Owning a website can be a very rewarding experience. You have an outlet to express yourself, to grow your own business, and to develop a following. Unfortunately, we do not all have the expertise or time to grow our own websites from scratch. Thus, an active market has developed in buying and selling sites for profit. This article is intended for people who are interested in buying a website and running it as a business. You may think of this as a checklist of issues to run through before paying anyone for a site, much like a pilot runs through a pre-flight checklist.
Without further ado, here are ten tips for buying a website for profit.
1. The Sale Price Must Be ReasonableA typical sale involves a website owner posting a sale listing which states "I am selling a site about xyz which earns $abc per month." Then, there are various metrics that you can use to place a value on that site. The final value, or sale price, either is up to the highest bidder or a simple value assigned to the site by either the buyer or seller.
The smart way to evaluate website is to develop a rule of thumb. Landlords, for instance, place values on apartment buildings based upon their rent rolls. A building that sells for 5x the annual rent roll might be a little pricey, while one that sells for 1x the annual rent roll might be a steal. It all depends on the overall market.
There are various ways to determine a website's value, but you need your own rule of thumb. Just as with apartment buildings or other assets, a site is worth a certain multiple of its monthly income. Exactly what that multiple is will depend upon multiple factors and there is no one-size-fits-all rule.
We are not going to worry about the actual price here. That is up to you and the market. The value must be reasonable for you, and only you can decide what is reasonable. However, it is critical to understand normal valuations so that you don't blindly overpay for a site. You will find different recommendations on this, and you can use any rule that you want.
For purposes of this article, our general rule of thumb is that a site is worth twice its annual income. In actual practice, you might decide to pay 2x up to 5x annual income. While 2x annual revenue is fairly cheap, bargains or startups may be less than this, prestigious sites more. You are better off if you develop your own way of assigning value based on what the site actually produces, but what you wind up paying should not be too different from this rule of thumb.
How much you are willing to invest is up to you. Every new site is risky. If you already run websites that generate good income, consider restricting the amount that you spend on a new site to a fraction of your annual site revenue. Don't go out on a limb, keep the new investment low. Spending 10% of your annual income on a new site is plenty in such situations. If you don't already run websites, start very small. In this situation, you should be buying the site to learn, practice, and experiment, not to develop a large income.
Don't go into the website market blind. Establish your own rule of thumb for site value and follow it. Don't overspend.
2. Understand What You Are BuyingThe most critical part of buying a website is to understand what you are buying. This also is the most deceptive part of the process, because you may not be buying what you think you are buying. Horror stories often derive from happy buyers getting this part wrong.
The natural assumption is that you are buying a particular site on the web which does or can produce revenue. So, you are buying a bunch of pages on a server about, say, dog grooming or classic cars or whatever the topic is. This seems pretty simple, right?
Unfortunately, a website alone is not what you actually are buying. Instead, you are buying a system. This is because you are buying a revenue stream, and a website's revenue almost never depends just on the website itself.
Let's say you are reviewing a site producing $1000/year based on 500 visitors a month. Based on our rule of thumb above, the site is worth $2000. So, you give the owner $2000, he gives you the site, and you each go off happy.
The problem arises from where those visitors are coming from. If all of the traffic is organic, meaning it comes from search engines and the like, you may be okay with this transaction. However, very few websites derive all of their visitors from organic traffic. There very well may be a hidden source of these visitors which is not apparent at all. This is where you are likeliest to get burned.
A website owner may have a way to drive visitors to a site that you do not. He or she may be an acknowledged expert in the field who could set up another site tomorrow and steal all your traffic. Or, you may be buying from someone who works at a large corporation owning numerous sites.
It is simple or someone who controls many sites to drive unusually large traffic to a particular site via links in its other pages. Without those other sites, you will lose that traffic. Or, the owner could have a page on a popular social media site that drives a huge fraction of the traffic.
In these types of situations, the valuable property is not the site itself, but rather the source of the traffic. When you buy a site which derives its traffic from a social media page, the valuable asset is not the site, but rather the social media page that is driving traffic to it. In a worst-case scenario, you could buy the site and not the social media page and find out that your traffic completely disappears. No traffic means no revenue and you can throw all of your calculations about value out the window. Does this happen in real life? Absolutely.
Be very careful to understand what is the valuable asset and make sure that is included in the sale.
3. Be Very Careful About Sites Dependent Upon Social MediaBased on the previous section, you may say, "Aha! I get it. I need to buy the social media page and then I'm all set!" This may be true, but it may not.
You do not own a social media page. A social media user actually has very few rights to a page or even an account. Both can be revoked at any time, and your rights of appeal are very limited or, in some cases, nonexistent.
