Why Build When You Can Buy an Established Website?

The following guest post was contributed by Ryan Moran from eTycoon, a website dedicated to teaching people about buying, building, and developing virtual real estate. For more info on eTycoon, register for a training webinar.

If one man’s junk can be another man’s treasure, then one person’s dormant, neglected website can be another person’s goldmine when there is untapped profit. Like a house that already has a foundation, it is much easier to grow an established website than to start from scratch. In fact, it seems almost foolish to develop a website from scratch when someone else has already done most of the hard work. If you’re like most marketers who would rather be growing a site than designing or writing content, then here are a few reasons why you should start buying up other people’s websites:

1. Someone else has done most of the hard work.
When you buy a website, you can skip designing and coding the website, choosing the target audience, or creating the initial content. Instead of being bogged down with tasks that don’t put money in your pocket, taking over an existing business frees you up to start marketing the existing site.

2. You don’t have to be the expert.
The easiest solution to competing in markets in which you are not an expert is to buy the hard work of someone who is. Instead of attempting to create a product, a website, or content to a foreign niche, it is far more advantageous to buy a website created by someone familiar with the audience.

3. Most neglected sites have existing traffic.
Whether it comes from search engine rankings, links from authority sites, social media, or old article marketing campaigns, most established sites have consistent traffic. However, the traffic is rarely monetized near its potential. As a marketer, you can monetize the traffic that already exists, rather than resort to generating traffic from scratch.

4. Many sites come with customer lists.
If a previous webmaster was smart enough to build lists of prospects and customers from his or her marketing efforts, then your job is much easier once you take over. Oftentimes, a few promotions to the existing list will pay for the cost of the website itself.

5. Most importantly, if you purchase wisely, then the website has existing revenue and profit.
While there is no instant success in business, buying an already profitable business is about as close as it gets. However, few webmasters are capable of maximizing the profits of their websites, and there is often ample opportunity to expand revenue and profit once a site is purchased.

Building an online business from scratch is like attempting to push a car; the greatest amount of energy is required at the beginning in order to get things moving. When you buy a website from a previous owner, it’s like pushing a vehicle that is already moving and has momentum.

Instead of focusing on time-consuming tasks that either eat up productivity or don’t put money in your pocket, like website design, niche selection, and even some forms of initial traffic generation, you have the ability to skip much of the up front work that is required in building a profitable website. When you buy someone else’s website, you are freed from the burden of getting the campaign started. With the ball already rolling, your energy can be spent marketing the site, tweaking areas of weakness, and scaling the work that has already been done.

If you build a campaign from scratch, you are shooting in the dark. Significant time and resources can be spent building a site, choosing its direction, and developing its content, but there is no guarantee of profit. If someone else has done the work, however, you enjoy the benefit of existing data, a proven track record, and the confidence in knowing that your efforts contribute to building on an established foundation.

Detective Work with the Wayback Machine

A great tool to add to your website due diligence arsenal, the Wayback Machine is a digital archive of web pages across time. A website time line if you will, the Wayback Machine gives you the ability to see how a website has changed over time and lets you cross reference the website established date claimed by the seller.

For example, you come across a website listing on Flippa that claims to be established 2 or 3 years ago. Running the domain through the Wayback Machine will let you view, and do some limited browsing of, the site when it first appeared.  Step back in time and see what sort of content was on the site over time.

The following Wayback Machine results for Flippa.com indicate that the domain existed in a previous life back in 2002. It also gives an indication of the activity on the domain:

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When using this due-diligence tool keep in mind that Wayback Machine snapshots only become available 6 to 18 months after they are archived.

So if you’re buying a website that claims to be established, check out the history with the Wayback Machine.

Buying Your First Website Part 2 – Managing the transfer

This is the second post in the Buying Your First Website – A Case Study series. Please note these posts are a case study about buying a start-up site. You can find the other post here:

You’ve found an established website for sale, done your due diligence, bid and won the auction. Congratulations on your buying your first website on Flippa! What now? Here are a few pointers to ensure the website and domain transfer goes smoothly.

