Buyer Due Diligence Checklist
Whether you’re a first-time website buyer or an experienced web entrepreneur, it is always important to perform proper due diligence before placing a bid.
For those unfamiliar with due diligence, it is the process of verifying that an asset is as it is claimed to be. In the case of due diligence on websites, it’s making sure that revenue and traffic claims are accurate and ensuring the online business isn’t fraudulent in any way.
With the help of our marketplace integrity team, we have pinpointed some of the top questions to ask and areas to focus on when looking at an asset for purchase. Below is the complete buyer’s due diligence guide and checklist.
One of the first things you should check is to make sure you understand the business model and how it operates. For example, is it an eCommerce site or does it provide a service? Does it carry any inventory or not?
If you’re unsure about the business model, make sure the owner clarifies:
- The hourly time commitment, broken down by task
- Any technical expertise required to operate the business (ex: knowledge of WordPress, Amazon Affiliates, etc.)
- Monetization Methods
You can verify the owner by checking the site through a WhoIs lookup.
Personally, we recommend whois.domaintools.com. From there, search for the domain and scroll down to whois history. Click through some whois records to see if the owner has changed recently.
For example, here is Flippa.com’s WhoIs history.
If the domain is under privacy, you can also check the hosting history and see if there have been any IP address, hosting provider and domain registrar changes. This will not tell you with 100% certainty that the owner has changed, but if all three have changed (around the same time, +/- 3 days), it is likely.
Checking for plagiarism isn’t just something college professors do. Verify that the site has original content will help confirm that the website is built using whitehat SEO tactics.
Our personal favorite tool to use is copyscape.com.
This will show if there are other copies of the site out there. If you spot very similar sites, it may mean that the site is either using someone else’s design, the theme is very popular, or the seller has other competing sites.
In case of blogs, it is recommended to check a random sample of 5-10 articles, to verify they are original and not stolen from elsewhere.
To verify if the business has been established for as long as the seller has claimed, go to: archive.org and search for the domain. Always check for more than one screenshot, something from the beginning, middle and end.
Note: If the business is very young (less than 6 months), archive.org might not have that domain archived yet.
One thing to look out for is big gaps in archived pages as this may indicate that the site was down during that time. Below as an example is Flippa.com:
You’ll notice that from 2005 to 2008 there’s almost nothing archived. In this case, you would need to take a look at the last and first screenshot from that gap. In many case this will show that the domain was parked, meaning that most likely it had not been used for the entire time.
In this particular case, it was parked and redirected to seeq.com.
Sometimes archive.org may show something like this:
In this case, click on the link to the robots.txt file. Sometimes the seller has blocked archive.org by mistake and sometimes it is intentional, if they want to hide the true age of the site for example. But in either case, you would need to be cautious.
If you see that robots.txt has disallowed all spiders apart from Google and Bing, it’s not a red flag. But if you see that they have disallowed archive.org specifically, this would raise a red flag.
A non-compete form prevents a seller from competing with the site you just bought from them for a pre-determined amount of time (typically 2-3 years).
If the seller says that they can’t sign it, find out why and if this can be negotiated. For example, in some cases, they don’t want to sign a very broad non-compete, which is understandable, but if it is very specific, most sellers are willing to sign it.
Another example would be that they have another similar site, in which case, ask if they would be willing to include it in the sale for the right price.
Check if there is a trademark for the business name or domain name. If there is a trademark in a similar niche, ask the seller if they own the trademark and will include it with the sale or if they have the right to use that trademark.
Also check that the domain isn’t infringing on any trademarks, for example, iphone7.com or theandroid.com. Note though that trademarks in names are fine if the site is in no way infringing, i.e iphoneyou.com is fine if it is a blog about phone calls, called “I phone you” but not fine if it is an eCommerce site selling iPhones (unless the have permission from Apple to use the name).
For more on trademarks:
US trademarks: https://www.uspto.gov/trademarks-application-process/search-trademark-database
Australian trademarks: http://pericles.ipaustralia.gov.au/atmoss/falcon.application_start
European trademarks: https://www.tmdn.org/tmview/welcome
For certain business models, such as eCommerce, it is important to check the refund and chargeback rate of the business. It should never exceed 2%. Anything over and the payment processor may terminate their account. Often this happens without prior warning, but usually a month of high refund rates is not an issue, only if it is a trend.
If the current owner hasn’t already disclosed the refund/chargeback rate, follow up with them to get an idea about the business.
Top-Level Domain Transfer
Check that the domain can be transferred to anyone. Some top level domains have specific registration requirements. Examples:
- .com.au – buyer needs to have Australian presence, either reside in Australia or have a business registered there.
