If you’re not excited about investing in websites yet, let me offer you a wakeup call.
Since 2018, Empire Flippers has sold 74 websites for $1M or more, and they’re just getting started.
Website investing is still a relatively new thing compared to the stock market or real estate investing, and offers incredible profit opportunities for the keen eyed investor.
In this guide, I’ll walk you through the whole website investing process, so you can start cashing in on this lucrative market.
What Exactly Is Website Investing?
Investing in websites means acquiring ownership or a stake in an online platform with the expectation of returning a profit.
Unlike traditional investments like stocks or real estate, website investing is unique in that it revolves around an online business. Investors might be involved in the day-to-day operations, or they might rely on a team or a manager to run the website. Investing in websites is great for those looking for a source of passive income.
Here are the main website investing strategies:
1. Buying Websites: Purchase a website, improve its content and traffic, and use its income for additional cash flow.
2. Flipping Websites: Buy a website, make it better quickly, and sell it for a profit.
3. Building Websites: A third, less common way of making money as a website investor is by building from scratch and then cash in the value you’ve built, either by selling sites or collecting revenue.
Which Website Business Model Should You Choose?
The digital landscape offers endless opportunities for people investing in websites. Here’s a breakdown of some of the most common business models used in online business:
- E-commerce: These are online stores that sell products or services. They can range from small niche stores selling handmade crafts to giants like Amazon.
- Affiliate Marketing Blogs: Personal or professional websites that share information, stories, reviews, or tutorials. They typically earn revenue through advertising, sponsored content, or affiliate marketing.
- SaaS (Software as a Service): Platforms that offer software solutions to users on a subscription basis. Examples include CRM tools, design software, or project management apps.
- Membership Sites: Platforms that offer premium content or benefits to members who pay a subscription fee.
- Online Courses and Educational Platforms: Websites that offer educational content, courses, or training programs, often for a fee.
- Forums and Community Platforms: Online communities where people discuss specific topics. They can be monetized through ads, premium memberships, or sponsored content.
How To Find Good Investment Websites
Profitable websites are everywhere. You’re looking at one. But instead of just surfing, how do you actually buy websites?
The website investing process always requires research, networking, and a bit of thinking outside the box, but here are some great ways to get started.
Contact a Website Broker Service
Website brokers are specialized platforms or agencies that facilitate the buying and selling of websites. They offer a curated list of websites available for sale, often with detailed analytics, revenue reports, and other essential data.
If this is your first site purchase, a broker might be a good idea.
Some of the top website broker services include:
One of the most popular platforms, Flippa offers a wide range of websites, domains, and apps for sale. It caters to both novice and experienced investors.
Known for its vetting process, Empire Flippers lists only high-quality websites, ensuring that buyers get value for their money.
Specializing in mid-market mergers and acquisitions, FE International offers high-end websites and online businesses for sale.
While it’s primarily a business marketplace, BizBuySell also has a section dedicated to websites and internet businesses.
Use Unofficial Website Investing Platforms Like Facebook
Social media platforms, especially Facebook, have numerous groups where members discuss website investing, and sell websites.
While these platforms can offer some hidden gems for the expert investor who doesn’t mind a bit of risk, the rest of us should exercise caution.
Due diligence is essential as these platforms lack the formal vetting process of official broker services.
Blindly Pitch Website Owners
An unconventional but sometimes effective method to website investing is to approach website owners directly, even if they haven’t listed their site for sale.
If you research websites and come across one that aligns with your investment goals, you can reach out with a proposal to buy.
Networking: Attend industry conferences, webinars, and seminars. Networking with industry peers can lead to investment opportunities that aren’t publicly listed.
Auctions: Some domain registrars and platforms hold auctions for websites and domains. GoDaddy Auctions is a popular choice in this category.
How to Evaluate a Website
So you’ve found a website worth looking into. The next step in the buying process is figuring out what it’s worth.
The value of a website is not just about its current earnings but a combination of factors that give insight into its potential future earnings and growth.
Here are the fundamental three factors to see if a website is a good investment.
- Revenue and Profit: The primary factor in determining a website’s value is its monthly or yearly earnings, and the operating costs to keep it running. This includes revenue from ads, sales, affiliate marketing, and other monetization methods. The operating costs would include ad costs, staff, hosting, warehousing, subscriptions, etc.
- Multiplier: A multiplier is used to evaluate the website’s current sales value based on past revenue. For instance, if a website earns $1,000 per month and uses a multiplier of 20, its value would be $20,000. The multiplier is decided based on the website’s niche, stability of earnings, history, and overall market situation.
