How to Buy Websites

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

Why Buy a Website?

Well, you invest to make money.

For me, buying and operating websites is an ideal business. You can operate it from home You can scale it without lots of employees. And many kinds of websites will produce revenue even if you are not working on them.

There are several advantages to buying websites with traffic and revenue.

  • Start off running if you don’t have technical development skills.
  • Get cash flow from day one.
  • Extend your existing online business by building a network sites.
  • Or, just like in real estate, buy to flip.

What To Buy

Chose Your Niche

Make up your mind in which sector you want to buy sites. Contrary to popular wisdom, I do not think that you have to have a lot of prior knowledge or passion about a topic before buying a website in it. We co-own a Traditional Chinese Medicine site, and I know nothing about TCM. However, you should probably have a cursory interest in the topic at least. You will work with it for a long time.

We also defined certain sectors that we do not invest in. For me that’s quite easy as I don’t buy anything that I don’t want to talk about at the family dinner table. That excludes porn, gambling, “health advice” (buy Viagra), drugs, etc. Sometimes the boundaries are not very clear. I had the opportunity to co-buy marihuana.com, thought about it for a couple of days, and declined it in the end.

Once you have defined broadly what you want to buy, you should research if it’s a lucrative enough area. Are there enough people interested in the topic? Are they prepared to spend money? Compare different topics on Google AdWords: how many searches are there, what are the click prices? You should also check affiliate market places likes Clickbank to see what products exists for this area and what they sell for.

Match Your Skills

What are your skills?

If you don’t have the technical skills required to maintain the site you buy, you’ll have to pay someone else to do the technical work for you.

What are your marketing skills? If you have experience with paid marketing, you may be more interested in a site that can be monetized better if that aspect is improved. If you are a SEO expert, a site that currently gets traffic via paid methods and not via organic search may be a good fit for you.

Fit It In Your Schedule

How much time can you realistically spend on the site you buy?

If you underestimate how much time you have to spend running, maintaining, and upgrading your new acquisition, you may wind up overwhelmed and overworked. That’s the best-case scenario; the worst is that you’ll give up on the site entirely, sticking your head in the sand and losing the value of your investment in the process.

Where To Buy

There are three major ways to find sites to buy:

  1. On Marketplaces like Flippa or eBay.
  2. Through a broker.
  3. Direct from owner.

Direct From Owner

Buying direct from the owner is the most difficult but potentially the one best way to find undervalued assets from motivated sellers.

Find websites in your niche by Googling or by going from link to link. The challenge is to find a site that has already some substance, potential and that looks like it may be for sale.

For example, Google for:

  • Copyright notice from a year or more ago.
  • A blog with the last post from the guilty owner saying “it’s been a long time since I posted”.

Search for sites

  • hosted on the same IP
  • owned by the same domain contact
  • using the same Google Analytics or AdSense or affiliate ID.
  • by the same known seller on marketplaces

Just be creative in your search. You may also want to create a website saying “we buy websites“. We get many good leads through our contact form and have made some of the most successful purchases direct.

Think of this like real estate. You wanna buy a house before it hits the MLS. The best deals come from owners struggling with the three “D”s – death, disease and divorce.

Through a Broker

If you have a significant budget at your hands, hire a website broker. Most good brokers won’t work for budgets under $50,000-$100,000.

On Marketplaces

It’s not easy to find good deals on sites like Flippa. As a beginner, you have to be especially careful of scammers.

When buying on Flippa, the general rules is: Cheap sites are not good, good sites are not cheap.

How Much To Spend

The total cost of a website investment is not just the purchase price. You also need to add maintenance costs (server, personnel, advertising)  for 6-12 months, without income.

Purchase cost + 12 months maintenance cost = real investment cost

On your first few purchases, this real investment cost should be as high as much as you are comfortable losing.

How to Valuate a Website

So you are looking at a website and it looks like a good match to your interest, skills and budget. But is it really a good deal?

There are two main factor that determine the value of a website, traffic and revenues.

Traffic

It’s easy to assume that higher traffic translate to a higher website price—but it is rarely that simple. There are a couple of things to look for.