- .com.mt – buyer needs to have presence in Malta
- .ca – buyer needs to have presence in Canada
You can check the requirements by Googling the top level domain. The Wikipedia page for a particular TLD will have the requirements. For example: https://en.wikipedia.org/wiki/.au
TTM Financial Trends
This one will likely be one of the first things you check, but in case you haven’t already, check that the trailing twelve months’ revenue trend seems reasonable. Both the net profit and gross revenue. If you see a sharp spike or large decrease, ask the current owner what caused it.
Make sure to identify exactly how the site is monetized, and if this monetization method has been changed in the last six months.
Revenue Account Transferability
Make sure that the revenue account can be transferred or that opening a new account is straightforward and easy. Easiest is just to Google for it and look at the terms for that particular payment processor. At the time of writing, PayPal and Stripe for example can’t be transferred, but it is fairly straightforward to open up a new account.
In case of subscriptions, unless the seller is selling the entire business, not just the asset, in most cases the subscriptions can’t be transferred over to a new owner. In this case all the current subscribers would be prompted to re-subscribe, but you would be sure to lose at least a portion of them, thus losing a portion of the revenue.
The only sure way to keep the current revenue levels with a subscription business, would be for the new owner to assume ownership of the entire business, therefore be able to keep the current revenue accounts.
Note: In some cases many payment processors allow transfer of subscriptions, but this is on a case by case basis and is rather the exception than the rule.
Google AdSense ToS Compliance
When a business is monetized with AdSense, it is very important to make sure it complies with AdSense terms. AdSense terms can change fairly regularly, so for the most up-to-date terms, visit their help page: https://support.google.com/adsense/answer/48182
One big change that Google did just recently, was to remove max ads per page limit. But instead they now just say: “Advertising and other paid promotional material added to your pages should not exceed your content. “
It’s important that the site complies because even if they have been running for years just fine with AdSense and breaking the terms, it may get a manual review at any point and get banned from AdSense. Usually manual reviews are done within 6 months to a year since implementation.
While Flippa does show Google Analytics stats from the listing itself, we highly recommend getting the full picture by asking for Google Analytics “read-only” access.
With this check you’ll need to go through all the top traffic sources and see if they make sense and are sustainable.
For example, if organic search shows as one of the top traffic sources, click on it to see the traffic graph for that and make sure there aren’t any drastic changes that may indicate a Google penalty, algorithm change or that the traffic is faked.
But if you see a traffic source that you can’t verify, (e.x. the source shows up “ads / 22media”), ask the current owner about this.
This is basically the same check as for revenue but instead of the revenue graph you look at the traffic graph for TTM and see if there are any odd spikes and if the revenue is declining or increasing.
Typically, high revenue months will also coincide with high traffic months. This is particularly relevant for content sites that make money via advertisements.
Now that you have access, click through all the traffic sources and see if you spot any that may be bought traffic or from ads. If the seller has not disclosed any expenses for Google AdWords but you spot cpc traffic from Google, ask for explanations.
Also be on the lookout for odd referrals. If you spot anything suspicious that you wouldn’t expect to be sending traffic to that site, check out the URL and if it still doesn’t make any sense, it is most likely paid traffic.
Example: The seller is selling a blog in the pet grooming niche but you spot that 30% of traffic is coming from getfreebitcoinsinstant.org and it’s a random low quality site, with no links to the site, it is almost certainly paid bot traffic.
If the business is selling subscriptions or products, ask the seller where his customers are from and see if it matches the top traffic countries, if not, try to understand why/ ask the seller and see if makes sense.
Make sure visitor engagement seems natural and sustainable. If engagement is very low, i.e bounce rate is around 99% and returning visits are less than 5% and time on site is only a few seconds, it is highly likely that the traffic is faked. But if the engagement is a bit higher but still on the high side, it means that visitors for some reason do not want to stick around on the site.
And on the flipside, if engagement seems too good to be true, i.e bounce rate is only 10%, it may mean there is a tracking issue. Or in very very rare cases people find the site so appealing that most tend to click through to another page.
Make sure to get a clear understanding of the owner’s responsibilities, including the time to perform the tasks and the technical experience necessary.
As always, if you have any questions, make sure to ask for clarification from the current owner.
Live Revenue Verification
After you’ve done a majority of the heavy lifting, one final thing to do would be to prove that their financials are as claimed.
While screenshots can make for excellent revenue proof, one way to quickly verify all the data is to ask the owner about live revenue verification.
Live revenue verification would involve doing a screenshare through a service like Skype, where the current owner would navigate around the account financials and proving that these claims are accurate. Typically this is verified by looking at the Shopify Analytics, WordPress plugins, or just going through the businesses PayPal account.
If everything checks out and you have no further questions, it’s time to place your bid! The whole process may be exhausting, but it’s necessary to ensure the authenticity of your asset.
If you ever uncover anything suspicious, please use the report feature, which can be found on every listing.
Head to the Flippa Marketplace and check out our Editor’s Choice listings.
Anymore enquiries, reach out to us here.
