A New Investor’s Guide, Part I: How To Evaluate An App’s Product Potential

A New Investor’s Guide, Part I: How To Evaluate An App’s Product Potential

This year it’s hard to ignore that web investors are pouring increasing amounts of time and money into apps as opposed to websites and domains.

Buying and selling apps is still a relatively new concept (Apple only started allowing the resale of apps in 2013), so naturally, investors will face something of a learning curve in getting started.

App Buying Guide for New Investors

Web investors cannot help but notice how much time and money users are funneling into apps, compared to other online assets like websites and domains.

Internet Usage (Engagement) Growth Solid

The most common mistake web investors seem to be making is approaching mobile in the same manner they approach web. Even though mobile and web have some similarities, both platforms have their own unique characteristics in terms of user experience, mainly user behaviors, key product parameters, development styles, and marketing strategies. Even today’s most popular app stores, Google Play and Apple App Store, show different characteristics in many areas.

Therefore, when you are evaluating an app and wanting to maximize your investment, asking the correct questions is vital.

This is one of a two part series highlighting two of the most important aspects of evaluating an app investment opportunity: Product and Market Evaluation.

Product Evaluation

When deciding whether an app is worth investing in, the focus should be on the product itself and its key parameters. If a product has major problems initially (it doesn’t matter how big the market or the opportunities are) you will spend most of your time trying to fix the problem. In the worst case scenario you may not even be able to find the problem or its source. Researching your key parameters and understanding the product is key to preventing possible problems down the line.

Try to avoid focusing solely on revenue or the total number of users when deciding on an app investment. We should always look for a clear and concise verification of daily/weekly/monthly numbers and trends to understand how much potential the app actually has. The total number of any parameter does not provide enough insight for an app evaluation alone.

Key Product Parameters

Before conducting an app evaluation be aware of platform differences. In general, Google Play apps tend to get more downloads; however, iOS apps make more money per user because of the app stores’ user profile and dynamics.

Another factor to keep in mind are the vast differences between game apps and non-game apps. Even though the lifespan of a game app is shorter, the potential to earn more money at a faster pace is greater than that of a non-gaming app.

1. Engagement

It is critical to know how often someone is using the app. Did the user download but not use it more than once? If they visited the app subsequently, how frequent were their visits?DAU (Daily Active Users) /MAU (Monthly Active Users) ratio tells us how sticky an app is. 20% for a game app and 10% for a non-game app are considered to be a good DAU/MAU ratios. Additionally, for Google Play, an Uninstall Rate is also a very good indicator in understanding an app quality. 40% uninstall rate is considered to be normal. Basically, by examining these two parameters an investor can easily determine how popular an app is with its users.

2. Retention

In order to assess the quality of an app, the most important data to look at is 1-day, 7-day and 28- day retention rates. Retention rates allow us to see how many users return in the given days after having downloaded the app. No matter how many users download the app everyday, if they do not come back, there will be no sustainable growth and revenue. That is why retention is one of the most critical product parameters.Retention rate can easily change depending on an app’s category and its platform. Appsflyer’s recent report shows what the average retention rates are based on the app’s category and platform.Retention Rate on iOS AppsRetention Rate On Android Apps

Since the retention rate is directly related to an app’s core value and design, trying to increase it takes time — in most cases, even longer than creating the app from scratch. That is why many successful game companies prefer to kill their game after a soft-launch if the game’s retention rate is below the industry average.

3. Financials

Revenue will always play a dominant role when evaluating an app. The most basic approach to valuate is to multiply a monthly revenue by 10-15 times. However, to gain a better understanding of the financial situation, app investors should also consider ARPMAU (Average Revenue Per Monthly Active User).Let’s compare two apps: the first one earned $1000 last month and on average has 5000 MAU. The second one earned $1000 last month with 2000 average MAU. Even though they make the same monthly revenue, the second app is more valuable than the first. Considering the ARPMAU of the first one is only $0.2, while the other one is $0.5.