- Growth Potential: Lastly, consider how you can increase your investment value. Where is the website underperforming? Are there immediate improvements you can make? If you can’t see growth potential, it may not be the correct website for you.
Tools and Platforms for Website Evaluation
Several tools can assist investors in evaluating a website’s worth and potential:
- Google Analytics: Provides detailed insights into website traffic, user behavior, and acquisition channels.
- SEMrush or Ahrefs: These tools offer comprehensive data on a website’s SEO performance, backlink profile, and competitive landscape.
- Flippa Valuation Tool: Offers a rough estimate of a website’s value based on its earnings and niche.
- SimilarWeb: Gives insights into a website’s traffic sources, audience demographics, and more.
- BuiltWith: Helps in understanding the technologies and platforms a website is built on.
Be Wary of Vanity Metrics: Traffic vs. Engagement
The first thing most buyers will look at is traffic. While traffic provides a quantitative measure of a website’s reach, in isolation it’s just a vanity metric. In other words, it’s something that only looks good on paper.
What you’re really interested in is user engagement: the portion of traffic that actually interacts with the site. These are the users that are worth money.
Understanding the relationship between traffic and engagement is crucial to properly evaluating a site.
Analysing Website Traffic
1. Sources of Traffic: Understanding where the traffic comes from is vital. Common sources include:
- Organic Search: Visitors who find the website through search engines, indicating strong SEO.
- Direct: Users who type the website’s URL directly, suggesting strong brand recall.
- Referral: Traffic coming from other websites linking back.
- Social: Visitors arriving from social media platforms.
- Paid: Traffic generated through paid advertising campaigns.
2. Volume and Consistency: A website with consistent and growing traffic is generally seen as more valuable. Spikes or drops in traffic can indicate events or issues that need further investigation.
3. Geographical Distribution: Knowing where the visitors are coming from can help in understanding market penetration and potential areas for expansion.
Analysing User Engagement
1. Average Session Duration: This metric indicates how long, on average, visitors stay on the website. Longer durations suggest that the content is engaging and relevant to the audience.
2. Pages Per Session: It shows the average number of pages a user visits during a single session. A higher number can indicate a well-structured website with compelling content that encourages exploration.
3. Bounce Rate: This represents the percentage of visitors who leave the website after viewing only one page. A high bounce rate might suggest that the landing page isn’t meeting user expectations or that the site has technical issues.
4. Interactions and Conversions: Tracking user interactions, like form submissions, blog comments, or video views, can provide insights into the website’s effectiveness in driving desired actions. Conversion rates, which measure the percentage of visitors who take a specific action, are a direct reflection of the website’s ability to meet its objectives.
5. User Feedback and Comments: Sections where users can leave feedback, reviews, or comments can be goldmines of information. They offer direct insights into what users like or dislike about the website.
6. Returning vs. New Users: A healthy mix of new and returning users suggests that the website is not only attracting new visitors but also offers value that keeps users coming back.
Assessing Content Quality and Brand Identity
High-quality content and a strong brand identity are cornerstones of a successful website.
In addition to driving traffic and user engagement, they also foster trust and loyalty among users, enhancing the website’s long-term value and potential.
Content is the primary reason users visit a website. Its quality directly impacts user engagement, retention, and conversion rates.
When assessing content quality, consider the following:
1. Relevance: Does the content address the needs and interests of the target audience? It should provide value, answer questions, or solve problems for the reader.
2. Originality: Unique and original content stands out in the crowded digital landscape. Plagiarized or repetitive content can harm a website’s reputation and SEO.
3. Depth and Detail: Comprehensive content that delves deep into topics is more likely to establish the website as an authority in its niche.
4. Presentation: The layout, use of images, typography, and overall design play a role in content readability and user experience.
5. Frequency: Regularly updated content not only keeps the audience engaged but is also favored by search engines.
A website’s brand identity is its unique fingerprint in the digital world. It’s what sets it apart from competitors and creates a lasting impression on visitors. Key elements to assess include:
1. Visual Consistency: The use of consistent colors, fonts, and design elements across the website reinforces brand identity.
2. Voice and Tone: The style of writing, whether formal, casual, humorous, or professional, should resonate with the target audience and be consistent across all content.
3. Logo and Imagery: A memorable logo and high-quality imagery can significantly enhance brand recall.
4. Mission and Values: A clear statement of the website’s mission, vision, and values can help build trust and loyalty among users.