With the launch of our new Shopify marketplace comes the ability to find the hottest Shopify stores for sale! Now you can quickly sort through top Shopify stores for sale and find which store is right for you.
Want to jump right in? See all current Shopify stores for sale.
Why Shopify Stores (over WordPress)?
If you’re unfamiliar with Shopify as a platform, you may be a bit skeptical on how Shopify performs over, say, a WordPress site powered by WooCommerce. So why should you consider buying a Shopify eCommerce store? Because Shopify as a platform is both simple and powerful.
Everything from themes, to analytics, to payment processing, is handled seamlessly through the Shopify platform, creating an easy-to-use platform with strong analytics.
To put it simply, Shopify has eCommerce down to the tee, which is why Shopify powers over 400,000 active eCommerce stores worldwide.
How to Browse Shopify Stores on Flippa
To find all Shopify stores for sale, navigate to our websites tab and click on Shopify.
Alternatively, you can click this link!
Once there, we recommend filtering your search options, to find the asset in your price range and that fits your needs.
Shopify Due Diligence
Now that you’ve found an asset that you like, it’s time for due diligence. Due diligence is an important process when buying any digital asset, including Shopify eCommerce stores. That said, Shopify does make it easy for potential buyers to verify the income and traffic of a Shopify store.
What questions should you ask?
The goal of due diligence is to verify everything that the owner has said to be truthful, and to make sure that the asset is what you think it is. Never be afraid of asking questions!
Some things you should be looking for include:
- Verified revenue (such as screenshots of the Shopify revenue dashboard)
- Access to Google Analytics or screenshots of Shopify Analytics
- Understanding the time commitment of operating an online business
- Asking about their return rate
These are a few of the questions you should be asking. If you ever had a bad feeling about an asset, please report the listing immediately and our marketplace integrity team will investigate further.
Purchasing a Shopify Store on Flippa
Once you’ve done your due diligence on an asset and you would like to purchase it, it’s now time to place a bid!
If you’re not sure how much a Shopify eCommerce store may sell for, we recommend reading this blog post about website valuations from Jeff Hunt, a serial website investor.
The Flippa bidding process works the same as other online marketplaces, but in case you’re unfamiliar with the process, you can learn more about bidding here.
Upon winning an auction, it’s now time to make the payment. Whether the transaction is done through PayPal or Flippa Escrow, you can start by proceeding to the sales completion area, which is only available to you and the seller.
If you have the option, we highly recommend using Flippa Escrow as the transaction is the much more secure compared to PayPal.
Once the money has been sent over, the seller will now transfer the assets over, and you now own your very own Shopify eCommerce store!
Have you bought a Shopify store before? Comment below with your experience!
Everyone wants a good deal.
When it comes to a website, what is a good deal? How do you decide how much you are willing to pay, good deal or not?
We’ll start by looking at “multiples”, the unit of measure that is most often used to express the value of a website.
When a website that makes $10,000 in net profit per year, sells for $20,000, we say it sold for a 2x multiple. The selling price was two times the annual net income.
Every website is unique. The “multiple” concept gives us a way to compare the value of sites that may have nothing in common except the generation of income.
Centurica publishes historical “multiple” data in its “Website Buyers Report”. The table below shows multiples by asking price in 2016. Note: the 2016 data has not yet been officially released.
The pattern is that websites generating more net income, generally sell for higher multiples.
Why do smaller web business sell for lower multiples?
In short – they are riskier. Sites with less net income are typically younger. They haven’t proven that they can grow over a sustained period of time.
There is also a correlation between the business model of a website and the average multiple it sells for.
Centurica 2015 Website Buyers Report
Why are multiples different for sites with different business models?
There are a lot of reasons why multiples vary by business model.
- Buyers pay more for sites that require less work to operate. Some business models require less operational effort.
- Buyers pay more for sites with a lower risk profile. Websites that have recurring revenue are a little less risky because when things go wrong, the future revenue stream gives the owner some time to fix the problem.
Conversely, websites that do not have recurring revenue may lose value quickly when they hit a bump in the road, like sudden traffic loss or a policy change by Amazon, Google or Facebook.
If a website requires substantial effort to operate and it doesn’t have recurring revenue, that doesn’t necessarily mean it is a bad investment. It just means that is likely to sell for a different valuation than a low-effort, subscription revenue site.
Cautions About Multiples
Multiples are designed to give us a nice rule-of-thumb to use in valuing a website. They do, but they can be misleading and insufficient. Why?
1. Every website is different
Let’s consider two websites that use the same business model. They are both content websites. They both earn about $10,000 per year net. You would think they would sell for roughly the same price.
That may not be the case at all. If one website is 4 years old with steady, consistent growth, and the other website is 6 months old and has made most of its $10,000 in the last 3 months, they are very different investments.
The newer website might sell for much less than the older one since buyers may believe the newer site is less trustworthy and riskier.