LTV (lifetime value) is considered another strong parameter that big game/app developers look at to understand how healthy their financial growth is. However, I prefer to check ARPMAU on a smaller scale since measuring LTV is more complicated for many developers.If an app does not make any money, we can still evaluate by examining its engagement and retention numbers. If these parameters are strong, then there is opportunity to make revenue in the future. For example, apps that have not been monetized yet but have a promising engagement and retention rates can still be considered as good investment opportunities.

4. Performance

App Crash Rates are another important parameter to consider, as low retention and engagement could be a result of a high crash rate. Although crashes can be fixed (if you are a developer or have a developer on hand) they will cost the investor time and money. Therefore, a high crash rate affects the value negatively.Crash Rates Of Mobile Apps By eCommerce, Social, Business, Sports, Media, GamingAccording to Crittercism’s report, while the average crash rate for an eCommerce app is 0.4%, game apps have the highest average crash rate with 4.4%. In general, an average crash rate should be under 1% for an app to be considered healthy.

5. App’s Story

Apps that have already established a story are far more successful when the right investor steps in. Being featured by Apple or Google, having PR coverage, a website and/or an active social media presence are all advantages. For example, if an app has been featured on the App Store/Google Play a first time, it is likely to be featured again once a couple of updates are applied.On the other hand, apps that are younger than 6 months are generally riskier since there is not enough data to evaluate the above parameters. Apps that are reskinned and younger than 3 months are especially the riskiest.Lastly, take note of how many times the app in question has been sold before. If it has been re-listed by a previous owner or a new one, make sure you are aware as to why. Conduct your research, ask questions and think twice before considering it as an investment.

This is a guest blog post written by Osman F. Kucukerdem. To read more about App Marketing, ASO and App Store, you can find him on Twitter and Medium. He can also be reached at [email protected].

3 Things Website Investors Should Know About Buying Apps

3 Things Website Investors Should Know About Buying Apps

Buying and selling mobile app businesses is a relatively new concept compared to buying and selling other digital assets, such as websites and domain names. Since 2014, U.S. mobile users are consuming more of their digital media on their phones.  Mobile apps eat up more of our time than desktop usage or mobile web surfing, accounting for 52% of the time spent; however, mobile ad spend still lags behind mobile media consumption. There is a tremendous growth opportunity for the mobile app industry, which in turn indicates a great opportunity for mobile app investors and entrepreneurs.

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If you are a website investor, you are already familiar with different aspects of a web business. Most of your knowledge about web businesses can be easily translated into app businesses.

Website Traffic vs. Mobile App Usage

For most types of web businesses, traffic is always the most important aspect to look at when measuring the performance of a website. The quantity and quality of traffic can directly impact the bottom line of a web business.

Most websites have Google Analytics installed so that traffic can be easily monitored. Data such as Page Views, Sessions and Unique Visits can give you a pretty good idea of how well the website business is performing. Similarly, any apps listed in Apple’s App Store will receive usage tracking data from Apple. You can always verify an iOS app’s data by asking for the access to App Store Analytics from the app seller. There are also many other great app analytics tools out there such as Flurry, App Annie, Sensor Tower that provide more in-depth app usage insights. Most analytics platforms allow their users to share analytics data with others. Using Apple’s App Store analytics as an example, types of data sets such as Downloads, User Sessions and Active Devices give you pretty intuitive numbers that can measure the “traffic” an app gets. Average Session Durations and Retention Rate are also very good indicators of the app user’s engagement. Retention Rate tells you how many people are still using this app after a particular amount of time. We usually look at Day 1, Day 7 and Day 30 retention rates. In regards to Android apps, research shows an average 30-day retention rate of 9.55%. 

SEO vs. ASO (App Store Optimization)

Most apps get downloads through organic searching of the app store, social media, press release and paid ads. According to Forrester Research, 63% of apps are discovered via app store search. That’s why App Store Optimization (ASO) for apps is as important as SEO for websites.

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Different from SEO, ASO is not all about keyword rankings. Once someone finds your app through a keyword search, you also need to make it visually appealing, so they download it. This means having compelling screenshots, a beautiful app icon and other elements that will help convince a person to choose your app over your competitors.

There are some good free ASO tools out there that could help you understand an app’s keyword rankings. App Annie gives you top keywords an app is ranked for in the U.S. store. Sensor Tower’s keyword research tools give you much more in-depth information on an app’s suggested keywords, each keyword’s search volume and difficulties to rank for those keywords.