Correspondence – Keep it in Flippa.com

First a word on correspondence. We recommend that you keep all correspondence between you and the seller within the Flippa private message area. This ensures there’s a message audit trail that can be referenced in the event of a dispute. If you correspond via email or, worse, instant messaging, we have no record of who said or promised what and no recourse in the event of a dispute.

Initiating the Transaction

As with every transaction in life, there is an element of risk associated. When a transaction takes place both buyer and seller are at risk if the other party does not honor the spirit of the transaction. Some sellers opt to negate risk by using Escrow which is a more secure form of transaction. Some notes on the two main payment options are as follows:

  • PayPal
    PayPal has become a ubiquitous form of payment on the web and is a quick and easy way to pay a seller. Some seller may not accept PayPal.
  • Escrow
    Many sellers prefer Escrow as it provides a greater level of security. Similar to a trust, funds are held by by a third party until both buyer and seller are happy that the transfer of files and domain name have been completed.

Hosting

Some sellers will offer a period of free hosting which is a great value add in an auction, however if you want to ensure full control over your website, we recommend setting up your own website hosting account with a third party and transferring the site across as soon as you can. (Note: this can have SEO implications). You can then either ask the seller to move the website to your hosting environment as part of the sale terms, or move it over yourself. Ask the seller for their preference or make sure you stipulate the proffered method when communicating with the seller prior to purchase.

Obviously some experience is required here so make sure you know what you’re doing. There are many affordable website hosting plans to choose from; we recommend you do your research and find a reputable hosting provider such as Hostgator (aff). If you plan on buying more sites make sure you purchase an account that can handle more than one domain.

Transferring the Domain Name

After setting up the website on your hosting account, it’s time transfer the domain name. Ask the seller to change the DNS (Domain Name Server) settings to your hosting account DNS settings prior to transfer.

When purchasing my first site, I discovered you cannot transfer a domain name to another domain registrar if it is less that 60 days old. If this is a concern, register an account with the domain registrar that the seller is using and they should be able to pass the ownership to you.

When the seller confirms that the domain name has been transferred, check the WHOIS data to confirm.

What’s Next?

Hopefully all has gone smoothly and you now have full control over your new website, so what now? The next post in this series will focus on updating content, affiliate links and tracking codes.

Buying Websites – Resources for Beginners

If you’re new to buying and selling websites, we recommend you take the time to learn about due diligence tactics, valuation methods and transaction processes before you dive in and start trading. Finding websites for sale here on Flippa is the easy part, discovering websites that fit your budget and return on investment is the challenging part.

The 7 resources below are great place to start learning about the process of buying and selling website:

  • Website Valuation Guide – this comprehensive article by Clinton Lee discusses the accountancy behind the figures, the math behind the valuations, what adds value to a site, how financial statements are reconstructed for sale valuations, and the main business models and how they are valued by buyers.
  • Buying Online Businesses Based on Evaluation – A great post over at SEOmoz.org
  • What’s Your Website Worth – A great SitePoint article discussing website valuation factors.
  • Flip a Website Fixer-Upper – Using the real estate analogy, Peter T Davis writes about the website flipping process.
  • 10 Tips for Buying Websites – Some basic tips on SEOmoz to help you through the buying process . The Escrow recommendation is a good one for buyers and sellers alike.
  • SitePoint Forum’s – How to Buy and Sell a Website – There are a heap of great threads on this SitePoint forum. Many of the more experienced website traders who buy and sell websites on Flippa hang out here, so soak up the knowledge and read one of the greatest resources for all things flipping.
  • Clinton Lee also runs an Internet Business Forum with some very experienced members discussing the buying and selling of websites.

The above articles are a prelude to a resource section we will be adding to Flippa soon so if you have any other well written resources you’d like to contribute, drop it in the comments section below.

For our Australian friends, you might like to check out NetFleet for finding .com.au domains.

How to Value a Website that Doesn’t Report Revenue

Valuing a website before deciding to make a purchase is one of the most important steps in your due diligence. Valuing a website that lists little or no revenue in the Flippa sales page is challenging, to say the least.

In a previous post I described how I went about valuing a young website before making a purchase. This post will hopefully help you value more established websites that haven’t recorded any significant revenue.

