What If Your Dream Site Is a Rotten Tomato?

During my time at Centurica, a due diligence service, I have come across a number of different due diligence cases. While the majority of the websites that we analyse have only minor red flags and shortcomings, we occasionally come across sites that surprise even us.

Below is a case study on a website that was listed right here on Flippa. It looked fine on the surface, but when we performed an initial due diligence on the site, it resulted in quite a few shocking discoveries!

I’m publishing this case study to illustrate not only the importance of performing due diligence when purchasing web assets, but also that it’s always worth going the extra mile and digging just a tiny bit deeper, as it may mean saving you several thousands of dollars further down the line.

The Good

The website under review is GuaranteedPayDayLoansCashAdvance.com and its Flippa listing can be viewed here.

On the surface, it seems like a solid site. It gets a fair bit of traffic each month (15,000 monthly uniques, according to the seller’s claims). It makes nearly $1,000 per month, and best of all, the owner doesn’t spend any time on maintaining it.

And it’s growing, too! In June it already made $1,500 and it’s on track to generate a similar amount in August.

Looks good, right?

The Not So Good

Whenever I analyze a site, I first look at the traffic and revenue claims. I want to check whether they appear to be accurate and if they can be sufficiently proven.

Traffic: Lack of Third Party Analytics

With this site, the first red flag was the lack of third party analytics. The seller doesn’t have any third party tracking scripts (such as Google Analytics) installed, which means that the buyer will have to rely on self-hosted analytics tools, which are notoriously easy to tamper with. For example, I conducted this experiment a year ago, where it took me 35 minutes to put together a good looking set of AW Stats traffic proofs that showed completely inaccurate data.

Furthermore, the seller has only provided traffic statistics for less than one month, which may suggest that the site has only recently reached its current level of traffic and hasn’t yet stabilized.

Daily Statistics for June 2013 

Daily Statistics for June 2013Click on the graph above to open it in a new tab. 

I also took a look at the claimed traffic figures in comparison to the site’s Alexa rank and the result was slightly worrying. Whilst Alexa alone can’t be relied upon as a direct measure of traffic, sites that receive around 15,000 unique visits per month typically have an Alexa rank much lower than 1.4 million.

Revenue: Potentially Misleading Revenue Proofs

The revenue proof that the seller has provided is interesting too. Whilst the proofs date back six months, there is no way to verify whether it was this website that had generated the revenue, as opposed to another site that the same seller may operate.

It’s also impossible to tell whether the provided screenshots are actual screenshots made of the (undisclosed) revenue source’s reporting backend or something created in Excel, as there is no reference to the actual revenue source itself.

Revenue Proof Sheet 2013

Revenue Source Sheet

Click on the table above to open it in a new tab. 

A main concern to me is that the site uses a single revenue source, which the seller is not willing to publicly disclose. This creates a situation where it’s impossible for potential buyers to evaluate whether the revenue source is stable and sustainable enough, or one that is likely to drop soon and leave the site with no income.

Other Red Flags

There were a few other minor red flags, such as the Pages-per-visit being abnormally high (an average of 6 pages per visit, for a website that provides questionably “useful” content). The seller also claimed previously that should the auction not be won, they wouldn’t relist the site, but then proceeded to relist it a month later.

 

Relisting Comment on Flippa

Let’s cut them some slack though and ignore these issues for now.

The Worrisome

All of the issues above could be deemed circumstantial. After all, it’s possible that the seller has a valid reason for not using Google Analytics and that they’re in fact perfectly happy to provide further revenue proofs to potential buyers.

However, the situation gets even more interesting when you start digging deeper and looking at the site itself.

Since the seller claims that the site gets the majority of its traffic from search engines, it’s important to take a look at the backlink profile, so we can see how sustainable this traffic seems in general.

The Link Profile

Having done a little bit of research using ahrefs.com, it seems that the link profile would cause even the most risk-loving SEO a few sleepless nights.

Not only has the site acquired most of its backlinks very recently (it had a total of less than 1,000 links in the beginning of June vs. nearly 4,000 at the end of June), the majority (65%) of its backlinks are with the anchor text “payday loans and cash advance”, which indicates a strong possibility that unnatural link building has taken place. The majority of the site’s backlinks is also “site-wide”, which often suggests that links have been purchased solely for SEO purposes.

Backlinks Graph

Based on the graph above, it’s reasonable to assume that most of the link building has been done recently, and as such the site’s search rankings haven’t had time to stabilize. It’s very likely, especially if link building is stopped, that the site will lose many of its rankings in a month or two.

SEO vs. Maintenance and Expenses

Assuming some (heavy) link building has been done, let’s take a quick look at the declared maintenance time and expenses.