5. User Testimonials and Reviews: Positive feedback from users or clients can bolster the website’s credibility and reinforce its brand identity.
Assessing the Website’s Monetization Strategies
Monetization strategies define how a website generates revenue, and understanding these can offer insights into its financial health and growth potential.
Here are some common monetization methods:
This is income generated from displaying advertisements on the website.
It can be through pay-per-click (PPC) where revenue is earned for every ad click, or through cost-per-thousand impressions (CPM) where earnings are based on the number of times an ad is viewed.
Platforms like Google AdSense or Media.net are popular choices for this model.
Websites that offer premium content or features often use subscription models. Users pay a recurring fee, monthly or annually, to access exclusive content, tools, or services.
This model can provide a steady and predictable revenue stream.
E-commerce websites earn revenue by selling products or services.
It’s essential to assess the profit margins, sales volume, and return rates to gauge the effectiveness of this monetization strategy.
Some websites promote products or services of other companies and earn a commission for every sale or lead generated through their referral links.
Platforms like Amazon Associates or ClickBank are commonly used for affiliate marketing.
Websites, especially blogs or magazines, might publish content sponsored by other brands or companies.
This content is usually labeled as “sponsored” and is a way for websites to earn revenue by leveraging their audience reach.
In evaluating a website’s monetization strategies, it’s crucial to consider the diversity of revenue streams, scalability, and the alignment of these strategies with the website’s content and audience.
A diversified monetization approach can offer stability, especially in changing market conditions.
Costs Associated with Running the Website
Operating a website involves various expenses that can impact its profitability and return on investment. Here are some of the primary costs to consider:
- Hosting and Domain: Every website needs a domain name and hosting. While domain costs are typically annual, hosting can be monthly or yearly, with prices varying based on the type of hosting (shared, VPS, dedicated) and the provider.
- Content Creation: Whether it’s blog posts, videos, graphics, or other forms of content, there might be costs associated with hiring writers, designers, videographers, or editors.
- Platform and Plugin Licenses: Websites built on platforms like WordPress might require premium themes or plugins, which come with licensing fees.
- Maintenance and Technical Support: Regular website maintenance, updates, and potential troubleshooting are essential to ensure the site runs smoothly. This might involve hiring a web developer or technician.
- Marketing and Advertising: Driving traffic to the website can involve costs related to search engine optimization (SEO), pay-per-click (PPC) advertising, social media marketing, and other promotional activities.
- E-commerce Specific Costs: For online stores, there are additional expenses like payment gateway fees, inventory costs, shipping, and handling, as well as returns processing.
Understanding the full spectrum of operational costs is crucial for investors as it provides a clearer picture of the net profit margins and helps in making informed decisions about potential optimizations or investments in the website’s growth.
Due Diligence in Website Investments
Now that you have a good idea of what your target website is worth, the next step is due diligence.
When buying websites, due diligence is the comprehensive appraisal of assets, liabilities, potential risks, and opportunities, performed by a prospective buyer. It’s a critical step before making any investment decision, especially in the digital marketing realm where appearances can be deceiving. Find a detailed guide to due diligence in this blog post.
Best Professional Website Due Diligence Services
When considering an investment in a website, leveraging professional due diligence services can be invaluable. These services offer expert analysis, ensuring that potential investors get a comprehensive and unbiased view of the website’s assets, liabilities, and potential risks.
Here are some of the top website due diligence services:
Centurica: Renowned for its detailed website assessments, Centurica covers everything from financials and operations to traffic and technical analysis. Their reports are comprehensive, providing investors with a clear picture of the website’s health and potential.
Durkin Group: A distinguished professional services organization, Durkin has made its mark in the realm of financial due diligence and auditing for online business acquisitions.
Intrinsic, LLC: Established as a solid player in the financial due diligence and merger and acquisition advisory space, they offer specialized services for private equity transactions and business acquisitions.
Marcum LLP: A full-service accounting and advisory firm that specializes in financial due diligence, particularly for tech, digital, and internet businesses.
Flippa: The due diligence service of the popular online business broker aims to unlock insights, reveal performance benchmarks, and identify potential growth opportunities. However, they are less full-service than most of the other options.
Due Diligence Checklist for Website Investors
Whether you hire outside help, or perform your own due diligence, make sure you covers all bases.
We have a detailed guide to due diligence, but here’s a quick overview:
1. Financial Analysis:
- Verify revenue streams and their consistency.