This post was prompted by one of our users who recently Tweeted us and enquired:

“How much clout does Google’s PR carry when selling a site? Eg:What if a site is well indexed, with a PR 5 but not many overall sales?”

PageRank, or PR, is usually a good indicator that the site is well indexed by Google and has been around longer than a couple of months. Good PageRank suggests that the site has a respectable volume of original content and a substantial number of back links (people linking to the site from other websites).

PageRank vs Traffic

What PageRank doesn’t tell you is the amount of traffic the site is receiving. When push comes to shove, it’s traffic that counts; you can’t monetize PageRank, but you can monetize traffic. I’ll add an important caveat to that last statement; you can monetize the right kind of traffic. And by traffic I mean the number of different people who visit a website.

With any website auction or sale listing on Flippa, the seller has the ability to submit and display website traffic statistics from Google Analytics or other traffic stats packages. We highly recommend you see some proof of traffic and study where the traffic has come from.  This applies for any potential purchase, but especially if you’ll be making a significant investment.

Not All Traffic Was Created Equal

The first question you need to ask yourself is, what is the right kind of traffic to value? Traffic generated by organic search engine results tends to be the most reliable and consistent. This is a bit of a blanket statement and there are exceptions to every rule, but read on for an explanation.

Looking at a site’s stats, there’s usually 3 to 4 main types of traffic mediums you’ll be able to identify via Google Analytics:

Organic: Organic traffic comes from people searching by a keyword phrase in a search engine, finding a listing in the search results, then clicking on that listing. It’s an indication that search engines think a website’s content is relevant to a user’s search. Generally speaking, the more organic traffic, the more keywords a website is ranking for.

Referral: Traffic that’s arrived via another website may not always be reliable long term. Say, for example, the website owner has been active in a particular website forum, leaving links back to the website for sale.  What if the forum disappears or the user gets banned?  No more traffic!

(None): This really just means that Google Analytics can’t figure out where the traffic came from. In reality it may indicate that visitors are typing the domain directly into a browser address bar. This can be a good thing; it may suggest that the site has an established brand name, Twitter for example, and people just know to type twitter.com into the address bar. But it may suggest that traffic has been generated by less scrupulous methods, such as spam email.

CPC: cost per click or paid traffic means exactly that – the owner has paid to generate the traffic. You’d have to ask yourself the question: why is the owner paying for traffic?  Especially if, as in this case, the site isn’t making any money.

Putting a Price on Traffic

Ok, so you’re satisfied that the traffic is kosher and the majority of visits are being generated by organic search engine results. How do you value that traffic? One way to value traffic is to figure out how much it would cost you to buy it.

For example, a site for sale might rank #1 in Google for “takeaway pizza”, if you were to use AdWords (Google’s Pay Per Click advertising engine) to pay for a #1 position in the sponsored listing, you’d be paying around $2.75 per click. 10,000 clicks is going to cost you $27,500 – that’s a lot of pizza.

This is complicated, but fortunately there’s a tool that will help you estimate the value of a website’s traffic. SEMrush.com is a keyword research tool that lets you discover the keywords a domain name is ranking for then estimates the value of that traffic based on what it would cost you to buy that traffic. Read that back slowly and make sure it makes sense.

SEMrush provides you with an estimate of the monthly traffic value (see SE Traffic price below) of a website:

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The other great thing about SEMrush is that it gives you an indication of a site’s top ranking keywords which you can then compare to the statistics a seller provides on Flippa:

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So How Much Should I Pay for the Website?

Well… it depends. I won’t go into the complicated mathematics of different monetization methods and revenue generation models right now. You need to decide how much the traffic is worth to you. You need to figure out what percentage of visitors are going to convert to product sales, clicks on ads, sales leads, or membership subscriptions once they come to the site. Then you’ll know what to pay.

At the end of the day using the SEMrush tool is just one of the many methods of valuing a website, but it’s a handy one to include when doing your due diligence.

Buying your first website – a case study

As the new marketing manager at Flippa, my first week has been spent learning as much about the marketplace and the users as I can. There’s no substitute for “Eating one’s own dog food“, however, so over the weekend I purchased my first website from the Flippa marketplace. Here’s the what, the why and the how I went about my introduction to the marketplace.