There has been a developing trend for social media websites to place restrictions on content. It is impossible to know where this trend ultimately leads, but be aware that just because a page is sending traffic to a site today does not mean that it automatically will be there to send traffic to it tomorrow. Social media pages can and do disappear in the blink of an eye. I've actually seen this happen personally. There one day, and poof! - gone the next. No notice, no subsequent explanation, just gone.
Be very careful about buying sites that heavily rely on social media.
4. Use Escrow ShrewdlyAlmost everyone is familiar with the idea of escrow. A trusted third party holds funds from one party until certain conditions are met, at which time the funds are released to the other party. Escrow is just as useful in buying a site as in buying a house or a car. You always should use escrow when buying a site, no exceptions.
The subtlety comes in with the conditions that apply to when the funds are released. When buying a house or a car, escrow funds are released upon transfer of title. This also can be the case when buying a site - but that may not be in your own best interest.
Let me explain. As we said above, when you buy a website, you are buying a system that produces a revenue stream. The site itself is just the endpoint of that stream, sort of the basket into which you throw the apples you are picking from a tree. The basket itself worth almost nothing, the tree is what is producing the apple product along with your effort in picking them.
A shrewd way to use escrow is to allow the release of funds only after you have the site in your possession and have the revenue stream up and running. You may place any conditions on this that you wish, subject to the seller's approval. I recommend that you allow the escrow agent to release the purchase funds only after you have had the site for some time period. Optimally, this would be several months. After that time, you will see very clearly where the traffic is coming from and verify the income stream. This prevents the horrible outcome of buying a site and then finding that the site which was producing $1000/month for the previous owner now is only producing $10/month.
If the revenue stream is not what was promised, you can cancel the transaction depending on how shrewdly you set the escrow terms. This is a last-way out when otherwise you would be stuck with a huge loss. It also encourages the person selling you the site at least to keep whatever mechanisms he has in place to generate that revenue stream working so that you at least recoup part of your investment.
Escrow is your friend. Use it wisely.
5. Use A Reputable Website BrokerThere are lots of places to buy websites, just as there are many places to buy cars or boats. You may "know a guy" who has a site but now is entering the Army and just needs to get rid of things. Perhaps you can get a special deal from someone like that. There is nothing wrong with that. You risk little, you get something valuable, and you are dealing with a friend or acquaintance that you know.
However, for most of us, finding a site depends on searching for listings and then approaching the seller with an offer. There are lots of odd places on the Internet where you can find sites for sale. You may see postings on social media discussion forums or on someone's website or any of a myriad of places. If you really know what you are doing, perhaps you can find a "deal" in such a place.
My recommendation for those who are not true experts, though, is to use a web broker. These places usually feature bidding to establish value and various resources. Some brokers provide escrow services and the like. There also may be a community at such broker sites where you can get insights into the actual site that you are looking at.
The major downside of site brokers is that you are rarely going to get a real bargain. You will pay the market rate, and, by the nature of such places, you will be the high bidder. The upside is that you should not be vastly overpaying with the value being set in an organized fashion. Hopefully, this will lead to you paying a fair value for a reputable site.
I am not recommending any particular site brokers because reputations change over time and my own evaluation about a broker's reputation may change over time. Well-known brokers for small sites include Flippa, and for large sites include Founders Investment Bank. The broker that you use will depend upon what kind of site you are looking to buy.
Use a reputable broker to minimize your risk and for convenience.
6. Only Buy Sites Within Your Area of ExpertiseYou should not focus entirely on revenue when you purchase a site. Running a website is a highly personal endeavor. Unless you are buying the site for a large corporation, you are going to be spending a lot of time with the site, especially at the beginning.
Only buy a site that matches your own interests or professional knowledge. If you know nothing about cats and have no interest in cats, don't buy a site about cat grooming. Instead, buy a site about something that you love and know something about, whether that be celebrities or classic cars or selling refrigerators.
7. Check Out the Site's ReputationIt is important to carefully check out a site's reputation for a number of reasons. You may have seen the website online for a while and it looks authoritative, so you can just check this step off as completed, right? Well, no.
There is a lot more to a website's reputation than how it looks and whether it gets regular traffic. There may be dark secrets underlying even the most imposing websites which can suddenly appear months or years down the road and cause you real and lasting problems.
First, check the website's profile. If you see anything that you don't like, give it a pass. If even such a cursory check does not meet all of your standards, it is not worth buying.
Second, check how your site develops its revenue. We already mentioned above the dangers of sites that get their traffic from sources that may disappear soon after you buy the site. However, even with organic traffic, there may be dangers. Check backlinks, see what other sites have to say about the site, and run some random text through a plagiarism checker. Do a search on the site via your favored search engine and see how and whether it pops up.