The seller claims that the site is “hands off”, as well as that its total expenditure is $20 per month (which I’m assuming is mostly web hosting), and that seems about right at first glance. However, an important aspect that the seller has conveniently missed is that it takes continuous SEO work for the site to maintain its current rankings.

With link building, especially in the case of relatively young sites, there is no such thing as “set and forget”. Whilst that’s not what many sellers like to hear or admit, the reality is that if link building suddenly stops, a drop in search rankings is in most cases imminent.

The seller has also admitted in the comments of the original version of the listing (prior to relisting it), that he has purchased “a few high quality links”. It’s important to understand that not only is buying links a dangerous game, links are bought for a certain period, meaning that the links that the seller has bought will either be taken down (likely affecting the site’s rankings) or the new owner will need to continue paying for them.

Backlinking comment on Flippa

Because of this, potential buyers need to either account for a sizeable monthly SEO spend, or put aside several hours each week if they wish to do the link building themselves (providing they have the skills to do it).

Google’s Quality Guidelines

Last but not least, I had a look through Google’s Quality Guidelines to check whether the site complies. This also gives some indication of the risk of Google penalizing the site as soon as it goes through a manual review (which many sites do sooner or later), and needless to say, there was more than a few raised eyebrows!

Google’s Quality Guidelines document is a long read, so for the sake of not boring you, I’ll bring up only the most relevant and important violations.

Firstly, the site is in clear violation with the guideline that reads:

Make a site with a clear hierarchy and text links. Every page should be reachable from at least one static text link.”

When you navigate to the front page of the site, all that you see is a lead capture form, a link to a longer lead capture form and a couple of links to “recent articles”, with no way to reach other pages of the site, other than through the sitemap.

The sitemap itself isn’t a particularly good one either as instead of containing links to the whole website, it contains only a bunch of keyword links to content that is obviously there only to game search engines. Take a look at it, since it’s guaranteed to bring a smile to your afternoon!

Another important quality guideline is that every site has to have content that is “useful and information-rich”. Whilst it’s debatable whether the site is in violation of this, my subjective opinion (which is likely to coincide with the opinion of Google’s manual review team) is that the site’s keyword-rich content is written first and foremost for search engines, rather than for humans.

There are a few more guidelines that are worth pointing out, but as the conclusions are quite obvious, I will leave it for the readers to decide whether the site is likely to be in violation of these or not. They are:

Make pages primarily for users, not for search engines.

Avoid tricks intended to improve search engine rankings. A good rule of thumb is whether you’d feel comfortable explaining what you’ve done to a website that competes with you, or to a Google employee. Another useful test is to ask, ‘Does this help my users? Would I do this if search engines didn’t exist?’

Think about what makes your website unique, valuable, or engaging. Make your website stand out from others in your field.

The Conclusion

Considering all of the above, I’m relatively sure that despite the unlikelihood of the listing being fraudulent, it is an extremely risky investment. There’s a significant chance that the website will lose the majority of its rankings (and therefore traffic) very soon, either as a result of an automated movement in search rankings or due to a manual review by Google’s web spam team.

Photo credit: Erkin Agsaran

Buying a Website? Don’t Overlook the Time Commitment

Buying a Website? Don’t Overlook the Time Commitment

Over the last few years the industry of buying and selling internet businesses has evolved from webmasters trading hobby sites amongst themselves into an industry filled with businesses, rather than just opportunities.

This shift in the industry has introduced a number of nuisances, and perhaps the most common one is both sellers and buyers underestimating the maintenance burden of the sites being sold and bought.

Based on my experience as a website broker, at least 30% of sellers in the $5,000 – $25,000 price range fail to accurately disclose the number of hours that maintaining the site takes. In addition, a similar percentage of sellers fail to accurately describe the skill sets needed to run the website they’re selling. These numbers are quite scary as they often lead to the website’s maintenance costs skyrocketing at the day of its takeover, effectively eating into the site’s net profit.

 

Not Necessarily an Intentional Deception

Sure, some sellers deliberately misrepresent the amount of time spent doing maintenance chores or the skill sets needed to run the site, but it’s not always intentional.

In most cases it’s completely unintentional and something that’s probably not occurred to the seller. After all, many websites have been run as a hobby, not a business. Webmasters who run their site as a hobby never even realize how much time they actually spend on their site daily, weekly and monthly.

Most sellers can estimate how much time they spend on bigger tasks, such as content production or product catalogue updates. The majority, however, severely underestimates the hours that they spend on the small tasks, such as replying to e-mails, posting updates on their Facebook page or spreading the word here and there. These “small” tasks often add up to a significant number.

Does the Buyer Have What It Takes?

A slightly different but a related issue is website owners falsely believing that nearly anybody is capable of taking over the work and maintaining the site. Whilst in some cases it is true, in others it’s the complete opposite.

