Thursday, June 7, 2012

How to Sell Your Website for Six Figures

[ This post is part of a short series on Buying and Selling Websites]



Judging from the amount of submissions my company gets (we buy websites), everyone and their niece wants to sell their website - preferably for six figures. We completed a couple of six and seven figure sales, so let me share my experiences.

Who Is Your Target

First of all, who do you sell to? The two common options are
  1. industry buyers like us or other media companies that regularly buy online businesses, or
  2. an end user in the industry the website is about.
Determining who your target is important as it directly affects your sales and ultimately business approach.

Our first sale was to an end user: a consultancy targeting companies in the country the website was about. Since an end user is likely as familiar as you with the website's topic, it's important to create a high value that is of strategic fit to their business. In our case the fact that we dominated Google for keywords related to the site's topic was in fact more important than the revenue multiple. The site therefore sold for a price that would not be justifiable just by looking at its revenue.

For an end user buyer a number of things may be more important than just revenue:
  • a trusting relationship to you
  • that you will be there to provide assistance and training
  • financing options
One thing I have no doubt about: if you want to sell for a couple of hundred thousands to an end user, you are on your own. These kind of sales don't happen over Flippa, Sedo or via brokers. Indeed you are most likely to know potential buyers anyway, so why not approach them directly? Start building your network early on.

If on the other hand you want to sell your websites for six figures to a buyer from the online marketing industry, you absolutely have to have an income producing website. Be it AdSense, direct advertising, affiliate or ecommerce income - without a substantial business behind the website it likely won't sell.

How Much Is My Site Worth

The question is: how much income do you have? Since websites normally sell on a multiple of monthly or yearly revenue, it's easy to determine if you want to sell for six figures. In our experience (and keep in mind that our websites are monetized primarily with AdSense), the sweet spot at which a website sells fast is 2-3x yearly net profits. To reach that $100,000, you would need net profits of at least $50,000 over the past 12 months or $4,100 per month. That's doable AdSense revenue with around 10,000 visitors per day.

Of course there are a few factors that may make it possible to sell for a higher multiple
  • a significant, sustained growth trajectory on the site
  • if the site is in a niche that is currently in high demand
  • a premium domain
  • sheer luck
And in some cases you may even be willing to sell for a smaller multiple, for example if you need cash fast (in that case I suggest you contact us :).

Dress Up The Bride

What else do you need to prepare a successful sale?
  • Ideally you have 2+ years of operating history and can show that in Google Analytics and financials.
  • Prepare a site-specific P&L statement that includes your development or maintenance time.
  • Compile a short executive summary that lists the site's strengths, stats, key numbers and addresses possible questions from buyers. Create a document that you can show proudly - this is likely the first or second thing potential buyers will see. No spelling errors, please, and hire someone to design the layout unless you are a professional designer.
  • If you are not in the US or UK, you have a disadvantage. Some buyers simply don't want to deal with "foreigners" because they are afraid of the risk of geographical (and legal) distance in case of disputes. You may want to consider establishing a US or UK holding company, especially on high value websites.

Frequent Questions

A number of questions come up again at every sale, so it makes sense to prepare them before hand and list them as a FAQ in the offer sheet. Here are some we include routinely:
  1. What is included in the sale?
  2. What is the operating cost?
  3. How much time do you spend on the site?
  4. What technical knowledge is required to operate the site?
  5. Who is the hosting company? Can the server be taken over?
  6. Will you provide migration assistance after the purchase?
  7. Who is behind the site?

The Conf Call

After a potential buyer has seen the executive summary or the broker's offer memo, the next step is usually a conf call. 

You may think the goal of the conf call is to answer the buyer's questions. It's not. The ultimate goal is to build trust and give buyers the confidence that you created something worth buying and will be there to support them even after the sale. Savvy buyers will have most answers already before going on the call, and they will check your answers for plausibility.

Keep in mind that most buyers may not be aware on the intricacies of your particular industry. Tone down the jargon and explain things like for a six year old. Let the buyer take the lead on how technical to allow the conversation to become. The worst case is to have a buyer pretend to understand a conversation and then fail to put in an offer because he was actually confused the whole time.