  • Require Google Analytics as statistics tool. This is the de-facto standard and the hardest to just fake. It filters out bots and has so many reports that you can cross-check the data if something looks funky. If you accept any other statistics tool, your risk increases.
  • Verify traffic. Traffic can be bought. Unscrupulous site owners buy a thousand pageviews for a cent. You always have to do your due diligence. What are the traffic sources?  What is the historical data?
  • Is traffic sustainable? Sometimes sellers redirect traffic from other domains they own, or place ads prominently on other sites they own. That means the traffic is likely to disappear once you have bought the site, or even worse you will have to pay for continued exposure.
  • Check the countries of origin. Audiences in Western countries generally easier to monetize than those from other locations.

Revenue

Like traffic figures, revenue isn’t just revenue. There are a range of contributing factors you have to keep in mind.

  • Cost of revenue. I am often surprised that people don’t look at this first hand. Revenue of $100,000 per month is meaningless if you spend $200,000 in paid search marketing to drive traffic to the site.
  • Monetization methods. How is the revenue generated? Are there obvious methods that the site owner hasn’t tried, and if so, why haven’t they been used? A gap in the revenue strategy may significant optimization potential. In a worse case, it may also suggest that the audience is difficult to monetize in certain ways.
  • Revenue history and trends. Is revenue rising, falling or constant? Can revenue be shown for the past 12 months?
  • Revenue risk. How diverse is the revenue stream? On what is it contingent (traffic type, affiliate agreement)?

Factors That Do NOT Impact Value

Sellers often refer to a range of other information about the website, including PageRank, Alexa Rank, and more. You should look at this in your due diligence, but stay with traffic and revenue for determining the value.

Setting a Value

Typically, websites “in the industry” (i.e. when both seller and buyer are in the online business) sell for 2 to 3 times yearly net profits.

Distressed sellers may sell for less if you can offer a quick deal.

If you see an undervalued opportunity, you may be prepared to pay more.

If you’re buying the site as a traffic generator for another site, current income may not be as important as the ability to attract the right kind of demographic traffic for you.

How much did comparable websites sell for?

What is the value of the domain? How old is the domain?

How much would it cost to build the site yourself? Is the traffic the site already has and the domain worth the difference?

A good question to ask is “if the website is so great as you claim, why would you want to let it go?”

There are a number of legitimate answers to that question. They owner may need quick money. He may want to invest in other projects. He may be fed up running the site.

However, in some cases there won’t be a good answer. A good site will not get sold for 3 times monthly revenue. If it sounds too good to be true, it probably is.

Example Factors Increasing The Value

  • Fit to buyer’s market
  • Premium domain
  • Customer loyalty (returning visitors)
  • Active mailing list
  • Original content
  • Upward trends in traffic or revenue
  • Strong SEO
  • Long operating history

Example Factors Decreasing The Value

  • Traffic dependent on a single source
  • Short operating history
  • Site branded around an individual

Beware of Scams

Virtual goods attract scammers like shit attracts flies. Buying websites is a risky business. Like with all businesses, you learn some things only with experience.

But there are a couple of things you must check before making an investment decision. Checking these will eliminate 95% of fraudsters.

Fake Traffic Scam

There is no limit to the sophistication of fake traffic.

Fake traffic is from cheap traffic sources (“buy 10,000 pageviews) is easy to spot. Be wary if there is a sudden spike of traffic with no referrer, short times on page, high bounce rate, low number of pages per session, abnormal concentration of device (like 100% desktop), etc.

More advanced fake traffic is much harder to detect. The attackers use scripts to simulate different user agents, referrers, click and browsing patterns, etc. The only real challenge is to fake the traffic over longer periods of time. That’s why historical data is important. Is traffic consistent over the last years?

Always insist on Google Analytics. Ask to be added to the Analytics account as Viewer. Don’t rely on PDFs or screenshots.

Fake Revenue

The easiest revenue to verify is AdSense or affiliate earnings. These can be easily checked in a live walk-through with screen sharing and cross-checked with Analytics. Of course, even a live walk-through can be faked, but the effort required to do that is bigger than most website scammers are willing to put in.

It’s more difficult to verify revenue from product sales. There are usually no audited books, and besides, you usually buy assets, and not a company.