- Assess profit margins and operational costs.
- Review past financial statements and tax returns.
- Check for any undisclosed debts or liabilities.
2. Traffic Verification:
- Confirm traffic sources and their sustainability.
- Analyze organic vs. paid traffic.
- Evaluate geographical distribution of visitors.
- Check for any signs of fake or bought traffic.
3. Technical Assessment:
- Review the website’s hosting setup and scalability.
- Check for website speed and mobile responsiveness.
- Identify any security vulnerabilities or past breaches.
- Evaluate the platform and software the website is built on.
4. Content and SEO Analysis:
- Verify the originality of content using plagiarism tools.
- Assess the quality and relevance of content.
- Check the website’s backlink profile for quality and relevance.
- Identify any past or potential Google penalties.
5. Operational Review:
- Understand the day-to-day operations and management.
- Identify key personnel and their roles.
- Evaluate any third-party relationships or dependencies.
6. Legal and Compliance:
- Check for copyrights, trademarks, or patents associated with the website.
- Ensure compliance with regulations like GDPR or CCPA.
- Identify any past or ongoing legal disputes.
7. Monetization Evaluation:
- Verify current monetization methods and their effectiveness.
- Identify potential new revenue streams.
- Assess the sustainability and dependency on primary revenue sources.
8. Competitive Landscape:
- Identify main competitors and their strengths/weaknesses.
- Understand the website’s unique value proposition in its niche.
- Evaluate market trends and potential threats or opportunities.
9. Brand and Reputation:
- Gauge brand recognition and reputation in the industry.
- Review user feedback, testimonials, and reviews.
- Check for any negative publicity or PR issues.
10. Growth Potential and Strategy:
- Assess current growth rates and future projections.
- Identify untapped markets or audience segments.
- Evaluate the scalability of current strategies.
Quickly Identifying Potential Red Flags
In the realm of website investments, not all that glitters is gold.
While a website might present impressive metrics on the surface, delving deeper can sometimes reveal concerning issues. Here are some potential red flags and pitfalls that you should be wary of:
Inconsistent or Inflated Earnings: If a website’s revenue shows sudden spikes without a clear reason or if the earnings seem too good to be true, it warrants a deeper investigation.
Over-reliance on a Single Traffic Source: Websites that derive the majority of their traffic from one source, be it organic search, paid ads, or social media, are at risk. Any changes or issues with that source can drastically impact the website’s performance.
High Bounce Rate: A consistently high bounce rate can indicate poor content quality, technical issues, or misleading marketing tactics that bring irrelevant traffic.
Outdated or Vulnerable Technology: Websites running on outdated platforms or plugins are more susceptible to security breaches and may not offer the best user experience.
Google Penalties: Past or current Google penalties can severely hamper a website’s organic traffic and indicate practices that are not in line with Google’s guidelines.
Lack of Original Content: Websites that rely heavily on copied or syndicated content can face SEO issues and lack a unique value proposition.
Undisclosed Liabilities: Hidden debts, unresolved disputes, or pending legal issues can become significant liabilities for the new owner.
Over-optimization for Sale: Some websites might be optimized to look appealing for a sale, with tactics like paid traffic boosts or short-term monetization strategies that aren’t sustainable.
Negative Reviews or Reputation: A tarnished reputation, especially in the online world, can be hard to recover from. Negative reviews, complaints, or bad press can deter potential customers.
Lack of Transparency from the Seller: If the seller is reluctant to share essential data, avoids answering specific questions, or seems evasive, it’s a clear red flag.
Volatile Industry or Niche: Some niches are subject to rapid changes, regulatory challenges, or seasonal fluctuations. It’s essential to understand the stability of the industry the website operates in.
By being vigilant and recognizing these red flags early on, you can save yourself a ton of headache later.
How To Make The Acquisition
When it comes to acquiring a website, investors have the option to either handle the purchase themselves or employ the services of a broker.
Both approaches come with their advantages and drawback.
Pros of Purchasing Yourself:
- Cost Savings: Without a broker’s commission, you might save on the overall cost of the acquisition.
- Direct Communication: Engaging directly with the seller can lead to more transparent and immediate discussions.
- Personal Due Diligence: Handling the process yourself allows for a hands-on approach to due diligence, ensuring all concerns are personally addressed.
Cons of Purchasing Yourself:
- Time-Consuming: The acquisition process can be lengthy, from initial research to final negotiations.
- Potential Overlooked Details: Without expert guidance, some critical aspects of the deal might be missed.
