This is a guest post by Dave Hermansen, the seller in the recent case study and an all-round whiz on buying and selling ecommerce websites.

Back in 2005, I built a little e-commerce store that sold bird cages. My site ranked “okay” in Google and I was turning a decent profit, but certainly not enough to quit my day job over. I liked the bird cage market and knew it well, but to get to the next level I knew I needed a site that got more traffic than mine did.

I knew in time I could greatly improve my rankings and traffic volume. However, I’m not really the patient type, so I decided to look around and see if there were any “high ranking” websites for sale within the bird cage market. I found a site that ranked #2 in Google (much higher than my site ranked) for the phrase ‘bird cages’. I knew that with a site ranking that high, I would be KILLING IT! I bought the site for $1,800, spent a year and a half “fixing it up” (and making a lot of profit during that time), and then sold it on Flippa (still SitePoint Marketplace) for $173,000!

Why was the previous owner crazy enough to sell it for only $1,800? And how was I able to turn around and sell the same site for $173,000? Read on, and I’ll tell you.

When it comes to making money with an online store, profitability really comes down to 3 things:

  1. Traffic – obviously, you need to have visitors coming to your site.
  2. Profit Margin – there needs to be a decent-sized gap between what your customers pay you and what you pay your supplier
  3. Conversion rate – the number of visitors you “convert” into paying customers. Visitors are worthless to you unless they actually place an order.

If you take away any 1 of these 3 things, a site’s profitability AND VALUE goes way down.

Finding Sites with Traffic

So why was the previous owner of this bird cage site willing to let it go for so little? You guessed it, 1 of the 3 factors was missing. The site had high rankings and got a ton of traffic; that wasn’t the problem. And, being in the bird cage market, I knew the profit margins were good. The problem was that the site’s conversion rate was in the toilet. Even though the site had a ton of visitors, very few of them placed an order! Low SALES means low PROFITABILITY which means low VALUE. That’s why I was able to snatch it up for only $1,800.

That’s STEP 1 of this little website-flipping formula: find a website that ranks well and gets a lot of traffic but isn’t very profitable because of its LOW CONVERSION RATE.

Of the three factors, conversion rate is the easiest to fix. It takes a lot of work, time and patience to improve your rankings in Google. But you can easily double or triple (or more) your conversion rate overnight!

Take this bird cage website I bought, for example. No offense intended to the previous owner, but the site looked awful! It honestly looked like a 7th grader had made it for her website design class project. It just didn’t build visitors’ trust and confidence to persuade them to pull out their credit card. And then, even for the few customers who were ready to buy, they couldn’t even make payment online. They had to mail in their order! Very awkward!

Focus on Conversions

That brings us to STEP 2 of the formula: make improvements to the website to boost your conversion rate. A higher CONVERSION RATE means more SALES which means more PROFIT which means more VALUE. That’s all I did! I made the site professional-looking. I made it easier for customers to find what they wanted. I re-wrote product descriptions. I did everything I could to build visitors’ trust in the site and the products I offered. And I allowed customers to pay by credit card on-site.

There are all kinds of different ways to boost a store’s conversion rate, but there are two big keys. First, put your store on a first-rate, cutting-edge, professional shopping cart platform. Using the right store software makes all the difference in the world. And second, always accept credit cards right on your website.

Cash in Your Work

STEP 3 of my site-flipping formula is to sell the site on Flippa, which I can honestly say is the ONLY place I’d consider selling a website. After boosting my bird cage site’s conversion rate, profits soared (and I made a lot of money)! After showing consistent profits for several months (to establish an ongoing track record), I listed the site for sale on Flippa and ended up getting $173,000 for it.

So to re-cap, here’s my 3-step formula:

  1. Find & buy a site that gets a lot of traffic but isn’t very profitable because of its low conversion rate.
  2. Make improvements to the website to boost its conversion rate, which in turn boosts its profitability and value.
  3. Once you’ve established a good track record of consistent profits, sell the site for a huge profit on Flippa.

Dave Hermansen is an ecommerce expert who has been involved in over 50 successful ecommerce stores. His success in ecommerce led to him being interviewed on Fox News and featured in an article about ‘website flipping’ in The New York Times. Dave’s free ecommerce training course at teaches people how to make serious money in ecommerce!

Image:Mrs Nise