Be absolutely honest. Do not exaggerate. Don't avoid the hard questions. Everything will be discovered during due diligence and can derail deals and open you up to potential legal liability.

Try to keep negotiations out of the first conf call. The ideal is when you can defer them to the broker and focus on building a healthy relationship where you are the good guy.

Negotiation 101

Once you are after a conf call and sense some real interest from the potential buyer, the temptation is great to take the deal as done. Don't start spending your new money mentally yet. It's best to assume that the deal will fall through, as it likely will anyway. Don't get distracted too much and keep working on the site. It's business as usual until the money is on your bank account.

It's fair to assume that for every successful sale you need at least five conf calls (ie seriously interested parties).

The very best negotiation tactic is to maintain your walk-away power. Be prepared to abort if your asking price is not met. I realize how hard this is when you need the money and have an interested party on the table. However, you will never sell for $500,000 if you don't refuse a $250,000 offer.

Due Diligence 

After a Letter of Intent has been signed or principal agreement has been reached, the buyer will usually perform additional due diligence before executing the purchase. With most sites this is rather straight forward and may involve things like
  • switching to the buyer's Google Analytics,
  • testing the buyer's AdSense codes for a couple of days, or 
  • performing additional revenue testing with the buyer's affiliate accounts
  • confirming and validating supplier relationships
When we sell a site, we prepare a Handover document that we give out once Escrow started. Here is the table of content of one of our actual guides:
  1. Overview
    This summarizes the site, lists its highlights and explains again why this is a good purchase. Just to reassure the buyer that he is making a good decision.
  2. Operating The Site
    Guide to daily or weekly tasks.
  3. Site Logins
    Admin panel, server (ssh) login, MySQL, datacenter, Twitter/FB accounts, etc
  4. SEO and Promotion Tips
    Provide the new owner with all necessary information to keep running and growing the site. Share your best practices here. Once we have sold the site, we share everything we have ever learning about online marketing.
  5. Monetization
    Share AdSense and affiliate tips.
  6. Key Contacts
    List all affiliate, supplier and internal contacts.
  7. Technical Details
    CMS and plugin details, backup guides, system administation guides.
This is also the time to come forward about your own person. Add the buyer on LinkedIn. Make sure he sees a professional summary of you somewhere in the documents. Do everything you can to build further trust. 

Escrow

Sales are usually completes through an escrow account, provided either by the broker or by a company like Escrow.com or Sedo. This is quite straight forward. Buyer wires money to escrow account, domain and website are transferred, and after an inspection period funds are released to you.

Make sure to be available during the inspection period for 24 hours a day.

Remember that things can still go sour. We had multiple instances when escrow was fully funded and the buyer backed out last minute for reasons entirely his own. We even had a case where I fucked up during escrow and pushed a faulty update to the production server, updating another site (instead of the site being sold) with its AdSense codes. This obviously spooked the buyer (it would scare me off too - suddenly you see the AdSense code on other sites, in fact putting a question mark on the whole revenue). I refunded the escrow fee plus some and that was that. So don't party until the money hits your bank account.

The Aftermath

It's pay day. Make sure to open some champagne and take a day off. Then get back to work. Follow up with the buyer every couple of days after the transition to answer questions and help with operations. The more you work with the buyer now, the more likely he will be to buy a second site from you.

After the champagne leaves your head, you will also realize that you are missing recurring income now. So better start working on new sites again. If you can do this repeatedly, you are in business. Good luck!



Thursday, May 31, 2012

Developing Web Sites for Resale

[ This post is part of a short series on Buying and Selling Websites]



Wow, how much easier this business got in the last 10 years. Developing web sites used to require programming skills, a good eye for design and expensive servers.

Today, you can actually focus on making money. The technical part has become a commodity.

That doesn't mean that today you can create money making websites without investing time. It just means that you can focus on what really brings the cash.

Here are some tips on how to build web sites that are meant to be sold for at least six figures.

Find a Good Niche

The start of your venture is to find a good topic. Maybe this is something you already have knowledge in or something that you are passionate about. Don't pay too much attention on what's hot right now. Question advise that tells you not to do something. If I had a Dollar for every time people told me not to start an AdSense business in the travel niche... I would still have less money than I made with the sites :)

A good way to get inspiration is to look at listings on website marketplaces. Start with Flippa.com, Latonas.com, WeSellYourSite.com, WarrierForum or QuietLightBrokerage.