However, the newer website might also sell for much more than the older website. What if the new site is earning an average of $3,000 per month over the past 3 months. On an annual basis, if things continue at that rate, the site may earn $36,000 over the next 12 months. That would make the site worth around $100,000 based on the 2.9x multiple from the Centurica report.
That leads us to the next caution about website multiples:
2. Annual multiples do not adequately reflect recent performance
Look at the two charts above. See how just looking at the total net income for the year might not tell you what is going to happen next year?
Will the recent upturn continue? Or is it a holiday sales spike?
Will the sales rebound from the downhill slide over the past 5 months?
3. The last 12 months doesn’t tell the whole story
This graph of traffic over the last 12 months shows a decline over the year with a rebound at the end of the year:
Looking back over the past 3 years we see that the traffic is also declining year over year:
Using the last 12 months of net income as a predictor of future results or current net worth, doesn’t take into account the overall downward trend of the website traffic.
4. Website brokers often base their quoted multiple on something other than the last 12 months of net income
Look at this broker listing:
Yearly revenue $20,000*
Yearly net profit $19,000*
Asking price $44,000
* Profit and revenue figures are annualized on a last three month basis.
At first glance you might think this website is selling for a 2.3x multiple, $44K / $19K. But if you look at the footnote, you’ll see that the website didn’t actually earn $19,000 in the last 12 months. We don’t know what it actually earned, all we know is that the average monthly income over the past 3 months was: $1,583 ($19,000 / 12)
The broker might argue that the last 3 months are a more important indicator of the website’s value than the past 12 months. He may be right. Or he may just be trying to get a higher price for the website than it is actually worth.
Flippa always shows 12 months of income in a graph and also in a table. Flippa also always displays monthly averages computed over the past 3 months.
People who have been buying sites on Flippa over the years have probably heard that you can find sites for multiples of 8 to 12 months times annual income.
While this is true in some cases, it is also true that many of the “low multiple” purchases are not actually computed correctly. Take this example:
Flippa displays the average net income as $2,000 (because it is the average of the last 3 months). The seller says he is selling at a 2 year multiple – $48,000 ($2,000 x 24 months).
The truth is that a $48,000 asking price is actually an 8x multiple. The site’s annual net income was only $6,000.
Make sure you compare apples to apples.
How Do You Decide the Right Multiple?
So how do you decide which multiple to use and ultimately how much to pay for a website?
Website Buyer’s Hierarchy of Needs
You may have heard of Maslow’s Hierarchy of Needs which describes human motivation.
Here is my cut at the Website Buyer’s Hierarchy of Needs:
Read this from the bottom up.
Our highest priority is to maintain our security by preserving our capital! Don’t lose the money that it took so long to earn and save.
Secondly, we want to generate cashflow. Passive income is what enabled me to escape the corporate rat race. That doesn’t mean I don’t work hard, it just means I work when, if and where I want to work. I define the priorities.
It is wonderful to preserve our capital with a sound investment and to generate cashflow with solid ROI’s. But you can do all that and still be bored and unmotivated.
So we want security and cashflow, but we also want to be doing work that we enjoy to the greatest extent possible.
A Risk-Based Valuation Method
Because my most fundamental desire is to protect my capital, I start my valuation analysis by analyzing risk.
I decide whether the investment is high, medium or low risk by analyzing the most important components of the business:
- Product (or content)
- Operational effort
- Dependencies on 3rd parties
- Knowledge / Skill requirements
- Completeness and accuracy of information provided by the seller
Without diving into every category, here are a few examples so you understand the analysis:
- High risk traffic: single source referral, no diversification, black/grey hat SEO has been used
- High risk content: plagiarized, programmatically generated, low quality, short/thin
- High risk product: something trendy that could go out of style
- Low risk traffic: multiple sources, long history of steady traffic, proven process to increase traffic with specific SEO methods or proven ad campaigns
- Low risk knowledge / skill: industry standard technical platform, easy to find resources, low cost resources
You get the idea.
If you determine that the website is Medium risk, all things considered, then begin with the Centurica multiple for the business model and size of the website.
If you think the website is High risk, then you need to reduce the Centurica multiple proportionately to the risk you feel exists. That might mean going from a 2.5x to a 1.5x or even 1.0x.
If the website seems to be Low risk, you can afford to add a bit to the Centurica multiple.
Accounting for Opportunity?
After you adjust the “market multiple” based on risk, do you also need to adjust it for opportunity?
Future potential or opportunity of the website is a good reason to buy, but it is usually not a good reason to pay more.
Another way to say it is “Choose to buy based on growth potential, decide how much pay based on historical performance and the risk profile.”
Having said that, sometimes opportunity is almost certain. For example, when I see a website with really poor ad placement, I know for certain, I can improve revenue by moving the ads or changing their size or color.
