text or photo is modified. Member profiles that aren’t reviewed cannot be seen without logging into the site first.
If somebody uploads a suspect photo then I ban their account.

I also stop search engine spiders from indexing the profiles or postings of low quality members. I have my own algorithm for scoring members on the quality of their profile, and it’s extremely effective.

As my site grows then algorithms for spotting suspicious profiles will come into play. Alternatively I might outsource profile reviewing using a service like oDesk.

7. Spammers

And so to the issue of spammers…

Spammers are a particular problem if you run a forum. Google has ruined the web in that people’s quests for back-linking sources means that forums are a prime target for spammers.

My associate runs a popular forum. His spam problem has gotten so bad that he’s actually blocked anyone from India from registering for his site.

So if you’re one of the people who use cheap back-linking services then remember that you’re helping to destroy other people’s online businesses (and your own reputation to boot).
And how to deal with spammers?

IP look-up software is quite nice for identifying spammers. MaxMind has a free IP lookup database available, although you’ll need some PHP or ASP.NET experience in order to integrate it with your forum.

I’ve gone one stage further and written a Bayesian classifier for my site. This allows me to train my site to recognise good and bad messages on my site, and then it can classify (in real time) any new messages posted on the site. It works especially well on sites with a narrow niche. For example, if you had a forum about motorcycles, then a spammy message about Viagra would be flagged by the algorithm as being out of place compared to the usual messages posted by legitimate members.

There are of course other easier solutions such as stopping new members from posting links, or moderating new members.

Whichever solution you’ll use, you do need to be prepared for the realisation that the majority of your new members will probably be spammers!

8. Scammers

As well as spammers, I’ve also had problem with scammers. These are increasingly common on forums, and of course they’re widespread on membership sites from Facebook to dating sites.

Whereas spammers usually just want to post links, scammers have more devious intentions.

Romance scamming is big business, and many men and women lose tens of thousands of dollars to what are basically quite simple scams.

If you run any type of social network then I don’t think I’m being unreasonable when I claim that scammers will be your biggest problem.

Manually reviewing profiles is the best way of keeping a site scammer free. I’ve also substituted this with a trust based system that uses over 100 pieces of data to assign every member a trust score.

Members with lower trust scores are blocked from sending emails to other members, or from posting on the forum.

I’ve also boosted this by using machine learning techniques to spot patterns of scammy behaviour. And additional ammunition comes from a member reporting system where members can report other members for suspicious activities.

9. Mail Disaster!

OK so this was a major disaster.

I found out that my membership site’s emails weren’t being delivered to my members’ mailboxes hosted on major providers like Yahoo or Hotmail.

I don’t know if this was a problem with my hosting company’s mail servers or my own emails. My site’s still on a GoDaddy shared hosting server, and I’m probably sharing mail servers with all kinds of sites.

To be fair though, I don’t think my site was doing myself any favours. I’ve since found out that roughly 20% of my users use a duff email address when they register. This means I was sending out mails to non-existent mailboxes, or full mailboxes, or to users whose accounts had been banned.

Luckily I averted this disaster by signing up to a SMTP mail service. I also got my mails certified by changing my DNS server settings. Again, this is an additional cost I didn’t consider when I started my site.

I’m pleased with the change I’ve made now though. My transactional mails are being delivered, and I can track and close accounts opened by people with fake or unreliable mail accounts. Mails also have an easy unsubscribe facility, which should silence any potential spam complaints. In the long term that’s gonna be a huge boost to my site’s reputation.

10. Time and Commitment

Well it’s taking a lot of time and commitment to start a membership site. I guess I’ve slightly fallen into the trap of scope creep. As a programmer I’m always coming up with new and exciting features to add to my site. I need to be careful that I don’t spend too much time adding little used features (something Microsoft is guilty of with its Word product!).

Manually reviewing content is also taking time, and that’s a long term commitment until the site earns enough to justify outsourcing it.

As far as revenue generation goes, well this is a long term game as well. It’s exceedingly rare for a membership site to start earning money from day one.

Three months in and my site’s still making less than one of my 50 page WordPress blogs.

All in all I’m glad I’ve started my site now though. I now have a brand. My site is an endless source of articles to write about on my other sites. And if I suddenly needed to raise my cash then I’m sure a thriving site with 5000+ members would sell for a helluva lot more than the usual crap you see for sale on there.

So, do you think you’ll start your own membership site? Is this the way forward for making money from an online business? Leave your comments below.

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