Websites, like real estate, can be a profitable investment opportunity, and in the mind of some are still an undervalued one in comparison to their offline counterparts.[1] The internet provides virtually limitless investment opportunities with relatively low buy-ins and the possibility of quick profits, but making money buying websites requires solid research, an honest assessment of site profitability, and just plain hard work. Ben Franklin never saw a website, but he was on to something when he said “an investment in knowledge pays the best interest.”[2]
Steps
Finding the Right Website
- Figure out your buying strategy. Compare it to buying houses -- do you want to buy a dump for a pittance, spruce it up quickly, and unload it for a smaller but more immediate profit? Or, do you want to buy a nice house with good “bones” but flaws that you can transform into a great house to keep or sell at a larger but longer-term profit? It’s your money, so consider your strategy carefully before you start buying.
- If you want to flip websites, you obviously need to buy “low” to have any chance of quickly making a profit. But it isn’t just about seeking out the biggest bargain. That dirt-cheap fixer-upper house may become a condemned money pit before you can flip it if you don’t do your homework first.
- If you’re looking elsewhere than wikiHow for online advice on flipping websites, keep an eye out, because many advice sites are just sales pitches for an e-book or how-to seminar. Maybe that is something that interests you, but don’t get roped in unwillingly.
- That said, some of these sales-pitch sites do make good points. For instance, one sensibly compares website buying to billionaire Warren Buffett’s investment strategy -- buy established, good companies (websites) that are undervalued and that you can make better.[3] It’s not always the cheapest or fastest route, but often offers the best return.
- Figure out how you will improve a website you buy. Be realistic about the time and money you can spend to make a site better, your level of familiarity with website design and operation, and your knowledge of the product/service/information offered by a site.
- Are you buying with the intent of making money by generating more ad revenue? This is one of the most popular strategies, but make sure you understand Search Engine Optimization (SEO). There is a science (as well as an art) to directing traffic (and thus ad revenue) to a website.
- Consider buying a site with traffic targeted toward a product or service that you already produce or sell. Use it to complement what you already know and do. You may also have opportunities for streamlining or merging operations as well -- saving money is a way of making money too![4]
- Think about buying a site in an underutilized niche. Seek out sites with the potential to have a popular keyword niche for search engines, or sites with built-in communities of members/fans whose support is not being effectively monetized. Such sites offer customer/brand loyalty but have often been haphazardly assembled over time.[5] If you have the skills to build a functional website that will more efficiently draw in traffic and revenue, this may be for you.
- Consider how much you want to pay. Websites are a buyer’s market with millions of alternatives always available, so be clear on what you are willing and able to invest and do not overpay.[6]
- Know the timeline you desire for your ROI (Return on Investment) -- that is, how long it will take you to earn back your purchase price. Basically, if you want your ROI within 1 year, don’t pay more than 12 times the monthly net profit of the site (12x).
- Some advise that a 12x purchase (12 times monthly net profit) is a good deal, 18x is average, and 24x is risky when buying websites.[7]
- Search for prospective sites to buy. Your main options are, in real estate buying terms, leafing through the “for sale” listings or utilizing a realtor.
- Do a keyword search for a business/product/service/field of interest and look deep into the results. Skim over the first couple pages of results, as these are likely to be stable, profitable, not-for-sale or too-expensive sites. Examine sites on later results pages and look for prospects that you think you could make more profitable. No, you don’t know if the site is for sale yet, so you are basically a “cold call” buyer in this method.
- Search on a website marketplace. The most well-know is probably flippa.com, but there are many options. Such marketplaces list sites for sale by category, price, etc., and often provide analytics and support in the buying/selling process. As with any investment opportunity, take your time and try to sniff out a good deal.
Making the Deal
- Do your homework on a prospective purchase. Once you’ve targeted one or more good-looking prospects, start digging deeper to determine the website’s true viability as an investment.
- Contact the seller. Ask for the information you need to know to make an informed opinion, such as site traffic, profit per visitor, monthly profits, purchase/payment methods, trial period possibilities, the possibility for short-term site support post-purchase, etc.
- Do your own research as well. Trust but verify, as they say. Consider conducting a WHOIS search -- which provides ownership information for a domain name -- on one of many available search platforms. Ask the prospective seller to install Google Analytics on the site and let you access the data personally, so you can make your own assessment of the site’s traffic, etc.[8]
- Strongly consider utilizing escrow if you make an offer. An escrow service provides a secure platform for online transactions. Essentially, you will be paying a small percentage fee to have a middleman conduct the transaction between buyer and seller.[9]
- Your funds are held in escrow until you inspect the website you intend to purchase to ensure that everything is in place and makes the money it claims. If the seller provides the option of escrow, go for it. If not, you may want to insist upon it, especially if you have any doubts about the trustworthiness of the seller.
- There are alternatives for escrow services for website transactions, but escrow.com is the most well-known.
- Take the website for a test drive. This is one major advantage of using an escrow service. They will hold your purchase funds in their own account, which you can release only after you are fully satisfied.
- Inspect the website before completing the purchase, even if you are not using an escrow service and need to negotiate your own terms. Ask the seller to verify its earnings. If you get a trial run offered by the seller, that's great. Get your hands on the account. Know it's working!
- Complete the purchase. Now that the site is yours, don’t waste any time determining how to make it more profitable. But don’t cast aside the seller quite yet, if possible.
- Ask the seller if he/she can provide support for a few months, even if you have to pay a small amount it's usually worth it. You can take over earnings more comfortably in this way. Some sellers do provide virtual assistance for a small monthly fee. In short, let the seller handle as much of the transition as you can. Focus your energies on making your new website a money-maker.
Warnings
- Don’t bite off more than you can chew. Make sure you can manage the website, since it involves SEO skills. You will need to do SEO or hire someone to do it for you. The cost of maintaining the website should be much lower than its monthly profit.
- Website selling is usually not as profitable as website buying. So try to minimize the initial cost. The lower you buy in, the sooner you cover the cost and start earning.
- Be wary of sellers who don't provide you the option of escrow. You need to make sure results are delivered. Once you see the results, go full steam ahead without wasting any time and start making money.
Sources and Citations
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