Sometimes there are websites that are excellent strategic acquisitions. They may have a product you know your existing customers would like to buy, or an email list you could sell other products to.
When the future opportunity has a higher level of certainty, I sometimes increase the maximum amount I am willing to pay for a website. But I still aim for the lower price of course!
A Valuation Example
A lead generation website earned $10,000 over the past 12 months in net income. I consider it “high risk” because the site is only one year old, it has only one buyer of the leads it generates, its traffic comes from a single source that is difficult to manipulate.
So I take the Centurica average multiple for a Lead Generation site of 2.59x (be sure to check for the most recent report), and I adjust it downward by 1.0 to get to a 1.59x multiple.
That means I am willing to pay $15,900 for the website.
The site looks like it will earn more than $10,000 next year because the owner raised his prices, and over the last 3 months, the monthly earnings are quite a bit higher than the previous months.
I would typically stick with the $15,900 price point, but if I am convinced that earnings will be $12,000 next year because of the price increases, I might be willing to spend as much as $19,080 ($12,000 x 1.59x) for the site.
Other Valuation Methods
There are many methods to value websites.
Some people don’t worry much about historical performance and buy purely on future potential. If you want to play the venture capital game, and can afford to be wrong 29 times, in order to be right 1 time and find a huge winner, go for it! But keep in mind that you aren’t only gambling with the money to buy the website, you are gambling with the time and effort it takes to run and grow it.
Others put a value on website traffic by assessing its source, geography and other quality factors. That’s not a terrible concept but it values theory over the actual financial performance of the traffic that visited that website.
Jeff Hunt wrote The Website Investor: The Guide To Buying Online Website Businesses For Passive Income. In addition to running his own portfolio of websites, Jeff helps entrepreneurs buy and optimize their web businesses. Learn more at www.OwnOptimize.com and www.HeckYeah.org.
Have anything to add about your own experiences with website multiples? Comment below!
The Website Acquisition that Boosted Revenues by 4x with no Additional Traffic
In the Summer of 2015, MonetizeMore purchased a polling site called MisterPoll.com, a website that enables users to create polls, share them and then provide the statistic results. At the time of purchase, MisterPoll.com was only running AdSense directly on-page, which MonetizeMore saw as a huge opportunity to increase MisterPoll.com’s ad revenues without even increasing traffic. MonetizeMore has been in the ad optimization industry since 2010 and has some of the best ad optimization tech and experts in the industry. In this case study, the team at MonetizeMore reveals just how we were able to take a site, and within one month, grow the site’s revenue by 4x.
The MonetizeMore team started by implementing the most widely used ad server in the world called DFP (Google owned). The implementation of the ad server enabled the team to run many revenue sources at once, include direct sales ads and incorporate complex ad optimization techniques. The first technique that was implemented was integrating Google Ad Exchange (AdX). Google Ad Exchange is the best performing demand source in the world. It is even more powerful when integrating in DFP using a technique called dynamic allocation. Since Google owns DFP and Ad Exchange, the two technologies are able to communicate with each other so that DFP always knows what AdX will pay for each impression. As a result, the publisher can be confident that AdX only serves when it is the highest paying demand source. This is a very important part of ad optimization and realizing a publishers’ ad revenue potential.
Once DFP and AdX were implemented, MisterPoll.com saw a revenue increase of about 50%. This was a nice increase but MonetizeMore was not done there. The next step was to implement managed demand ad networks. Managed demand ad networks are traditional ad networks that send ad tags to publishers that have passbacks if the ad network is not able to payout on a minimum RPM for that ad impression. They are implemented in DFP at price priority level and the priority levels are adjusted on a daily basis based on past performance. Six managed demand ad networks were implemented and after a month of optimizing, the ad revenues more than doubled.
The last and most important step to ad optimization was implementing header bidding. Header bidding is a similar process to dynamic allocation for non-Google demand sources. Each header bid network makes a bid via an API, then the highest header bid will compete against Google and the managed demand sources. It is called header bidding because it is enabled via a header container technology which is implemented in the header of the page and the auction happens within the browser before the DFP auction. MonetizeMore has a header container called PubGuru.
Header bidding dramatically increases ad revenues and page RPMs for similar reasons that AdX implemented via dynamic allocation increases page RPM. The technology ensures that the highest bidder wins the ad impression. When you maximize the ad revenue for each ad impression rather than educated guesses via managed demand, you see some incredible increases in ad revenue. This boosted the MisterPoll.com revenues to 4x compared to the monthly revenues before the site was acquired. PubGuru header bidding not only increased the ad revenues but it also:
- Eliminated passback ad impressions which improved site speed
- Decreased blank ad impressions
- Increased the accuracy of DFP reports
- Decreased the daily hours needed for ad optimization
There is no doubt header bidding was the most important implementation on MisterPoll.com that contributed the most to the ad revenue increases and additional benefits. However, the previous 3 steps were integral to the success and also enabled header bidding. If you are considering to purchase a website on Flippa that monetizes via programmatic ads, it is in your best interest to follow the four steps that MonetizeMore followed.
