Creating a directory on your site can be an excellent SEO tool and help to increase your site’s search engine visibility. However, doing it well involves some effort and it shouldn’t be viewed as some kind of SEO easy option. Here are a few of the pros and cons of setting one up.

Pros:

1. A directory opens up more opportunities for promotion on related sites such as forums, blogs and other directories. There are webmaster forums such as Vilesilencer, dp and v7n where you can announce a directory (as well as niche specific forums), and ‘directories of directories’ for listing your directory.
2. If you can make it a quality resource, a directory can be an additional source of traffic and possibly revenue if you charge for listings. This is especially true if you set up a directory relevant to your niche rather than a general directory. You may find other sites link to it as well.
3. A well managed and structured directory can help you achieve higher search engine results by adding many themed pages to your site. The number of pages indexed is an important factor in ranking highly in search engines. (Although you need to take into account Con number 2 below).
4. A directory can help you build up a list of contacts within your niche.

Cons:

1. You need a little bit of technical knowledge (PHP and MySQL) to set up a directory, especially if you want to modify it. (Writing and maintaining a directory by coding static HTML would be a very tedious job).
2. There is a big up front workload in planning and setting up a directory. You need to spend time creating an original category structure, writing good category descriptions to avoid duplicate content problems and promoting it.
3. Although you don’t have the ongoing work of creating content (those who submit to your directory do that for you) you do have to spend some time on maintenance – reviewing submissions, deleting spam, updating the script etc.
4. The biggest danger in setting up a directory is in creating duplicate/ low quality content. These pages can dilute the PageRank of your site and make it less trusted in search engines (see this post on seobook.com).

So, keep the directory ‘niche’, i.e. only include categories related to the main site theme. General directories are harder to maintain and can easily become spammy. Try to avoid duplicate content issues by encouraging quality submissions with well written descriptions, writing unique descriptions for the catagories and by varying other elements on the page – have different headers, footers and sidebars for the directory, or even for specific categories.

There are a number of free directory scripts to choose from:

• PHP Link Directory
• Site Sift Listings
• Index Script
• Esydicat Directory Script
• IndexU

Of these, PHP Link Directory is probably the most popular (it is used to power the SEO directory on this site) and there is plenty of extra information and support on their forum.