Case Study Buying Websites For Fun & For Profit

Discussion in 'Case Studies and Journals' started by nate, Dec 11, 2015.

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  1. nate

    nate Member

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    As a website seller, I've sold a lot of sites over the last few years. I sell websites on occasion mainly because it provides capital for other ventures, and its also a way to hedge against the volatility of Google traffic.

    Building sites up from scratch is fun and profitable, but if you have the capital, there's a lot of opportunities to buy an existing asset and leverage someone else's hard work into a quick return. Especially given how much time and energy it can take to build a quality site up from scratch.

    Lately, I've started venturing into the acquisition side of the website buying/selling game. I've made 2 acquisitions so far from Flippa within the last few months (please don't out the sites if you've seen the auctions):

    • 1 content site for around 6k. Paid about 20X monthly revenue (made the seller an early BIN offer). Stable organic traffic over 4 years but basically all Google traffic.
    • 1 classifieds site for around mid 5 figures. Over a decade old. Paid about 3X annual net revenue. Acquired with a partner. About 10% comes from referral traffic, 25ish from direct visitors and about 5% from adwords. There are a ton of ways to add value on this one, which I'll share once (if?) I start seeing results.

    Both sites drive most of their traffic from Google, but they weren't owned by SEOs. This isn't necessarily because I'm against buying sites owned by SEOs, but more because its easier to find extra value when you have an edge somewhere.

    Here's some of the criteria I'm using to identify opportunities for site acquisitions.

    • Can I get a good passive ROI? Most online entrepreneurs don't look at websites like they're investments but when you think about it, if a site has been stable for years and you can acquire it for 2 times annual earnings, you can run it as a passive investment with an annual ROI of 50%. Its a riskier investment for sure and I personally wouldn't buy websites just to hold them passively, but its still a consideration. The valuations are usually lower than buying local brick and mortar businesses, and most brick and mortar small businesses can't just be acquired and run like passive investment. They can't be scaled as quickly either.
    • Can I improve monetization? This is the easiest win - if you can buy a site at 25X monthly and increase revenue 50% right away, you effectively paid 16.6X instead. With the classifieds site for example, I saw a multiple opportunities to increase revenue with better monetization, so I was willing to pay more. Some easy wins here include: promoting affiliate offers, adding more ad units, split testing ad units etc. Or there might be opportunities to move up the value chain - I sold a site once where the buyer switched out my ads for lead gen.
    • Can I leverage the domain authority? I.e. are there lots of relatively low competition keywords in the niche that I could rank for fairly easily because of the site's existing authority in the niche? If you have a PBN or a bunch of contributor accounts, then these assets can be combined with the site's existing niche authority to add value right away.
    • If the site relies on search traffic, how reliable is the traffic? Is the backlink profile clean? Has it been consistent for at least 1 year? Is it reliant on a handful of keywords in position 1-2-3, or is it mostly longtail traffic trickling in?
    • Has the site ever been penalized? Check SEMrush, see if there are any big drops matching big updates like Panda/Penguin.
    • Is the traffic legit? Checking Google Analytics isn't enough. You need to cross reference the claimed traffic with tools like semrush and really understand were the traffic comes from. If you see traffic in Google Analytics but you don't really understand where its coming from - its likely bot traffic.
    • Can the UX be improved to lower bounce rate/increase pageviews?
    • Is the backlink profile clean?
    • Does the site have some legitimate authority in the niche? This isn't required, but its worth paying a higher multiple for. The classifieds site I purchased had a bit of this - its still heavily reliant on Google but has a returning customer/reader base.

    I have enough projects going on that I probably won't make any acquisitions for awhile, but if I wanted to focus more on this, I would build a system to scrape and prospect for site acquisitions outside of Flippa or brokers. Its like real estate investors who mail out "we buy houses" flyers - if you actively prospect for acquisitions, you can find better deals.

    I'll pop in here once in awhile to update if I make another acquisition, or if something changes significantly with one of my existing purchases.
     
    Last edited: Dec 16, 2015
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  2. cardine

    cardine Administrator Staff Member

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    I really like this and it's something that I hadn't really thought about it before. I've finally started truly split testing my sites and I'm driving up conversion rates by just continually A/B testing, and I think for sites like this there is a huge amount of money being left on the table that you can squeeze out by obsessively A/B split testing everything.

    It's something to think about (and clearly you are thinking about it) - buying a site where you think at its current multiple it's at least a break even investment, and then anything extra you can squeeze out through split testing becomes pure profit.