You can complete the four steps on your own or outsource it to a company like MonetizeMore. If you decide to do it on your own, you can use the PubGuru SAAS solution to guide you through each step at your own pace. If you don’t have your own direct account with AdX, you would need to use a company partnered with Google (Like MonetizeMore) to offer AdX demand. If your site gets over 5MM page views per month, you can qualify for a free DFP implementation. If you get more than 20MM page views per month, you can qualify to become a premium publisher and MonetizeMore will handle all ad optimization for you so you can focus on the more important parts of your business.
Whether you decide to outsource your ad optimization or do it in-house, make sure to make a decision and stick to it. The worst thing you can do is ignore this low hanging fruit. Do not settle with just running AdSense. Otherwise, you are leaving a significant portion of revenues on the table, just like MisterPoll.com was.
I recently caught up with Riad Bekhit, owner and self-proclaimed Chief Potato Officer at PotatoParcel.com, after he appeared on ABC’s Shark Tank and secured a $50,000 investment for his spud-powered enterprise. Bekhit acquired Potato Parcel on Flippa in 2015, and he’s since rapidly grown the business, which now generates $25,000+ in monthly sales of…potatoes. See the exclusive interview below for an inside look at Bekhit’s Shark Tank experience and his growing online sensation!
You bought the site on Flippa last year. What motivated you to buy, and why PotatoParcel?
Before acquiring Potato Parcel, I had recently quit my job in software sales. I had several eCommerce projects on the side, but without a 9-5, I also had more free time to began plotting my next big move. When I came across Potato Parcel, I saw great potential, and I knew right away that I wanted to get involved. I was able to negotiate a great deal to acquire the business, so I pulled the trigger at $42,000 and never looked back.
Can you give us any insight into how the business has faired since the acquisition?
The business is doing extremely well. It was instantly profitable and I recouped my investment quickly. We’ve continued to grow sales month over month, despite the many critics who said the site would never succeed. In the 13 months following the Flippa acquisition, we did $215,000 in sales, and things are continuing to accelerate with no signs of slowing down. Needless to say, it’s a great time to be an entrepreneur in the potato industry.
What was the process like applying to get onto Shark Tank?
It was actually quite lengthy. We first applied online and did not hear back from the producers for a few months. When we finally did hear back they asked us to send in an audition tape. Another few months went by after that, and then finally they asked us to come to LA to film the show. After filming, we were on edge because we weren’t guaranteed to air on TV, even though we pitched in front of the sharks. We were really hoping to air and were ecstatic when we heard we finally made it!
Once you were accepted, how did you prepare and come up with your your pitch?
We wanted to make our pitch fun, just like our product and company. So we decided to walk into the tank with potato costumes, sun glasses, and whip out potatoes from our back pocket. We also gave the sharks some funny potatoes too.
Riad (left) and PotatoParcel founder Alex Craig (right) pitching the business on Shark Tank
Did you go into it with any specific Sharks you wanted to do a deal with?
To be honest, we went into this not really knowing if we would even get an offer from any of the sharks. It can be a bit of a crapshoot sometimes with Potato Parcel, some people really get the business and love the idea, and others just think it’s a joke. That said, I did think Kevin (AKA Mr. Wonderful) would be interested, because of our high profit margins and the fact that he has invested in companies that sell customized products in the past.
What was it like pitching live to the sharks, and how did you deal with the nerves?
It was a lot of build up and preparation. Going through our pitch over and over again. Studying our numbers. Thinking of anything that sharks might ask us and having a solid answer for that. We were nervous for sure. A lot of heavy breathing. But once we started talking about our business it became more like a natural conversation with the sharks and the nerves subsided. That’s not to say it wasn’t intense, but the amount of preparation we put in really did pay off in the end.
Alex negotiated a royalty prior to selling you the business, can you tell us about that?
Alex sold 100% of the business to me on Flippa. However, as part of the sale we agreed that if the business was able to get on Shark Tank he would receive $1 from every potato sold for sixty days following the air date. Why did I agree? I owe Alex great credit for getting the initial traction in the early days of the business, and I also knew Shark Tank would provide a great platform to get the business in front of more people. Because of his contributions and the potential upside of the deal, the royalty was a no-brainer, and in the end Alex’s influence definitely helped us land a spot on the show.
You ended up with two sharks fighting over you, why did you go with Kevin over Robert?
It really just came down to their offers. When the other sharks backed out, Kevin O’Leary’s final offer was $50,000 for a 10% stake and a $1 royalty fee for up to $150,000. Robert Herjavec’s final offer was $50,000 for a 17.5% stake. In the long run, I though Kevin’s deal was the ultimately going to be the better deal (after the royalty gets paid off.) He is also a funny guy who really loved our quirky idea, and I think that because of his passion, he’ll be incentivized to continue to help us grow.