This is also a good time to think about what you really want to do. For example, we don't have any adult sites, gambling, or health advice sites. I would suggest you ask yourself how you will feel telling your daughter or son in ten years about your sites.

Don't Reinvent the Wheel

When you intend to sell a web site, it is always an advantage when potential buyers see stuff they are familiar with. For example, buyers prefer standard content management systems like Wordpress over home grown solutions. The reasons are obvious:
  • There is no learning required.
  • Support is widely available.
  • Development is ongoing and not dependant on you or your developers.
What counts is usefulness for users, not innovation for innovation's sake. In most cases, today there is technology out there to do what you want. I would estimate that 90% of all web sites that are sold are based on standard software with few modifications - if any.

Should you use Drupal or Wordpress or Joomla or...? It doesn't really matter. Chose whatever you are already comfortable in or what suits you most. The important thing that you do actually use a ready made platform and don't start building things from scratch.

If for some parts you really need custom development, outsource it via freelance or other market places, I would advise not to spend more than $2,000 on an initial minimally viable product that you can launch with.

Chose a Good Domain

I have a history in domaining, the art of buying and selling premium domains. I know the value of premium domains for branding.

The thing is: You can build a successful website just as well on a freshly registered domain. In fact, in some cases a new domain may outperform a premium domain that you bought for big money. The premium domain might carry some history unrelated to your new topic. Even worse, it could have a penalty because of spammy SEO. If that is the case, your efforts will be an uphill battle that may not be worth fighting.

Here is an example of that from real life. We hand registered MisterEmpresa.com for a Latin American business directory and it has now around 20,000 unique visitors per day - compare that to VisitBrazil.net, a domain we bought on the aftermarket for a couple of thousand Dollars, launched at the same time, now stuck at only 50 uniques.

On the other hand there are three facts that speak for investing in a premium domain name:
  • A premium domain is a backup. It brings a value by itself, adding to your website worth. Even if your development fails, you should be able to recoup part of your investment by selling the domain (if you bought at a smart price).
  • If there was already some content on the domain, and that content is topically related to the site you are planning to build, it can give you a significant boost and shorten the time to traffic.
  • Premium domains are brands. It is much easier to sell an advertising deal to a hotel in Kyiv when you are Kyiv.com than when you are visitkyiv.co.ua.
In summary: Get the best domain you can get for your budget, but pay special attention in your due diligence on past use and past SEO.

Traffic, Traffic, Traffic

Whether your business model is advertising, affiliate sales, subscriptions or product sales - to make money with a website you need traffic. The more traffic you have, the easier it is to generate revenue. You certainly can make money with small, specific traffic, but then you will need to know a market well and be able to convert the traffic well. It's much easier to make money if you have vast amounts of traffic.

And it's much easier to make money if you have free traffic because then your user acquisition cost is zero. It's hard not to make money on zero cost. Free traffic is coming from search engines. So you need to learn about search engine optimization.

How much traffic do you need before you start making money online?

It seems a magic number is 10,000 unique visits per day. Once you are there, you are starting to be attractive to direct advertisers and you will make some decent revenue from AdSense or other advertising networks.

How do you attract such amounts of traffic?

Create useful, interesting content. As boring this advice is, as true it is, but there is an aspect that is often neglected. Say that you are writing an article and it gets spread virally - a single article attracting 10,000 visitors over 10 days would be a huge success. It's much more likely that an article attracts a couple of hundred visitors. That means you are better off having 1,000 articles with a regular audience than trying to come up with that hit viral wonder.

To make it clear - if I say article, it does not have to be editorial content. The important part is scaling up your content. Get creative: product descriptions or reviews, images, directions, symbol explanations, historical content, patents, whatever you can bring in large quantities that are useful to visitors and has not been on the Internet before.

SEO Explained; or the Million Dollar Question Answered

SEO? Really? Isn't that sleazy? Do you really want to be Google's bitch? Isn't it too late to come to that game?

There are many myths around SEO, and people both passionately love and passionately hate it. The matter of fact is that today search engine traffic is the easiest and cheapest form of traffic.