Choosing An Auction

The website that caught my eye was pregnancyworkoutdvd.com. Why did this grab my attention? Pretty simple really, my wife’s expecting so I have pregnancy on the brain (If you’re reading this darling, no, you look fine, you don’t need to workout!). The site was in the lower end of the market in terms of price so it was a good way to dip my toe in and test the waters.

Using the analogy of stocks, this type of purchase is a speculative investment. The website is young, not making any money and will need time spent on creating more content, but it has a solid foundation and ticked some important boxes.

Here’s the due diligence and domain analysis I did that lead me to my first website purchase:

Keyword Research

This website is clearly targeted at people searching in Google for the keyword phrase “pregnancy workout dvd”, so the first step is to find out how many searches are being done. There are a stack of keyword research tools out there, paid and free, but Google’s Keyword Tool will do the trick (it’s free!), giving me a rough indication of the number of searches being performed for this keyword phrase.

As you can see above, Google’s keyword tool suggests that “pregnancy workout dvd” receives 6,600 searches monthly. That’s 220 searches per day which is reasonably healthy for a highly targeted niche such as this. Google results are generally on the optimistic side so let’s round it down to 200. If I’m in position #1 for this keyword I might expect to receive about 56% of this search traffic (according to a Cornell University study). That’s about 120 visitors per day if this site can rank #1 for this one keyword phrase.

Competition Analysis

Next we want to find out how competitive this niche is. Competition analysis is an in-depth topic and it’s worth checking out some of the posts over at Sitepoint for more details. For basic metrics, I use Firefox with the SEO Quake Extension to display competition metrics, which will give me an indication of how difficult it will be to achieve a #1 ranking for this site.  The current #1 position site in Google’s results has the keywords in the title, a PR (page rank) of 3, but doesn’t include the keyword in the domain name, another factor that can influence search rankings.

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Another simple metric I use to establish competition is to find out how many other pages appear in Google for a phrase search. In this case there are 8,040 other pages in Google’s index:

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8,040 results is low. Anything under about 100,000 results means that the niche isn’t over saturated. Try some other searches and you’ll see what I mean.

So I’m happy with this niche; there’s reasonable traffic available for the keyword and I’m satisfied that the competition won’t prevent me from ranking well for this keyword search phrase. So how do I know how much I should pay for this website?

Website Valuation

In this particular case, the site isn’t generating revenue. The Flippa stats, available to the right of the auction, or a quick Whois search tells me that it’s less than a month old. There’s no data available for the domain on SEMrush.com (another handy keyword research tool), but Google shows that a basic search for the core keyword phrase shows that the site is already ranking at position #8. Pretty good for a site that’s less than 1 month old and shows that the developer knows his stuff.

Other important items to check:

  • Copyscape – make sure the site doesn’t just duplicate content from another. This particular site lists DVD’s for sales with blurbs referenced from Amazon, so I’m comfortable with a little bit of duplicate content.
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  • Google Analytics Traffic – If traffic stats aren’t already listed on Flippa, request them. In this case I didn’t (but I probably should have) as I was satisfied with the other metrics.
  • Seller Profile – Make sure the seller has a good trust rank in Flippa.

Being a WordPress fan I was also happy to find that this site uses WordPress therefore making it easy for me to updated and add content.

Even though I’m proficient at using WordPress and I can cobble together a site, if I wanted to build something like this from scratch and do some basic Search Engine Optimisation, I know it would take me about 10 hours of work. That was the clincher. After all the research, $397 seemed like a reasonable price to pay for a site that would take me 10 hours to build and get ranking.

If you’d like to learn more about choosing a niche, developing a site and getting it to rank, check out The Thirty Day Challenge, it’s a great (and free) resource for learning the finer details.

What Next?

In a coming post I’ll share some of the steps you need to take after you’re bid has been accepted and you’re ready to take ownership of the website.

Amendment: Thanks to those who pointed out that I underestimated my monthly traffic stats. I’ve since amended these. It’s a good lesson – always double check your figures. The amendments suggest that this site would receive significantly more traffic than first calculated if it reaches position #1.