So you are thinking of buying a website? But like many others, you’re not sure if you’ll do a shrewd piece of business? Well it’s the dream of every website owner out there to run a website that makes a sensible profit while still requiring little maintenance effort.
And here’s a good piece of news: you can buy a website for next to nothing and turn it around to produce decent returns. Or, you can buy one for a big sum and turn in respectable profits every month. But this business isn’t always rosy; you have to really know what you’re doing.
Why websites sell for less
Let’s forget about the sites that sold for millions of dollars and focus on the ones that you as an individual starting out would acquire. How much do they cost? Generally, the figure is calculated as a multiple of its yearly/monthly earnings. That’s 1-3 times for the yearly earnings, or 12-24 times the monthly profit.
But most website owners (as evidenced on Flippa) sell their sites for 12 months valuation or under. When you factor in the risk associated with online businesses, plus the amount of effort and money needed to turn a website profitable, you get a clear picture why.
How to tell if a website is fit to buy
There are a number of indicators that should either spell doom for a web venture, or set it alight as a worthy investment. This is where most website buyers fail: not separating junk sites from real earners. If the sellers are very good at sugar-coating the offer with promises of great potential, instant riches and, here’s the winner – all on autopilot, these buyers get all too excited and fail to see right through the seller.
So how do you tell if a website offers enough value to make for a good purchase? It should have most, if not all of the following things:
1. A history of consistent earnings – you don’t want a see-sawing website with high fluctuations in the income, or only a few highs and many lows in the monthly income reports.
2. Viable Traffic – preferably, there should be multiple traffic sources, not just the search engines or social media referrals. The higher the potential for high traffic, the better – you can promote it more and multiply the earnings.
3. Multiple revenue models – though not mandatory, more revenue sources means the website can survive a plummet in, say, advertising income. You may still buy it if it shows untapped potential in some revenue models, but that’s if you’re ready to put in the effort to bring those revenue models to life.
4. Age – an aged website (and domain) is likely to perform well in the SERPs, but not only that: it gives you the assurance that the business has been in existence for long enough to have gained some level of traction, as well as establishing stable income streams. If the site is just starting out, then you should only buy it if it has already generated some good income without any signs of caving in soon.
As a website buyer, it is your duty to do due diligence to find out who you’re dealing with. This is the part where failure isn’t an option; you must establish the credibility of the person and the website he’s selling – unless you want to become yet another victim of a scam.
Find out from the Whois records if the seller is the real owner of the domain. Scrutinize the claimed proof of earnings, proof of traffic, and even ask for access to their Google analytics to see it yourself. It’s also important to know where in the world the person is, and if he can be contacted via better means like Skype.
Due diligence is especially crucial if you’re buying from the auction sites and marketplaces (Flippa, EBay, Sedo, DigitalPoint, and the forums). Buying through a website broker is a safer option if you are a first-time buyer because the broker will conduct the due diligence on your behalf. But you should still do it just to be sure.
As a final note, don’t ever transact this kind of business with using an escrow service. Check out Safefunds.com or the Escrow.com fee calculator to see how much it would cost you. An escrow system will protect your money, in the case that a buyer fails to handover all the assets as agreed in the sale agreement. But escrow won’t protect you from buying a poor website.
Joseph writes for www.valuator.com.au– get a valuation of your web business before buying.