SEO is in fact very easy. It means three things:
  • Making your site easily accessible to crawlers (and you have to try hard to fuck that up if you are using a standard system like Drupal or Wordpress)
  • Coming up with interesting and valuable content
  • Spreading the word so that people will find, consume, and spread your content and return to your site
Here is the answer to one million Dollar question on what to do for SEO.

Understand that all search engines rank pages by relevance and importance. Importance is largely determined by popularity, and popularity is determined by the number of "mentions." How many people link to you? How many people talk about you on social media? Are the sources that mention you authoritative?

So it's clear that most important aspect is gaining popularity, spreading the word, building links:
  1. Find influencers in your topic and get them to link to your content
  2. Write guest posts, columns, editorials on other sites and include links to your site
  3. Make it easy for people to share your content on social media
  4. Engage with people on Twitter and Facebook and point them to your site (when appropriate)
  5. Answer questions on Quora, Yahoo Answers, etc, with references to your site (when appropriate)
  6. Run competitions that include something where people link to you
  7. Come up with infographics, great photos, or videos that people naturally tend to link to
  8. Make sure your videos on YouTube link back to your site
  9. Ask for a link at every occasion. For example, we did a body painting for the Euro 2012 soccer championship. Of course we asked for links from the painter, the photograph, each model, and the studio. :)
  10. etc etc
you are just starting out on SEO, make sure to read the Beginner's Guide to SEO by SeoMoz. For some more ideas on link building, check out this post on SeoMoz.

Remember, there are no short cuts. Gaining exposure takes both good content and time. Don't fall into the trap to try to speed things up by buying directory submissions, link wheels, spam blog networks, or any other tactics that are meant to deceive Google. If you want to get significant organic search traffic, you don't want to run the risk of Google taking you out of the index.

Passive Income is Key

My favorite aspect of making money online is that you can build up sustainable passive income. The dream of sitting at the beach and still making money is real.

One of the best ways to monetize traffic is AdSense. Buyers love AdSense because once set up and optimized, it requires no further work. Compare that to finding direct advertisers or optimizing your website for sales conversions.

With 10,000 unique visitors per month, you can expect to make $5,000 per month in advertising.That's a $200,000 sale right there.

Every bit of manual work that you have to do on the site detracts from its value. If you have orders to ship, customer inquiries to answer, or spam to fight, try to outsource as soon as possible to make the business a hands off operation.

Keep the House Clean

If you start he site with the intention to sell it, it is much easier to keep a clean house from the beginning.
  • Add Google Analytics, with AdSense tracking enabled
  • Have the site on a dedicated server or VPS with no other sites, so that you can pass the whole set up to a buyer, if he is interested
  • Add a URL channel in AdSense if you run AdSense on more than one site to make verification of income easier
  • Keep track of expenses and income in an Excel sheet
  • Document your supplier/vendor/outsourcing relationships

Take Your Time

Growing a site is like growing a tree. It takes time and care. There are no short cuts on the way to sustainable sites, and if anyone is telling you something different, they are lying because they are trying to sell you something which will get you penalized by Google sooner or later.

Buyers value sites with operating histories of at least 12 months. If in the trailing 12 months your traffic was stable or growing, you will have a good negotiating position.

Enjoy the Process

You will be stuck with your baby for a long time. You will have to work on it instead of going out, spending time with your family, or watching movies. Hopefully your site will be about a topic you are at least somewhat interested in.

I don't advocate that you have to be passionate about the topic of your site. I'm only mildly interested in Traditional Chinese Medicine, but I enjoy the money TCM.org brings. If I am completely disinterested in a topic though, it would be difficult to find the motivation to look at the site on a regular basis.

Most likely you will also be hit by setbacks. What if over night you lose half of your traffic because of a Google algorithm change? Will you be motivated to move on? Hopefully you enjoy what you are doing or  the temptation to quit will be high.

Summary

Creating websites for resale and recurring revenue can be a sustainable business. Like all businesses, this takes time, determination, and the willingness to experiment and learn from mistakes. If you are getting started with this, good luck, and let me know if I can help (or buy your revenue site for cheap). :)

Thanks to my friend Herve Aubin for reading a draft of this article and providing great feedback.