    This was something I was considering a while ago: Take keyword data (traffic and average search CPCs) and calculate the value of a site ranking at position Y for keyword X. Then go through all of the sites ranking for those keywords, pull contact information from their site (or whois) and then automate sending them a templated email (with the name from the whois info) offering them a super lowball offer and by contacting thousands of sites banking on the fact that there are bound to be people with sites that are ranking and aren't even being monetized who would sell. I still think it is something that could work really well.

    Awesome, looking forward to following your progress as those two sites progress towards being break even (and later profitable!)
     
  3. Insaint

    Insaint Member

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    For those of you fluent in a language other than English the opportunities are even greater. Where quality English websites sell for a multiple of 25-30 foreign (Western European) language sites usually sell for a multiple of 15-20. I imagine this will be even lower for areas with low income. Of course this also applies when you sell a site, but the ROI is amazing. Usually there is less competition for traffic as well.

    I'm fairly passive with my investments. Usually there's a flurry of activity at the start to improve UX, monetization and traffic. After that I either sell them or spend less than an hour a month per site. I'm sure you could get a nice fully passive ROI if you are very picky with the sites you buy, but I think you will be leaving a lot of money on the table if you don't at least apply simple fixes.

    Due diligence before the purchase is the most important and lengthy part for me. So many sites that look great on the surface have major problems once you start digging.

    Do you look into e-commerce at all, or only content sites?
     
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  4. Golan

    Golan Established Member

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    Nice guide, thank you.

    Everyone on forums is talking about how to sell sites on Flippa; it's great to hear finally from someone who actually buys them.
     
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  5. stackcash

    stackcash New Member

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    I'm about to sell off a few of my sites to help grow some newer ones. Do you guys think there's much of a benefit from using a broker (at a premium) over a marketplace like Flippa?
     
  6. Insaint

    Insaint Member

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    It depends. On Flippa it is easier to reach a high multiple (say 40+) for a smallish site if you can hype its potential. See Tavin's branded magazine sales on WF. But it seems harder to sell large sites with proven income for a multiple of around 30. I imagine using a broker will also cut down on the amount of tire-kickers you have to deal with. I've only sold a few smaller sites through Flippa, but the amount of random questions you get is annoying. I imagine this will be far worse if you sell a 100k+ site.
     
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  7. cardine

    cardine Administrator Staff Member

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    For something like this you might want to consider Flippa DealFlow as well. I've never used it, but it seems like it is catered much more towards premium sites that might be sold at higher multiples.
     
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  8. nate

    nate Member

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    Flippa in general has improved their process for selling quality sites imo. If you have a good site, they have an editor/broker manage your listing and feature it on the homepage. You still have to do the heavy lifting, but this really helps buyers sort through the garbage and gives your listing more exposure. Also, the editor/broker will start reaching out to buyers at the end of the auction and try to get you a higher BIN price.

    I've heard that Flippa dealflow wasn't being managed very well, but I haven't actually used it personally. It may have improved.

    For sites in the 100k+ range you're generally going to get a higher multiple working with brokers imho, but like insaint said for sites with lower income you can actually do better on Flippa if you run the auction well. The trade off is it can be a part-time job managing the listing and being really responsive.
     
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  9. nate

    nate Member

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    Agreed with all of the above.

    I'm only looking content sites since I can just plug them into my workflow after the initial improvements. E-commerce adds another dimension I just don't want to deal with at the moment.
     
  10. nate

    nate Member

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    Yeah, I've wanted to do this for awhile but never really found the time. I remember reading a blog awhile back where some someone did exactly this, just finding undervalued aged sites and turning around and flipping them on Flippa.

    Here:
    http://www.tomsadventure.com/findin...es-part-ii-–-how-to-estimate-a-sites-traffic/
    http://www.tomsadventure.com/findin...part-iii-–-building-your-million-domain-list/
    http://www.tomsadventure.com/findin...nual-review-bonus-my-2110-target-domain-list/

    This was written quite a few years ago and the system could use some refinement, but its the same basic idea of scrapping and filtering for potentially valuable sites and sending bulk offers.

    Looking forward to seeing where this forum goes!
     
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  11. Insaint

    Insaint Member

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    I remember seeing quite a few sites from that guy on Flippa when I started out and I always wondered where he got those old sites from. I never knew he explained his process somewhere. I think he could've made a lot more money if he spend some more time on the sites before flipping them. I imagine his hourly was pretty damn good though.

