Buying websites in 2014 is one of the best ways to generate wealth online. Over the last year, my business partner, Chris Yates, and I have bought and sold several websites for a great income.
We also run a live event and a monthly mastermind group for website owners. Our experience has shown us and our clients, the power of buying websites and generating a tremendous return on our money.
First, we are not talking about buying “domain names”, but rather buying websites with a history of traffic. Although finding websites to purchase with established revenue is preferred, it’s not a requirement.
For example, you could find a website for sale with 25,000 unique visits per month in a niche you already own several websites. You know how to monetize the traffic for websites in the niche already so you might want to buy the website since the traffic is already established and you don’t need to figure out how to grow that portion of the website.
This is just one approach some online entrepreneurs are using to grow their online income.
Buying Websites vs. Building Websites
The majority of individuals who want to own a website believe they need to build it from scratch. They immediately start searching available domain names and thinking about the content they need to create for the website.
One of the most frustrating and time-consuming aspects of building a website is creating the content. When buying websites you are buying the content already created by the previous owner. Buying websites saves a lot of time and headaches of writing the website content from scratch.
Here is a professional tip when you start buying websites. Check the content of the website you are looking to purchase for originality, quality and personality.
You can check the originality by copying content from a website page and pasting it in sites like grammarly.com or checking the site against tools like Copyscape.com.
You determine the quality of a websites’ content, take the time to read the pages. Don’t just look at the home page and read a couple paragraphs. Actually take the time to drill down in the websites’ sub pages and read the entire page of content. You’ll discover a lot about the writer when you do.
You’ll also want to know the personality of the writers who’ve added content to the site before you thinking about buying a website. What if you are a very conservative person and end up buying a website who’s content writer contradicts a lot of your beliefs? It’s going to be hard to develop content to match the existing personality without outsourcing it. If you decided to write in your conservative style, you may end up losing some of the returning traffic to the site who like the original style.
Even though you need to take some time to pay attention to content of a website you are looking to purchase, it’s faster and easier to buy the website then build it, in our experience.
Buying Websites 3 Months Old vs. 3 Years Old
Another key indicator some online entrepreneurs pay attention to when buying websites is looking at the age of the site. In our experience its riskier to purchase a 3 month old website with 20,000 unique visits a month then buying a 3 year old website with 5,000 unique visits per month.
Although you can get four times the amount of traffic with the 3 month old website, it’s much safer to purchase a site with a history of consistent traffic. We always look at age of a website when doing our due diligence. We are buying websites with a history of consistent and steady traffic growth. If the website has huge spikes in traffic or the website is losing traffic over time, it raises a red flag for us.
Although a spike in traffic growth can just mean a keyword phrase reached number one in google, it could also mean some black hat strategies were used to get that traffic. This is where we drill down on the traffic source and understand the analytics of the site much better than just looking at a basic google analytics report.
When buying websites, we find it much easier to drill down on the traffic analytics with a 3 year old website, then a 3 month old website. Our comfort level is much better when buying websites 3 years old because of it.
Finding Websites to Buy
In 2014, there will be plenty of options for buying websites. There are several options online and offline, believe it or not. Here is a list of online sources for buying websites.
The key is to find websites to buy that are undervalued and not being overpriced by an online auction. That being said you can still find good values in an online auction site such as Flippa.com. However, you need to spend a lot of time searching and monitoring listings and be willing to do the majority of due diligence on the website you want to buy after the auction has ended in order to get the undervalued website.
We’ve found the best approach to finding quality websites to buy is “networking”. I’ve never been much of a networker. In the past if I went to a party, I would be the one in the back of the room close to the food table not talking to a lot of people. Striking up generic conversations was just not my thing.
However, when I started hanging out with more successful entrepreneurs as I built my own companies, I discovered their secret to success. It was to hang out with other successful entrepreneurs and talk shop.
The more you connect with other entrepreneurs in your space and tell others what you do, the more connections you build. One of my favorite quotes of all time is:
Your Network Equals Your Net Worth
I think of this quote anytime I don’t feel like hanging out at a seminar or convention and talking with strangers.
I have created significant wealth for myself by networking. By connecting with other entrepreneurs, investors and mentors I’ve accomplished a couple things. First, I expanded my network. I know more people I can reach out to for assistance or to help when needed. My network knows what I do. They expand the network for me by introducing other people interested in learning more about what I do.
Second, with the expanded networking knowing what I do, they bring deals to me all the time. Doesn’t it make sense? If you own a website you’d like to sell and know someone that buys websites for a living, wouldn’t you approach them first?
Networking at live events and joining mastermind and entrepreneur groups is critical to our business of buying websites and should be for you as well if you’re looking to buy websites in 2014.
Valuing Websites to Buy in 2014
A few years ago when I first started buying websites, valuations for websites were unbelievable. It’s what attracted me to the industry of buying websites. Where else could you buy an asset at a monthly multiple of 6 or 8?
The first 10 websites Chris and I bought averaged a valuation multiple of 8 times the monthly profit of the website. For example, if the average price of the 10 websites we bought was $9,600, they were generating an average of $14,400 per year in profit.
Another way to explain it, we made our original investment of the website back within 8 months. That’s a 150% return on the money we used to buy the website.
To put that in perspective, I had a real estate deal I’d partnered with another friend of mine just before I started buying websites back in 2008. On the real estate deal, I made 25% on my money and was thrilled. However, when I saw 150%, I changed quickly to online real estate transactions (virtual real estate) instead of physical real estate.
In 2014 the multiples of website deals is going to change. You won’t see many 6 to 8 times multiples as you once did. In 2013, Chris and I found that the average we and our clients would need to look at for multiples was our 2 years times profit of the website.
When I’ve made the statement recently to various entrepreneurs that valuations of websites are starting to move into the 2 year multiple range, they ask why aren’t you just buying offline businesses then since they are right around the same multiple?
My answer is really simple. First, the amount of revenue you have to generate with an offline business to generate the same amount of profit with an online business typically is 100% or higher. If you profit $10,000 with each business, the offline business typically needs to generate $20,000 or more in revenue, whereas the online business has a much higher profit margin and only needs to generate $11,000 on average.
Second, the offline business typically has much higher fixed expenses. If the business were to stop generating revenue tomorrow, you still have the fixed expenses, whereas with the online business you’re hard costs are usually pretty minimal.
3 Ways for Buying Websites 2014
There are three ways to find the money you need for buying websites.
First, you can use your own money. Use cash or borrow money from your credit card or savings. You can borrow money from a bank line of credit. All of these approaches are using your money. It’s the most commonly used approached and if you’re just starting out buying websites, this is probably where you’ll need to start.
Second, you can partner with someone else who has the money. Working with investors is key to growing an online portfolio. If you’re in the business of buying websites long enough, you’ll need to attract investors. This again is where networking comes in. If your network knows what you do and how well you do, they’ll bring the investors to you.
However, investors don’t go into business with someone who has never bought a website before. They want people who have a proven track record of success. Don’t seek investors until you proven your capable of buying websites successfully first.
Third, you can do a joint venture with the current owner. Perhaps you don’t have enough money to pay the owner of the website what they want, for the website you want to purchase. You could approach the current owner and ask if they would be willing to joint venture with you.
A joint venture can take be created in several ways. The current website owner could keep some ownership in the website, while you take over the running of the website and some ownership. You can offer a percentage of the sale price up front and a payment plan for the remaining portion of the site.
The key is to be creative with the joint venture and ask what they owner is looking for. You will want to create a win-win scenario to keep the website owner happy while you are still connected with the website.