Mobile Action gives you many more recommended actions on how to improve an app’s visibility in the app store, and it helps you track that app’s visibility score over time. Many apps with good usage data but low downloads have a lot of room for growth with proper ASO effort.

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Example of SensorTower’s Keyword Suggestions

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Example of Mobile Action’s ASO Recommended Actions

Website Business Models vs. App Business Models

Most websites are monetized with one the following business models: Content/Advertising, Ecommerce, SaaS (software-as-a-service), Digital Product/Service.

Most indie developers’ apps are monetized with advertising, in-app purchase/subscriptions and app download sales. That revenue could easily be verified through App Store/Google Play Store Sales Reports and ad network income reports.

Google AdMob, Apple iAd and RevMob are some of the most popular mobile ad networks. Doing proper ad placement optimization can help increase mobile apps’ ad revenue. In-app purchases allow customers to download the apps for free and pay only for optional premium functions. More and more indie developers start to offer their apps for free for user acquisition purpose and monetize with in-app purchases.

In terms of costs and time required for running a website business, content websites usually require generating new content and doing SEO on a regular basis. Ecommerce sites deal with customer support and sometimes inventory and order fulfilment.

A mobile app business is similar to a SaaS web business. Once the app is up and running in the app store, there isn’t much work you need to do to maintain the app itself. However, sometimes you might want to update your app to fix bugs, to add new features and to adapt to new iOS versions. You can always outsource this work to freelancers for a low rate.

Buying and selling apps is a very new business. Apple just allowed developers to sell their apps in 2013. In general, the mobile app industry has a growing revenue trend compared to websites. The good news is, as a website investor, you can already apply some of your existing knowledge about websites to apps.

Given the emerging resources available, it is more than achievable for one to learn to identify apps with growth potential and to effectively increase their revenue. ASO, mobile ad placement optimization, developing new in-app purchase features, and user acquisition through your existing website resources are all good ways to run and nurture your app business.

As with any investment, there are risks – but there are certainly more rewards to be had with being an app investor.

If you have questions about buying and selling mobile apps or you have insights about growing app businesses that you want to share with me, please drop an email at [email protected].

 

How To Build & Sell A Profitable Website On Flippa With No Experience…

How To Build & Sell A Profitable Website On Flippa With No Experience…

Today we’re handing the blog over to Jerry Banfield. Jerry is an entrepreneur and teacher who has coached over 80,000 students on everything from Facebook marketing through to time management and productivity.

Last year Jerry built and sold a profitable site on Flippa for $5,500 with no experience and the best part is, he’s put together a step-by-step Udemy Course to share the details on exactly how he did it. Usually $199 – for a limited time, Jerry has dropped the price down to just $25 for all Flippa users. Simply use coupon code: FLIPPABLOG or THIS LINK.

Over to Jerry:

If you are trying to sell your website on Flippa, knowing what works to make a sale can save you a lot of frustration and money. The first two times I posted websites for sale on Flippa, I made my listings and then tried to promote them in complete ignorance of what other sellers were already doing right. No one bid on any of my listings…

When I went to relist my website again, I realized it was crazy to do the same thing I did before and expect different results. For the next few weeks prior to launching another listing, I researched the Flippa marketplace to see what websites were already selling so that I could discover what they all had in common. I found websites that had sold for at least a thousand dollars almost always showed solid proof of income and had verified Google analytics. I also discovered what price to start the bidding at, how to write a compelling listing to attract watchers, how to directly contact potential buyers, how to convert people watching to bids, why every question was worth answering in great detail, and what I needed to do to make it easy to close the auction successfully.

When I used what I learned to launch a new listing on Flippa, the same website that did not attract even one bid when I listed it before sold for $5,500.

You can skip the painful learning process I went through to learn how to sell on Flippa when you take this course. You can see what your website is really worth when you list it the way I listed mine. This course will continue to be useful for you through any improvements Flippa makes because what I teach is based on principles that you can adapt to what you are doing today. You can count on me to answer any questions you have in the course and to add new lectures based on your feedback! Thank you for reading this and I appreciate the chance to serve you as your instructor in this course.