“The Queen of QVC” Lori Greiner (Left) and digital security mogul Robert Herjavec (Right) enjoying the sample products
What’s it been like working with Mr Wonderful since the show aired?
As of late, I have mostly been dealing with his PR and social media team. That’s one of the benefits of doing a deal with a shark like Kevin, he’s got a mountain of resources behind him and a lot to offer beyond the dollar signs. I’ve also had several calls with him since the show aired, and I’m excited to continue to grow the business with him moving forward.
What’s in store for Potato Parcel, and how can people follow what you’re up to?
We want to come up with new products, have more international ambassadors join our team, and possibly expand into a business including many quirky and funny gifts. But for now, we remain focused on our core offering, selling potatoes with customized messages inscribed on them. If people want to check in on the company, the best place is our official twitter. As for me, I currently work full-time on Potato Parcel and I see myself doing this for as long as possible! I’d prefer to always work for myself, and I prefer to do that selling…potatoes.
In the third installment of the Beginners Guide we’ll focus on the three payment options that are available to users on Flippa: Flippa Escrow, Paypal and Escrow.com. All other charges on Flippa will also be covered.
These posts are interactive so if you have any suggestions or find any features on Flippa or Dealflow particularly challenging or confusing then please contact us at [email protected] You can contact me directly at [email protected] We would love to hear your feedback!
Sellers have three payment methods they can choose to accept.
- Flippa Escrow
Pros: Trustworthy and secure
Cons: Takes more time to complete than PayPal (3-7 days usually but can take longer depending on your bank).
Flippa Escrow is the recommended and most trusted of the three available payment methods. There are no escrow fees apart from a 2.9% Credit Card surcharge for Buyers with Flippa Escrow. Success Fees are automatically taken out of Flippa Escrow payments so you never have to worry about paying it separately. There is a flat $25 international wire transfer fee if the Seller opts to have funds placed into their personal bank account and is located outside Australia, New Zealand, and the USA. The Seller can instead opt to receive payment into their PayPal account, where Flippa charges no fees but PayPal typically levies their own. The Seller can choose how to receive their funds at the beginning or end of the transaction in the Flippa Escrow screen.
For the Buyer, payment can be initiated from the Start Flippa Escrow button in the Sale Completion Area (provided the Seller has selected Flippa Escrow). Wire transfers to Flippa Escrow may be started from the Buyer’s bank account at any time once the transaction has begun, and debit/credit card payments from the Buyer can be accepted when the Seller is outside of India, Indonesia, and Pakistan.
The Flippa Escrow transactions usually take between 3-7 days to complete. This depends on a number of factors, including different time zones, delays from the Buyer’s bank, intermediary bank fees, and if either customer has been offline for a day or two, etc.
The Flippa Escrow transaction process:
– Once the listing has ended and has a winning bidder, a Sale Completion Area (SCA) is created and from there the payment can be initiated.
– The Buyer would click on Start Flippa Escrow (if available).
– First, the Buyer is instructed to make the payment into Flippa Escrow. The payment must be the full transaction amount and typically must be paid in one installment; split payments via a credit card are not possible. Payments can be made using a wire transfer, Visa or Mastercard debit or credit card. Buyers have to make payments via wire transfer when sending funds to a Seller who is based in India, Indonesia, and Pakistan.
– Once received, the funds are then securely stored in the Flippa Escrow vault and the Seller will be instructed to transfer ownership of the asset(s) to the Buyer.
– When the Buyer confirms that assets have been received and they are as expected, they will then release the funds to the Seller.
– The Buyer and Seller should define a set inspection period after the Buyer receives the assets to confirm they are as expected before the Seller requests the release of payment.
– Once the funds in Flippa Escrow are released to the Seller, they should arrive in the Seller’s account within the next few days, but can take longer depending on the Seller’s country of residence.
– If the Buyer becomes unresponsive and does not release payment or if the Buyer has paid into Flippa Escrow and the Seller is unresponsive, a dispute can be filed and our Marketplace Integrity team can review and potentially release or refund the funds in certain circumstances.
Pros: Quick, easy and familiar
Cons: Little to no security, Flippa cannot gain access to information and it is limited to certain countries
PayPal is an American company operating a worldwide online payments system. Online money transfers serve as electronic alternatives to traditional paper methods like checks and money orders. With Paypal that there is NO escrow or third party involved.
Paypal is the fastest and easiest payment method of the three available on Flippa but, using PayPal is the least secure purely because we are unable to monitor the sale and keep assets safe.With Paypal that there is NO escrow. PayPal transactions are usually between Buyer and Seller – no third party interference – so be sure to ask questions and build-up a level of trust before sending/receiving funds/online assets.