Spammy backlinks may pump up a site's visitor count but lead to danger in the not-too-distant future. Verify that the site is reputable and there is no "black hat" business going on because that can lead to a site's downfall in a hurry - especially if you are not familiar with black hat practices and don't even know what I'm talking about when I say "black hat."
Checking a site's reputation is an extremely critical step because you are putting your own reputation on the line. Your intent likely is to add the site to your own ad network. If the ad network finds your new site objectionable, it may not just ban the site, it may ban you. New site owners have lost their ad accounts when acquiring the wrong site. No new site is worth that.
Be certain to carefully check a site's reputation not just to ascertain its true value, but to protect yourself.
8. Require A Lengthy Site HistoryExperts at running sites know that there are ways to temporarily increase traffic. This may not even be intentional. Some sites do better in certain seasons. A travel site, for instance, may get a lot of visitors in the spring and summer, while a toy site might peak during the holiday season.
Never buy a site based on a spike in traffic. There are too many reasons this spike may be temporary. It may be a news site with a particularly compelling news story, a review site where some fancy new product just came out, or a seasonal site with the season eventually passing.
Require a lengthy history. People will set up sites and put them up for sale a year later. You are taking a risk buying such a site because it is easy to generate fake traffic over such a short time period. A conservative investor should only buy sites that have been in existence for 4-5 years.
A good rule of thumb is to require at least a full year of data on how the site has performed. Traffic should be stable or the traffic spikes easily explainable (and repeatable). Base your offer on the average traffic and revenue, not any spikes. If the seller wants to value the site on the most recent month's data, verify that this was an average month and not an exception.
My own preference is for evergreen sites. An evergreen site is one that will still be relevant to viewers ten years from now. A site about the history of the Roman Empire, for instance, is not likely to go in and out of fashion. There's no reason to limit yourself to evergreen sites, there's room for all kinds of sites. Just know what you are buying and how stable its traffic will be after you buy it.
Do your homework. Require a lot of data and learn the site's average performance before you buy it.
9. Make Sure The Site Will Work With Your Ad NetworkA good reason to buy a site is to add it to your existing ad network. Perhaps you think that your network will add value to the site or you just want all of your sites under one network. The previous owner may have only relied on ad networks that you believe are inferior to yours. Not all ad networks are created equal.
However, your site may not be welcome at your current ad network. This may be the case due to practices followed by a previous owner (not necessarily the one you buy it from). This, in fact, might be why the current owner is unable to maximize the site's revenue.
Every ad network has its standards. If a site has been on an ad network before, it might have been banned. Let's use Google's Adsense as an example. You don't want to have plans to put a site in your Adsense account, for instance, and then find out that the site has been banned from Adsense for previous Black Hat practices.
If you want to use Adsense on the new site, check the status of AdSense serving for the site you planning to buy. For Adsense, for instance, you may check the site's status here. When you are using such a tool, make sure to try www and non-www variants of the domain name you are checking. If you use another service such as Media.net, check with them. This is a very simple check, but a vital one.
Make sure that the new site fits in with your existing ad network before you buy it.
10. Understand How The Site WorksIn the typical situation, when someone puts a site up for sale, it is going to work perfectly. All of the links will work, it will have a good balance of ads to content, and whatever coding has been done will be done properly.
However, once you own the site, you are on your own. There will be nobody to help you. Nothing is automatic about a website. They require care and nurturing, like cats. And, like a cat, if they aren't treated properly, sites will jump up and claw you.
The site's creator may have been a wiz at coding. Perhaps there are many little gadgets and so forth. Do you understand all the little nuances of the site? Can you change them when Google or some other omnipresent outfit decides they don't like them any longer? Can you add your own flourishes to make them better? Do you understand how the site navigation works? Are there any special SEO tools in place that you completely understand? SEO is not a one-time thing, you must regularly revisit it or your site may become obsolete.
Having run sites for almost a decade, I can tell you from experience that you that they do not run themselves. You had better have some understanding of HTML and good SEO practices and how this site is maximized for performance. You also will need the time to adjust the site when Google sends you a warning that your buttons are too close to ads or your mobile font is too small or any of a hundred other issues that can suddenly land in your lap.
Review the site's structure before you buy it and make sure that it fits in with your expertise. This will make your life a lot easier.
ConclusionOwning a website can be fun and lucrative. This list covers most of the potential pitfalls of buying a website. You need to research your purchase carefully and protect yourself before you lay down your cash. Finding problems after you have paid for the site and the seller has disappeared is too late. While this list may be intimidating, it is necessary. Once you find the right site, you will enjoy its rewards for years to come.