Let’s look at content sites as an example. You may have started a blog about food recipes three years ago, knowing nothing about food or cooking. Based on this fact alone, many sellers would claim that the new owner of the website does not have to be experienced on the subject, either.

The reality, however, is that within those three years you’re likely to have acquired a substantial knowledge on the subject, and even though you had created the website originally with no expertise, your visitors have grown with you and are now expecting certain professionalism.  You are able to provide them with this experience, but the buyer of your website may not be.

What Should Sellers Do about It?

As with many things, there is the quick way and the good way.

The quick way is simply looking at your hours spent on maintaining the website realistically. Most website owners, when asked, think for a minute or two and then come up with an approximate that they believe to be close to accurate. Needless to say, this is the wrong way of doing it and almost never yields an accurate result. When planning to sell your website, start writing down your activities related to the site at least a few weeks, but ideally a month before listing the site for sale.

The ideal option, on the other hand, is outsourcing all maintenance aspects of your website prior to the sale in exchange for a fixed weekly or monthly fee. Even though it will increase your expenses, in most cases the value of the website raises instantly, meaning that you will make back the lost money many times over once you’re selling the site.

When you outsource the maintenance of your site, there will be much less room for misinterpretation of claims. Many serial buyers also value their time more than recreational webmasters do. Nowadays, it’s a standard practice to deduct the time spent on maintenance directly from net profits prior to valuating and making an offer on a site.

For outsourcing, you can either use private outsourcers such as Freelancer, Elance, or a professional website maintenance service such as Centurica’s WebsiteCare. Whilst the former is the cheaper option in the short term, the latter will tend to give you a much higher quality output minus the delegation headaches, and you’ll also eliminate the issue of having to transfer several freelance agreements to the buyer of your site once it’s being sold.

I’d advise against making these changes shortly before listing the site. There are very few things that buyers like less than the seller completely changing the operational aspects of the site weeks before listing it for sale. Should you make any fundamental changes, always make sure you allow everything to stabilize before selling the site.

What Should Buyers Do about It?

For buyers it’s important to always double check and verify the seller’s claims when it comes to maintenance hours and skill sets needed.

At our firm, a large part of our due diligence process is getting a complete understanding of the site’s business model as only then can we accurately say whether the seller’s claims are realistic or not. As a buyer, you should do the same. If you have any questions or uncertainties about the site then remember to always ask the seller right away, as once the purchase agreement is signed it’s often too late.

It also helps to speak to a professional, as often there are maintenance tasks that can be easily overlooked but that are in fact extremely time consuming, such as “behind the scenes” marketing, dealing with customer feedback and complaints or communicating with clients to get repeat business.

As an additional verification, you can always get a price quote from a website maintenance company to see what kind of maintenance levels they predict for the site. Even if you’re not sure whether you will outsource the maintenance of the site or do it in-house, all reputable website maintenance services are willing to give you a free price quote, which you can then cross check with your own list of maintenance tasks to see if you’ve missed anything.

Over to you

Let us know in the comments about what experiences you have with the hidden maintenance burden – either as a buyer or a seller.

Thanks to Al Hikes for the photo!

The Break Up: End Your Love Affair With Organic Traffic!

The Break Up: End Your Love Affair With Organic Traffic!

Organic traffic isn’t necessarily worth more than paid traffic

After several years in the industry of buying and selling websites, and in my current position running a website due diligence agency, I tend to speak to website owners with various levels of knowledge and experience.

This article aims to break a widespread myth that sites getting organic traffic from search engines are more valuable than those getting traffic from Pay per Click or Display Ads. A large number of webmasters and buyers alike, even experienced ones, tend to severely over-estimate the value of organic traffic, as opposed to that of paid traffic.

To a degree, it’s understandable. I’ve even seen several self-proclaimed ‘experts’ go as far as suggesting first time website buyers to stay away from any sites that rely on paid traffic and only deal with those that receive “natural” organic traffic from search engines.

From the last 50 or so website acquisitions that I’ve overseen either as a broker or as a due diligence consultant, the sites that had over 70% of their traffic originating from Google sold, on average, for a multiple 37% higher than those that relied mostly on paid traffic. In other words, buyers are still willing to pay a premium for sites that get organic traffic.

We’ll look at some of the main reasons why in reality organic traffic is far less valuable and more risky than its paid counterpart.

1. Overall Instability and Risk

Not many site owners realise that there’s an extremely high degree of risk and instability associated with search traffic.

Even sites that have had stable rankings for years can have their traffic disappear overnight as a result of a small change in the search engine’s algorithms (and if that engine happens to be Google, those changes can happen often!). Contrary to popular belief, this is a risk not just for sites that utilise unorthodox or blackhat SEO tactics but also for the perfectly legitimate ones.