- Negotiation Challenges: Without experience, negotiating the best terms and price can be daunting.
Pros of Using a Broker:
- Expertise: Brokers bring experience and knowledge, ensuring a smoother acquisition process.
- Better Access to Listings: Established brokers might have access to exclusive listings not available to the general public.
- Negotiation Skills: Brokers can leverage their experience to negotiate favorable terms and prices.
Cons of Using a Broker:
- Commission Fees: Brokers charge a fee, usually a percentage of the sale price.
- Potential Conflicts of Interest: Some brokers might prioritize higher commission deals over the best fit for the investor.
Acquiring a website can be a significant investment, and not all buyers have the necessary funds upfront. Here are some financing options to consider:
- Seller Financing: In this arrangement, the seller agrees to accept a portion of the purchase price upfront, with the remainder paid over time, typically with interest. This can be beneficial for both parties, allowing the buyer more flexibility and the seller to earn interest.
- Bank Loans: Traditional bank loans can be used to finance website acquisitions. However, securing such loans requires a solid credit history and might involve providing collateral.
- Investment Partners: Bringing in partners or investors can help pool resources. In exchange, these partners would own a share of the website and its future profits.
- Online Lending Platforms: Websites like LendingClub or Prosper offer peer-to-peer lending options, which can be an alternative to traditional bank loans.
- Venture Capital or Angel Investors: For websites with high growth potential, seeking funding from venture capitalists or angel investors might be an option. However, this often involves giving up equity in the business.
- Personal Savings: Using personal savings eliminates debt but also involves personal financial risk.
- Home Equity Loans: Some investors might tap into their home equity to finance a website purchase. While this can offer lower interest rates, it also puts the home at risk if repayments aren’t made.
Each financing option comes with its risks and benefits. It’s crucial for investors to assess their financial situation, risk tolerance, and the potential of the website before deciding on the best financing route.
Forming Your Exit Strategy
Regardless of business model, every website investor should have an exit strategy in mind.
Whether you’re flipping websites, merging with another entity, or transitioning to a different model, having a clear plan for your eventual exit can maximize returns and streamline the process.
Here’s a guide to formulating and executing an effective exit strategy:
1. Importance of Detailed Records
- Accounts and Financials: Keeping meticulous records of all financial transactions, including revenue streams, expenses, and profits, provides a transparent picture of the website’s financial health. This not only aids in valuation but also instills confidence in potential buyers.
- Traffic Analytics: Detailed records of website traffic, user demographics, engagement metrics, and conversion rates can validate the site’s performance and potential. Tools like Google Analytics can provide comprehensive insights.
- Operational Documentation: Manuals, SOPs (Standard Operating Procedures), and other operational documents can ease the transition for the new owner, reducing potential disruptions.
- Legal and Compliance: Maintaining records of licenses, copyrights, trademarks, and any legal disputes or resolutions ensures that all legal aspects are transparent and up-to-date.
2. Timing the Exit
Understanding market trends, industry cycles, and the website’s growth trajectory can help determine the optimal time to sell. Exiting at a peak can maximize returns, while waiting too long might diminish the website’s value.
Before listing the website for sale, it’s crucial to determine its worth. This involves analyzing its earnings, growth potential, assets, and comparing it with similar websites in the market.
4. Preparing for Sale
- Optimizing Performance: Before selling, consider implementing strategies to boost traffic, improve user engagement, or increase revenue. This can enhance the website’s appeal to potential buyers.
- Addressing Weaknesses: Rectify any technical issues, update outdated content, and ensure that all legal and compliance aspects are in order.
5. Choosing a Sales Platform
Depending on the website’s size and niche, you can opt for specialized brokers, online marketplaces like Flippa or Empire Flippers, or direct sales through personal networks.
6. Negotiation and Transfer
Once a potential buyer is identified, negotiate the terms of the sale, ensuring that all legal and financial aspects are addressed. After the sale, ensure a smooth transition, including the transfer of domains, hosting, and any other assets.
7. Reinvestment or Diversification
With the proceeds from the sale, consider reinvesting in another online venture or diversifying your investment portfolio to spread risk and maximize returns.
We’ve learned a lot about buying and selling websites in this guide. Websites can be a great way to make money if you know what to look for and how to do it right.
Remember the steps we talked about: understanding websites, checking if they’re good to buy, and knowing when to sell. Now, it’s your turn to try.
Use what you’ve learned, be smart, and have fun exploring the world of website investing. Good luck!