Learn how to build & sell a profitable website on Flippa today for just $199 $25!

For a little sneak peak of the course content, here’s lecture 8 on exactly how to set your auction pricing:

The top 3 legal issues when buying and selling domain names

The top 3 legal issues when buying and selling domain names

In this day and age we have local council’s using Google Earth to find illegal structures in people’s backyards. In Queensland, Australia, for example, if you put in an aboveground swimming pool in your garden, you end up with someone knocking on your door, handing you a fine and demanding you drag the kids out of it and destroy it – all because you didn’t comply with the pool fencing regulations! Ok, rant over and I hear you asking, what on earth has pool fencing got to do with domain names?

Well, I was thinking of presenting you with the a-z of regulations for domain names (local registrar = local council) and explaining why every one of them is a possible road-block to your dreams. But in the end I thought that would not only be boring, and potentially stop you from chasing the fun of a great deal, but ultimately unnecessary because in the end it really is quite simple.

What it comes down to is:

  1. Does the person selling the domain name actually have the legal right to sell it?
  2. Does the person selling the domain name actually have the present ability to transfer the domain name upon sale?
  3. Who else out there is likely to want to fight you for the domain name?

And in reality, just like local councils, unless something is out of the ordinary it gets channelled through the automatic processes with very little consideration and comes out the other end transferred, or not transferred. All the regulations only become an issue once there is a problem, and a high percentage of the time there simply isn’t a problem.

So how do you best ensure your transaction is one of the majority that don’t have a problem?

Does the person selling the domain have the legal right to sell?

Remember that domain names are like post-boxes. You only have access to it for as long as you pay the annual fees and the annual fees give you a licence (key) to use the domain name.

In the days before WordPress, lots of development companies registered their client’s domain names. Often this was simply because the client didn’t know the difference. Even today, there are plenty of companies out there that retain a domain name when their clients want to build a site. All those ‘free website’ building packages do exactly that. So the right to transfer a domain name is not necessarily straightforward.

Naturally the first thing to do is check ‘Whois’ to discover who is listed as the named registrant. Only the registrant has authority to transfer the domain name. As a buyer or seller, you don’t want to get a message like this:

This transfer was cancelled as the whois information provided does not match current registrant. When submitting a fax transfer, the registrant information you input when initiating the request must match the current whois information (registrant/admin contacts and address/phone – email does not have to match) from the current registrar. If this information does not match, the transfer will be rejected.

Don’t assume that just because you get the billing information and other updates from the registrar that you are the named registrant. You might just be the listed tech, admin or accounts contact. I’ve seen people go for years thinking they were the registrant because they got all the information, only to discover at the crucial moment that they are not.

If the registrant was a long lost developer we at least have the benefit of LinkedIn and Facebook to find people, something much harder even seven years ago. Issues you need to be prepared for before contacting a long lost developer:

  • Does your registrar charge fees for changing the registrant? Some do.
  • Who is going to pay a transfer fee? Hint: That would be you.
  • What if the developer wants a fee before transfer? The cost of dispute resolution under uniform domain name dispute resolution policies starts at around $2,000, so be prepared.
  • What process do you have to go through and how much can you do yourself without the cooperation of the developer?

Tips about negotiating:

  • Don’t make demands, ask questions and be helpful.
  • Prepare before any conversation and don’t get angry. Most people can’t tone their language down enough to take the anger out of a conversation whether it is via email, skype, phone or text message. Breathe and stay calm. The easy solution is to be persuasive, not combative.
  • Know your bottom line and what it means to you if you don’t get it. Be prepared to walk away.

If you can’t correct the registrant details, you can still change the admin, tech and billing details. It is a higher risk, but some people are prepared to take that risk.

If you are the seller, you may have to talk the buyer through this and be prepared to take a cut in your ideal selling price. Know the history and be able to reassure the buyer that the registrant has done nothing in the last 5 years, so you don’t expect that to change.

If you are the buyer in that situation, consider the risk and whether or not it is worthwhile to you. If you’re building something small you can move quickly where the branding doesn’t necessarily match the domain name, is that domain name worth the risk? Maybe. If its big money or brand-centric, the answer is probably ‘No’. Not unless you want to take the legal action to regain control. Always seek the strongest rights possible to control what you are investing in.