Buying and Selling Websites

I often get questions about our business of buying and selling websites. People either don't want to believe that you can actually make money on the Internet or want to know all details at once.

So I wanted to write a short series to explain the basics and share some of the things we learned since starting this five years ago.
  1. Developing Web Sites for Resale
  2. Buying Websites
  3. Selling Your Website for Six Figures
  4. FAQ Me. Common Questions.
As a disclaimer, these are mostly tips to create advertising driven sites in a repeatable process that are meant for passive income and eventually a resale. These are not going to be the next Facebook or Twitter, but can give a sole entrepreneur or a small team significant income in the six or seven figures yearly.

Thursday, June 16, 2011

Website Broker Wanted?

Domain brokers come and go quickly. A new one contacts us each week. It's the easiest way to get started in the domain business without upfront capital investment. Unfortunately, the people with no money to invest are usually also not the best sales people ever, so the actual turn over rate is low. Even if a domain broker is really good, there are a couple of problems:
  • The time investment is significant if you do it right. You would have to do market research, contact end users, advertise. Just sending the name to five of your previous buyers and putting it up on your mini site does not make you a good broker. 
  • Most domains sell in the $1,000 - $15,000 range, making commissions unattractive for a single broker or small team. You have to turn over en masse and you would do that by building a marketplace platform like BuyDomains or Sedo, not by single-handily brokering names.

Earlier this year I tweeted a quick advice to all domain brokers out there: Specialize in website brokerage now! I believe there is a significant opportunity for any player entering this market. The leading market place Flippa is overfilled with low value and sometimes downright scammy offers, and domain market places like Sedo simply don't get the website business.

Indeed, Rick Latona switched recently to brokering revenue-producing websites. Here's though six things that I would like to see from a website broker (and this comes from a background of acquiring by now over 75 websites):
  1. Verified Google Analytics, and earnings with a stamp of authenticity. Every website investor must still do their due diligence) but when reviewing brokered listing you should be able to assume that at least sources have been verified.
  2. Informative offering pages with background on the business and owners. The one paragraph descriptions at Latona's just don't cut it. I would like to see a combination of owner-supplied listing text and a broker description similar to the Flippa-A-List mailing list.
  3. Give uniform information about businesses. In an ideal world the broker should work with each owner to create a uniform set of financial data and traffic figures.
  4. I'd suggest that brokers focus on high value names with asking price of $50,000 and above. Flippa is okay for the rest and if you want to do a good job as broker, the amount of work you will have to put in does not differ much whether it's a $10,000 or a $200,000 sale.
  5. Brokers need to work actively to promote listings beyond their website and mailing lists. Please give details on how you intend to earn your 15 percent.
  6. Be transparent. I would like to see your closure rate. Average sales price. Time to close. Team size. Etc.

Wednesday, June 15, 2011

South America Trip

Earlier this year in March I went on a trip in South America and visited Argentina, Bolivia and Peru. In terms of business it was quite an eye opener for me and I'm convinced that there are huge growth opportunities in Latin America's Internet sector.

It started with the travel preparations. Booking flights or trains in countries like Bolivia or Peru is a pain. To book a flight from Santa Cruz, Bolivia, to La Paz, Bolivia, I not only had to call to make the booking, but I also had to fax in scanned copies of my passport and credit cards.

In general tourism is not well developed except in the most common touristic areas such as Machu Picchu. When we took a boat tour across Lake Titicaca, we (two persons) were alone aboard a huge ship - dedicated tour guide included! For the price we paid (I think something like $200 for the day) this could only be a loss for the tour operator.


Obviously Internet penetration is low at around 25% but even compared to countries like Ukraine with similar penetration rates I was surprised that even for example companies in Lima do not advertise their websites much on their shop signs, flyers etc.


 Of course, once you take a jeep and go for a few hours into the campo, you discover places like San Antonio: no Internet, no cell, no phone, and they got power last November.


While we have a sizeable business directory of Bolivia's Santa Cruz in our porfolio, San Antonio, or the next larger city of Concepcion (10,000 population) don't even register on the map.

The AdSense numbers reflect this general impression: CPM of South America is half of Ukraine, Ukraine is half of Europe. Still the growth of our Latin sites (we have, for example, a business directory of South America) is impressive.