    Probably an amazing way to build a PBN as well. As long as you can avoid a whois/monetization footprint you're golden.

    It is a lot easier to streamline content sites I agree. Though I'm leaning towards e-commerce at the moment because the ROI generally is so much higher. Especially because simple additions like abandoned cart recovery, sponsoring and paid ads can add a lot to the bottomline. You will be trading time for that higher ROI though unless you can automate/outsource everything.
     
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  12. nate

    nate Member

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    Yeah, e-commerce gives you a lot of opportunities for optimization on the backend.The classifieds site offers similar opportunities. It (under) monetizes through adsense but also monetizes through direct ad sales (posters can buy featured listings or listing upgrades). One of the opportunities my partner and I see here is optimizing the funnel and raising prices to increase customer values, and also try marketing to the list of people who have posted on the site before (there are 40k+ users in the database). The old owner never emailed them.

    Btw a tip on Adsense optimization, I'm seeing an easy win w/ just taking a standard Adsense layout and optimizing with Ezoic.com. You can get access to Google Ad Exchange through their partner program (which you normally wouldn't get as a small publisher) which gives you 5 Adsense ads, and they do automated split testing and optimization as well. I started testing them on a couple small sites last month and seeing good results so far. 30-40% increase in ad revenues on sites where I had already done a bit of optimization.

    There's a 30 day free trial if you want to try it yourself. If you keep using it, you effectively pay a monthly fee of 2% or less depending on revenue, or they put a small link unit at the bottom of your site and you don't pay anything.
     
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  13. cardine

    cardine Administrator Staff Member

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    Are those emails single opt-in or double opt-in? Emailing previous signups is an awesome way to squeeze out extra value and ROI for a sale (especially if the old owner never emailed them), although for Flippa you always have to be careful with that. I sold a free hosting site on Flippa once which boasted around 150,000 unique accounts, but since it was single opt-in the number of valid emails could very easily have been a tenth of that.
     
  14. Brad

    Brad Active Member

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    Im wondering if I should take a dip in the flippa pond or not. I have a SEO business in a top 10 major city ranking in the top 10 on page 1 of google, its more of a place holder company and website. Just wondering if anyone would buy it and what they would pay for it.
     
  15. cardine

    cardine Administrator Staff Member

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    For most things on Flippa you are only going to be able to sell it for multiples of revenue. This makes it great if you are a buyer and can spot unmonetized diamonds in the rough, but as a seller you likely aren't going to get any good value for a place holder site. I think you'd be better off trying to monetize it first, or directly going after another SEO company and trying to sell it to them.
     
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  16. Brad

    Brad Active Member

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    I agree.. its basically a well ranking seo site in a major us city, but since its not my main business it just sits their gaining rank position. As they say everything has its price.
     
  17. nate

    nate Member

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    Actually 49k single opt-in, 30k double opt-in, about 1000 of them are phone verified as well. Some of them were collected a few years ago though.

    Agreed that you have to be careful on Flippa with these kinds of things - hard to gauge the value until you've actually mailed the list. I wouldn't factor this into a valuation, they're just a nice to have.
     
  18. nate

    nate Member

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    There are 2 ways you can go with this assuming you're not going to build the business out yourself:

    1. Post it on Flippa and really try to hype up the "potential" angle. A lot of SEOs/wannabe SEOs check Flippa so you could probably get something for it even with no revenue. I'd say look at Tavin's thread on WF for some tips, but I think you only get access to that now if you're committed to success.

    2. Monetize it by renting it out/selling leads and hold it. If you want a quick flip for a lower multiple hold it for 3 months (likely 15-24x), if you want a higher multiple hold it for at least 1 year (25-30x). Then you can sell based on multiple of revenue which will likely get you a much higher overall price if you monetize well, plus you actually collect revenue while its sitting there.
     
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  19. Brad

    Brad Active Member

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    Nate I think your dead on.. I did giggle when you said selling leads (that's the real business). I do like the idea of selling it to a seo wanna be.
     
  20. Insaint

    Insaint Member

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    That looks pretty cool, thanks.

    Another tip for monetization: use your big sites as leverage. For my biggest site I got contacted by a few premium ad networks which was nice on its own as they paid a lot more than AdSense. Once I ran their ads for a few months I contacted them to get a few of my smaller sites into their network. On their own these sites were too small to be considered, but they want to keep their publishers happy so they let them in anyway.

    This is especially nice for niches with a low CPC as these ad networks usually only work with CPM ads.
     
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