Does the person selling the domain have the present ability to transfer the domain upon sale?

This is more of a techy issue than anything else. There are loads of enthusiastic amateurs who don’t actually know what needs to be done to transfer a domain name fully and promptly.

If you are the seller, be prepared to do all the hard work to get the domain transferred. Even if you put in your Flippa add that the buyer has to sort it out, once you take payment for the domain name you are legally obliged to do everything reasonably possible to get that domain name transferred to the buyer. If the buyer is not sophisticated, what is considered reasonable can be a lot more than you expect. Be prepared!

If you are the buyer, don’t expect the domain name to magically appear in your account overnight. Find out who the current registrar is and what is involved in moving a domain name to either a new account, or a different registrar. If you are using a different registrar, look up the rules and processes that your registrar has before the sale is due to complete. Again, be prepared! The more proactive you can be in the process, the quicker you get your domain name. Once the transfer is through, double check all the tech, admin, billing and registrant details to make sure they match what you wanted, and tell the registrar about corrections immediately.

Any delays in a domain name transfer can increase the risk of registration lapsing and you losing your rights.

Who else out there is likely to want to fight you for the domain?

We’re delving into the area of business names and trademarks here. Some examples of cases I’ve been involved in over the years are:

  • A person with the same name as the domain name (eg. BarbaraSmith.com).
  • A foreign company wanting to move into a new market, whether or not they have any existing presence in that market.
  • For generic names, every other business of that type! (eg. Cheapsheds.com.au).
  • The supplier of a product or service who has distributors adding the trademark to their domain name without permission (eg. every MYOB site out there).
  • Anyone else with a registered trademark of a different class.

Trademarks deserve a little more attention. There are 45 classes of trademark and you can register the same name in different classes without infringing on the first trademark. A great example was when Internet access provider RoadRunner Computer Systems ended up with control of the domain name Roadrunner.com. Not surprisingly, Warner Brothers complained, but had little basis to do so. RoadRunner CS had just as legitimate an interest in the name. The dispute was settled, however, and Time Warner now has control of the domain name.

Look around. Do some online searching and at least check your country’s trademark register before you get too excited about a domain name. It might be alright to own it, but if you have a battle looming as soon as you start to use it, what is the point?

If you are the seller, do your homework and be able to show the buyer how you have mitigated the risk. I’ve recently worked with a client who was excited about buying a niche website just right for them only to discover that someone else had the registered trademark (unused) in the same class and the same country. The cost of a trademark dispute can be anywhere from $5,000 to $25,000. We had to look at the site income, their strategy, risks and prospects. You’ll understand that what they were prepared to pay was immediately reduced.

Different countries have different rules. In some places, it is ‘buyer beware’ and in other places, the seller has to provide full disclosure of all the risks or be liable after the sale. Know the rules that apply to you and be prepared. If there is a risk that there will be an argument over a domain name, whether you are the buyer or the seller, you need to know where you stand and what strategies you are going to use to get the best deal.

Contract Basics: Everything you need to know about buying a website, domain, or app

Contract Basics: Everything you need to know about buying a website, domain, or app

Have you seen The Hobbit: An Unexpected Journey? Before setting off for the Lonely Mountain, Bilbo is handed a great long parchment with various addendums sewn onto the edges of his contract with the Dwarves. (Note that he does actually take the time to read it and question some of the terms before signing it and joining the quest.)

So what do Hobbits have to do with buying websites, domains, or apps? – A reminder that you don’t actually need a formal document and a signature to create a binding contract.

You can form a contract through an exchange of emails or private messages, through a telephone call or a combination of those activities. In the case of contracts, actions can speak louder than words.  The beauty of having something in writing is that you have a permanent record of what was agreed, whether a formal contract or exchange of written messages.  Something in writing can be useful even a few days after you have concluded the deal because most people have imperfect memories.