PayPal is unavailable in Ukraine, Pakistan and Israel. To check if your country of residence accepts PayPal then please reference the PayPal website for a complete guide. Feel free to contact their Support team for more information. PayPal also offers phone support.
Pros: Secure and safe.
Cons: Higher/variable fees and can takes longer than PayPal.
Escrow.com is another trusted form of payment that works in a similar way to the Flippa Escrow process. Escrow.com reduces the risk of fraud by acting as a trusted third-party that collects, holds and only disperses funds when both Buyer and Seller are satisfied.
Escrow.com is secure but like Paypal is independent of Flippa which means we do not have direct oversight of the transaction. We offer a 20% discount on Escrow.com fees when the transaction is initiated from the Flippa Sale Completion Area. For more information on Escrow.com, including a fee calculator, you can visit their website:
- Our Payment Recommendation:We wholeheartedly recommend Flippa Escrow because:
- Assets are kept safe until payment has been made
- Funds are secure
- Agents have access to transaction details so we can answer more questions regarding the sale
- We can issue refunds when applicable
- As a Seller you can opt to have funds placed into your PayPal account (instead of bank account ) which will completely avoid the $25 wire transfer fee.
- Flippa Escrow is free to use
Buyer Certification Hold
We receive a lot of tickets through Customer Support regarding the $5 Buyer Certification Hold. The Buyer Certification hold is a check conducted by Flippa to make sure you have a functioning bank account/credit card that will allow you to send/receive funds while you are buying/selling on Flippa. You will be automatically prompted by the system to get Buyer Certified when you place a bid over $200.
If you do not have a credit card but wish to bid over $200 you can get Buyer certified by sending us a photo of your ID and another photo of you holding the ID. For more information, contact our support team.
The hold is not a charge. We do not remove any funds from your account. The duration of the $5 hold should not exceed a couple of days depending on your bank and which country you’re living in. Some countries’ banks operate much slower than others so it may take time to see any charges.
Premium Buyer Certification Hold
Buyers who place bids of over $2,000 will have to pre-authorize their credit card/bank to be Premium Buyer Certified. The hold is increased to $500 for Premium Buyer Certification but works the exact same way as the $5 hold.
Unfortunately you can not be Buyer Certified in advance. You will be prompted by the system you are bidding 5k+ on a listing. For any questions regarding Buyer Certification please contact our support team – [email protected].
The Success Fee on Flippa is 10% of the total sale. The Success Fee is mandatory and is non-negotiable. With Flippa Escrow and Escrow.com the Success Fee will be automatically deducted from the total amount. Sellers who opt to use PayPal must select ‘Pay Success Fee’ from the SCA,.
All Sellers will be invoiced for Flippa Success Fees but please remember that the fee will be automatically deducted when using Flippa Escrow or Escrow.com. Therefore, Sellers using these methods can ignore any invoice awaiting payment. Failure to pay Success Fees will result in a suspension or a permanent ban. Users are notified when a Success Fee is overdue.
Success Fee rates may range between 12.5-20% for a Seller using Dealflow or in-house Domains Brokerage. The Success Fee percentage will be negotiated and determined by both Seller and Broker at the beginning. For Domain Brokerage you can expect to pay a mandatory 10% Success Fee if sold on the marketplace, and 15-20% for account management / brokerage. Follow the table below for more information on Dealflow Success Fees.
The only other transactions to expect while using Flippa are paying for Listing Fees or Upgrades either of which can be paid by credit/debit card (we do NOT accept American Express) and PayPal. A complete breakdown of listing options and fees can be seen in the Beginners Guide:Part 1.
Leaving Feedback is one of the most crucial parts to the Flippa platform. Feedback on Flippa allows buyers and sellers to share their experiences in an open environment. Flippa does not edit or censor feedback comments because we believe it brings a very reliable element of truth and trust to our marketplace. However we sill step in if there have been false claims made or the content of the comments breach Flippa T&C. To report any unfavorable comments please contact a member of our team- [email protected]
We don’t allow feedback comments that contain:
- Spam, advertising or other commercial content, including links to such content
- Obscene, racist or vulgar language
- Feedback not related to this sale, but to other transactions
- Personally identifying information such as phone numbers or addresses
- Political, religious or social commentary
- Content that is fraudulent, misleading or deceptive
- Content that refers to a Flippa dispute or investigation
Every user will receive an invitation to leave feedback 7 days after a sale has been completed. Each user will be invited by a link sent via email. The option to leave feedback will be available for 60 days and will expire after that. For more information: https://flippa.com/feedbackpolicy-
In the next Beginners Guide we will delve into the dispute process on Flippa. As mentioned before if you have questions or recommendations on what should appear in the next Beginners Guide then please do not hesitate to get in touch- [email protected] / [email protected]
We would love to hear from you!