Is hosting advertising / sponsorship opportunities on your website a Good Idea?

One of the ways to monetize a website is to let others pay you to have their ad(s) placed on your website. Many websites, especially blogs have implemented this with 125x125, 250x250, or 468x60 banner ad(s). The question is:

Is this profitable?

Let's put that question aside first and discuss in details on how this works. Basically, advertisers are willing to pay to have their ad(s) placed on your website purely because of the traffic you currently have.

By having their ad(s) placed on your website they gain potential visitors from your website to theirs, resulting in more sales for them. Of course their sales from the traffic you bring to them have to be greater than the amount of money they are investing to have their ad(s) placed on your website. So we can assume the following statement:

Sales for advertisers due to the traffic from you is greater than the advertising fees the advertisers pay you.

For example: An advertiser pays you $250.00 a month for their ad(s) to be placed on your website. The traffic you bring to their website generates $300.00 a month for the advertiser. Therefore, the advertise earns a net profit of $50.00 from advertising on your website. In another words, you are earning $250.00 a month and "helping" the advertiser to earn $50.00 a month.

My answer to the question from the beginning of this thread is: Yes it is profitable,

BUT

It would be more profitable if you advertise your products, for yourself, and on your website.

The same concept applies to many other ways of monetizing your website such as Google Adsense.

Google is willing to let you implement Google Adsense on your website for you to earn $100.00 (as an example) a month because they are making more than $100.00 from your traffic!

Monetization from advertising is maximized when you make the most out of your traffic, by yourself -- Aaron Lee