The basic elements of forming a contract are:

  • Offer
  • Acceptance
  • Consideration through payment of money or taking an action
  • Intention to create legal relations

Whenever people want to dispute terms there is an opportunity for technical legal arguments, but in most cases, the fundamentals will apply.  Gain confidence in the understanding these elements and you won’t be unpleasantly surprised with your purchase.

1. What’s the offer?

Any seller posting a listing on Flippa is offering to sell you what they have described in their listing before it ends, either at no reserve, a buy-it-now price or with a reserve.

As a buyer, this means you need to understand the listing and ask questions of the seller before you make a bid. If you place a bid, or buy it at the BIN price without asking any questions then you are accepting what the seller has offered.

Worked Example – website:

At the time of writing there is a listing on Flippa for a website selling ‘licenced’ themed apparel – think cartoon characters.  It’s a fairly straight forward listing without a lot of detail. The seller’s notes say that the auction includes the website and the domain, and that the contact information for the service that drop-ships the clothing will be provided.  Although a low value site, as a buyer I’d be checking the following:

  • Social media accounts and whether or not they are included (the website lists Twitter, Facebook and Pinterest accounts)
  • Whether the list of registered users will be handed over and in what format
  • The website includes an invitation to subscribe to a newsletter, so I’d be looking for that list too, as well as any newsletter content
  • Licences for background images (stock images) used on the site
  • Licence terms for sale of themed products, I wouldn’t want responsibility for a breach
  • That the clothing supplier was happy to do business with me as the potential new owner of the website and whether there were any possible complications; like continued permission to use their images and how easy it is to change product listings.

If you had hit the BIN price without asking these questions, the only thing the seller would be obliged to transfer to you for the BIN price would be the domain and website, nothing else, regardless of your expectations!

 2. What is acceptance?

Acceptance is pretty obvious really. As soon as you place a bid, you are notifying the seller that you are accepting their offer at your bid price. If you place a maximum bid price so that you don’t have to stress about being out-bid, then your acceptance of the seller’s offer occurs each time you are the highest bidder.

What you are accepting is what the seller has described for sale and any additional items or content that you have asked about and the seller has agreed to include.

Worked Example – app:

On a Flippa ‘just sold’ app listing, a person public messaging the seller asked for details about the source files for the app so that changes could be made. The seller responded and confirmed that all of the source files including source code and original design files would be transferred as part of the sale. So after 57 bids, regardless of who asked the question, the app purchase included those source files.

3. How much consideration is enough?

Consideration is the taking of an action in support of an agreement reached between the seller and the buyer. The action does not have to be significant, it can be as simple as sending an email to the seller thanking them for the opportunity to purchase the website. Full consideration is payment of the purchase price, but partial consideration, like the payment of a deposit or putting money into escrow can support an argument for enforcement of your contract for purchase. This is only likely to be a problem where you have a seller who wants more than the price you have agreed to pay.

4. Did you really intend to reach agreement?

Disputes over contracts sometimes arise when people are at odds as to whether or not all the key terms were agreed or not.  If you want special terms that aren’t included in the Flippa terms, or a formal document in writing before reaching agreement, you need to state that at the outset.  If you don’t spell out that you want a specific term, your agreement will be the sum of the standard Flippa terms and your email or private message exchanges up to the date the purchase price is agreed.

Worked Example – domain:

On a ‘reserve met’ listing, the seller has made it clear that there are two domain names included in the offer and they expect payment to be made via Flippa escrow. No ambiguity there.

So what else should you look out for?

From a legal perspective some extra things I’d be looking for are:

  • Check out the seller, who they are, where they are and that they can actually sell you what they are offering
  • Know what you are buying, don’t assume everything is included – if you think it should be included, confirm with the seller
  • If there are agreements in place with writers, affiliates, drop-shippers etc, make sure those agreements can be transferred to you as part of the sale
  • Check that the seller has authority to transfer copyright, trademarks and other intellectual property for your purchase and will do so
  • Check whether or not there will be additional duties or taxes payable at the time of purchase – they are usually the responsibility of the buyer.

And lastly, remember balance! Whether you are buying a website, domain or an app the detail you put into your purchase should match the risk or reward of your purchase.  There is a difference between $50, $5000 and $50,000. Be realistic. Your due diligence and attention to detail will be greater for a $50,000 purchase, but a $50 purchase is a great place to practice and learn from your experience.