Questions to ask:

  • Does revenue correlate with traffic?
  • Can it be verified that revenue is coming from the website in question?
  • Who are the customers, can they be verified?
  • If it’s subscription revenue, can subscriptions be transferred (for example, PayPal subscriptions can’t be transferred; asking customers to re-subscribe will lead to a significant, ober 30% drop-off).

Stolen Domain or Site

  • Check WhoIs and email the owner contact.
  • Check WhoIs history and look out for ownership and registrar changes.
  • Deal to good to be true? It probably is. Don’t get greedy; it’s standard practice for stolen domains to be transferred back to the original owner via the registrar, and you will lose your money.

“Potential Earnings”

You can safely ignore any “potential earnings.”

Website Buying Due Diligence Checklist

Seller

  • Is the seller a real person? Check Facebook, LinkedIn, etc.
  • Has the seller proven they have access to the site they’re selling and authorization to sell it? Check the domain’s Whois, does it match the seller? On larger purchases, check the Whois History through DomainTools.com, are there any unexplained changes?
  • Is the seller willing to get on a call, Skype chat, etc.?
  • Does the seller have positive feedback and selling history? Does he or she have profiles or sites for sale elsewhere and what is there history/feedback like there?

Technology

  • What software does the site use? Is it properly license? Are there any ongoing license fees? Can you maintain the technical infrastructure?
  • Who owns code, design, content? Does the seller have the right to transfer ownership of code and design, or are there any third parties involved?
  • What are the hosting details? Can the contract be taken over?
  • What is required to transfer the site?
  • How easy is it to maintain and update the site?
  • How to change Analytics, AdSense and affiliate codes?
  • Access info for content management system, server control panel, database available?
  • Is the domain on any spam blacklists?

Legal

  • Did the site receive any DMCA takedown notices?
  • Any copyright infringement claims?
  • Any other legal communication?
  • Proof content is owned?
  • Are all photos licensed for use and are full credits available?
  • Does the sale contract include a non-competition clause? Does the seller have any other businesses that would be affected by a non-compete?
  • Does the sales contract ensure a complete transfer of rights?
  • Are there any ongoing licensing fees to be paid, for example for content or feeds?
  • Are there contracts with freelancers? What are notice periods?
  • Are there any trademarks included?

Traffic

  • Are at least one year of traffic statistics available?
  • Can you be added as user to Google Analytics?
  • What countries is the traffic from?
  • Any spikes in traffic? Can they be explained?
  • Check the backlink profile with Moz, aHrefs, etc. Are there obvious paid links? Spam links? Blog comments, forum spam, cheap article directories?
  • Are there traffic sources owned by the seller?
  • Search for site:www.sitename.com How many pages are indexed? Any surprises in the indexed pages?
  • What are the top traffic sources? Are these sustainable?
  • What are the top referring sites? Are they likely to stay?
  • Is the current owner paying for traffic? If yes, how much and through what channels?
  • Are there any undisclosed paid traffic sources?
  • What are organic search keywords? Are they natural and sustainable?
  • Anything funky with time on site, bounce rate?
  • Is the Analytics code only used on the domain for sale? Make sure to show the host name in Analytics reports.
  • Check CopyScape.com for duplicate content.
  • Check Archive.org – has the site changed recently?
  • If there is a mailing list included, can subscribers be verified to have opted in?

Maintenance and Operation

  • What are monthly operation costs?
  • What is the hosting cost?
  • What does hosting include? Are there any limits?
  • What does it take to keep the site running?
  • Are there any social media accounts? Who is taking care of them? What are the logins?
  • What are daily, weekly, monthly maintenance tasks?
  • Who is taking care of server problems?
  • Does the seller keep an up-to-date contact list of freelance authors, designers, developers who worked on the site? Can it be passed on to you?
  • Is the operation dependent on any partner? What happens in case this partnership dissolves?
  • Are there specific skills required to run the site?

Monetization

  • Are at lease one year of revenue statistics available?
  • Profit/Loss statement available?
  • Live walk-through with screen-sharing for AdSense, affiliate or PayPal accounts?
  • Can the seller include your ad codes for a day to test revenue?
  • Is revenue per user, revenue per thousand impressions in line with industry standards?
  • Is the refund/chargeback rate in line with industry standards?
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