Having a quick look around webmaster forums at the time of a major Google update will give you a good idea of the seriousness of the situation. Every update leaves hundreds of thousands of website owners puzzled as to why the rankings of their once-so-popular websites have diminished overnight.

With paid traffic however, none of these risks are present.

2. Due Diligence Burden

Needless to say, websites that have been aggressively “SEO-ed”, and especially those that have used “black hat” SEO tactics, are at an even greater risk of having their search rankings disappear overnight.

Changes in search rankings often take time to come into play, so when you’re buying a site it’s important to not only be careful with the SEO that you will perform on your newly acquired website yourself, but also take a close look at the SEO activities that the previous owner has performed. Often enough, illegitimate SEO strategies only backfire months (or sometimes years) later.

Because of this, the buyer’s due diligence burden is usually much higher when dealing with search traffic than it is when dealing with paid traffic. This is both because traffic characteristics need to be looked at more carefully and because it can often take extreme effort and great investigative skills to spot potential issues and illegitimate SEO tactics that have been used in the past but are likely to backfire in loss of traffic after the purchase.

As a buyer, this results in quite a lot of work, and as a seller, it’s in your interest to make your buyer’s life as easy as possible.

Naturally, this problem doesn’t really exist with paid traffic. Provided you can verify the source of the traffic, how much it costs and how well it converts, you can usually assume things will continue to go in the right direction.

3. Fighting Competition

Another important aspect to bear in mind when acquiring a site that depends overly on search traffic, is that you’re often limited when it comes to competing with other sites ranking for the same search keywords.

With paid traffic, who gets the top spot is mostly decided on which of the competing advertisers is willing to pay the higher price.

The size of your ad budget of course depends on how good you are at converting your leads into business, which ultimately depends on how good you are at running your business!

And that’s exactly how it should work. The website that is better at what they do gets more business. With search however, it’s a whole different story. If your site relies on search traffic then it’s effectively the search engine that decides whether the buyers should go to your site or your competitor’s site, and there is very little you can do about it other than more SEO (but this comes with a completely new set of risks).

4. Scaling Up

Something that many webmasters only realise once they’ve been running a site for a while is the lack of possibilities for scaling up organic traffic. Quite obviously, the only way to increase the traffic that your site gets from search  is moving up in rankings. However, this is more often than not an extremely difficult task that can result in the exact opposite if done incorrectly.

At the same time, most paid advertising campaigns can be scaled up quite easily. If you’re running Pay Per Click then you can simply increase your budget or widen your selection of keywords, and you’ll see an instant increase in traffic. With direct ad buys, you can sign more ad deals or increase the impression caps that you have in place for the existing ones and the result is similar.

Whilst it is also possible to scale up organic traffic sites by simply adding paid traffic to the equation, you need to bear in mind that when buying a site that is already getting paid traffic, you’re also buying all of the preparation and testing that has already been done. More importantly, you will then have proof that paid traffic does indeed work for this particular site.

Often times, starting to drive paid traffic later on only results in hundreds of hours and thousands of dollars spent, simply because many websites out there could never survive if they had to pay for their leads, effectively demonstrating a flawed business model where the business is only profitable if leads are provided free of charge!

5. Optimising the Conversion Process

Last but not least, search traffic provides a poor playground for split testing and experimenting to see what works or converts at a better rate.

As a split testing junkie, I find search traffic extremely difficult to work with. Not only do search engines provide no control over which part of my site clients first see, in many cases changes done as a result of a split test can have disastrous effects on the site’s search rankings in general.

What works for your leads and best turns them into clients isn’t necessarily what a search engine deems best content.

This can create a situation where you end up optimising your site’s main landing page for conversions, only to find out a couple of months down the line that the changes that you’ve made have lowered your search rankings and as a result, the number of leads that the page is meant to convert has decreased considerably.

With paid traffic, especially Pay Per Click, split testing is extremely simple and you can run several tests at the same time to keep increasing your conversion rate.

Conclusion

If you’re a buyer then it’s important to see whether the site you’re about to buy depends overly on search traffic and take it into your consideration when valuing the asset and performing due diligence.

Not only can you better analyse the risks associated with the site, but an educated buyer can also use the market’s overall ignorance to pick up high quality properties that depend mostly on paid traffic at lower multiples.

If you’re someone thinking of selling your site in the future and the site currently relies on search traffic then it’s in your best interest to start diversifying before it’s too late and add in some paid traffic components. Starting a Pay Per Click campaign is a simple and straightforward process, and the nature of PPC allows you to start experimenting even on a very tight budget.

Currently, many buyers are willing to pay a premium for sites like this but buyers are getting smarter daily and because of the reasons laid out above, this situation is likely going to change in the near future.

What about you? Do you place a higher value on organic traffic, or have you learned to love paid traffic sources?

Thanks to liquidnight for the photo!