Buy it Now (BIN) strategy that will help you sell websites at a higher multiple

Buy it Now (BIN) strategy that will help you sell websites at a higher multiple

If you have ever tried to sell websites on Flippa (or apps or domains), you have no doubt come across the option to add a Buy it Now price to your listing. For those who don’t know, a Buy it Now price is a price that, when decided upon and implemented by a seller, any buyer can agree to pay in order to immediately end the auction and take the listing off the market. In this article I’ll discuss some Buy it Now tips and tricks as well as discuss a BIN strategy to help you sell websites on Flippa for the maximum price.

Don’t add a BIN too early!

Adding a Buy it Now price too early can be a costly mistake for two reasons. The first reason is that many buyers equate BIN with reserve. Of course, these are two completely different prices as a Buy it Now price is a tool that should be used to stretch buyers out further than they were planning on going; whereas, a reserve price is the minimum amount at which the seller would be willing to accept to part ways with underlying asset. The problem is, if your BIN is much higher than your reserve (as is often the case) and you set the BIN early on in the auction, this may cause buyers who would have otherwise placed a bid on your site to refrain from doing so – this means less exposure in the marketplace and fewer post-auction negotiation participants.

The second reason you want to avoid setting a BIN too early is that you might place the BIN too low. In these cases you run the risk of selling your listing for a price lower than you would have otherwise received had you let the auction run its course. This lesson was ingrained in my mind when I witnessed a website sell on Flippa via BIN for $150,000 a couple of hours after it was listed. Had the seller allowed the full two-week auction to run its course, the site would likely have sold for more than $300,000.

When is the best time to place a BIN?

In my experience the best time to set a BIN is during the final hour of the auction. By this time of the auction you should have a pretty good idea of how the market values your asset. This is also the timeframe when most interested buyers will have their eyes on your auction. More eyes on your auction means a higher chance of a bidding war developing and a higher chance that someone clicks your BIN to avoid one.

At what price should I set my BIN?

Generally speaking, a BIN should really only be used after the reserve price has been met. Otherwise, you run the risk we discussed earlier of scaring away potential bidders at a time when every bid counts. However, assuming your reserve has been met and you have about an hour left in your auction, you should probably set a BIN. Keeping in mind that most sites sell on Flippa for between 1x to 3x yearly net, I usually like to set the first BIN outside of the high-end of this range, because remember, we want to stretch buyers out further than they were planning on going. Say a website I’m selling has hit reserve and was sitting at a top bid of 2x yearly net, which we’ll say is $100. I might start with a BIN price that is 4x yearly net ($200).

Gradual drop in BIN

Once you have set your first BIN, you should begin dropping it in regular increments every 5 to 10 minutes. Going back to the example above, say we had placed an initial BIN of $200, the goal now would be to slowly drop the BIN in regular increments. So with 50 minutes left we might drop the BIN to $175, then with 40 minutes left we might drop the BIN to $150. Each time the BIN is reduced make sure to post a public comment letting everyone know. Remember your goal as a seller is to get the highest price possible for your asset. If, for example, the current top bid is $100, and the top price anyone is willing to pay is $105, you want to get a bidder to pay that price. So, as the auction winds down, creep closer and closer to the current bid price.

One thing to keep in mind: Flippa has an anti-sniping feature that automatically extends an auction an additional hour anytime a new leading bid is placed during the final hour. If this happens on your auction be prepared to modify your BIN accordingly.

ShipYourEnemiesGlitter.com auction: BIN Strategy Case Study

Most people probably remember the auction for the viral sensation ShipYourEnemiesGlitter.com, but what most people might not know is that with 5 minutes to go in that auction the highest bid was $70,000. Following the incremental BIN drop strategy, the seller reduced the BIN gradually from $150,000. With 2 minutes in the auction, the seller dropped the BIN to $85,000 and a buyer executed it seconds later.

Remember this is just one BIN strategy, and there are situations where this strategy might not be the best choice, for instance if a seller needs to sell their website quick. However, for the broad majority of website auctions this strategy should work well.

Do you have your own BIN strategy? Tell me about it in the comments below.