This is a guest post by the founders of FlippingPlanet.com, Bryan O’Neil and Thomas Smale. Bryan and Thomas are both experienced buyers and sellers of online businesses and have been active in the industry for over two years.
In recent years, the potential return from buying an online business has bought a lot of new people into the industry who are often inexperienced online.
While buying a site may seem to be as easy as logging on to Flippa, finding a website that generates enough revenue and traffic for your liking, placing your bid and hoping it’s the winner, there are actually quite a few other aspects to consider to avoid getting burned.
In this article, we’re going to list the 7 most important things every buyer should consider before investing in their newest online venture.
1. History of the Website
To start off, you need to carefully analyse the history of the website that you’re about to purchase. Similarly to brick-and-mortar businesses – the longer it has been in existence, the more likely it is to stay that way. Often enough, you will find sites that have existed for mere months before getting sold, in which cases it becomes extremely important to make sure that the revenue the website has been generating is indeed sustainable and not just a “one-time thing”.
2. Revenue Streams
There are number of different ways a website can make money. The most common sources of revenue are Pay Per Click ads (Google Adsense), Affiliate Income, Product Sales, and even banner ads that advertisers pay for on monthly basis.
As a buyer, it is your job to evaluate the risk associated with different revenue streams. For instance, a website that is earning the majority of its revenue through Google ads is much more likely to continue doing so than one that depends on only a few direct deals with advertisers.
Another thing to keep in mind is “more is better”. You should always look for sites that have multiple independent revenue streams. This way, even if something happens with one you will still profit and not be left with empty pockets.
3. Revenue Trends
In addition to revenue streams, you also need to pay attention to trends. Has the site’s revenue been in constant decline? Is the site selling something that is seasonal? Did the owner of the site create a huge hype around the product the site is selling and tries to sell the site before the “hype madness” wears off? Has the site’s revenue increased considerably shortly before it was listed for sale and is it possible that it was artificially inflated? These are all things you need to think through before making your decision.
4. Traffic Quality
This is an important factor, especially with sites that generate little or no revenue but (seem to) get high amounts of traffic. The “Traffic = Money” equation tends to be true, but it’s crucial to understand that there’s a difference between traffic and traffic.
For instance, traffic from some countries may be considered as much as 10 times less valuable (in terms of how well it can be monetized) than traffic from other countries. Similarly, getting 10,000 kids per month looking to play video games is quite obviously much more challenging than getting 10,000 home owners looking to insure their house.
On a positive note, most sellers nowadays provide buyers with rather thorough statistics, allowing you to take a close look at the demographics of the traffic the website is getting, and to make your buying decision based on this.
5. Replication Possibilities
It’s no secret that not only buyers and sellers frequent marketplaces such as Flippa. An often overlooked crowd is the ones looking for ideas. To put it more bluntly, these people look at websites that are for sale with the sole purpose of replicating these sites on their own.
Often enough, sellers choose to disclose information that shouldn’t really be made publicly available. Has the seller provided full information about their traffic sources and are the traffic sources limited in terms of how many visitors they can provide? Is the site operating in a small, but “untapped” niche that may easily lose its value as soon as a competitor comes along? These are things worth thinking about before placing your bid.
6. Time and Expertise Needed to Maintain the Website
This is an aspect that most buyers tend to leave out of their equation – only to end up extremely disappointed after their first purchase.
While picking up a website that earns you a cool extra $300 per month may seem like the best deal ever, you need to evaluate and understand how much of your time you have to invest into keeping the site at that level. Is the extra $300 per month still a good deal if you need to spend an hour each day maintaining the site and producing new content? By doing this, you’re effectively “hiring yourself” at a salary of $10 an hour. Hardly something most buyers are looking for.
Many sites require regular maintenance. This is especially true for blogs and “content sites” that need to be fed with fresh content at all times or the traffic figures would start going down rapidly. Based on this, it’s important to decide how much of your time you are willing to invest into keeping the website up and to make sure that the site you’re about to buy matches these expectations.
7. Accuracy of Provided Figures
In the perfect world, all people would be honest and there would be no lying or deceiving. But unfortunately, we don’t live in the perfect world and hence we always need to have our guard up for cheats and scam artists.
Before placing a bid, make sure that you have requested enough proof from the buyer to be absolutely sure that the figures that they have provided are actually truthful. There is also a wide variety of Due Diligence tools provided by Flippa – these tools are there for a reason and as a buyer you should always take a close look at the results that they provide. They are by no means foolproof – but cross referencing different statistics vs. seller’s claims is never going to hurt.
As a general rule, if something looks “dodgy” then more often than not it is best to simply stay away and move on to another opportunity. This is especially true in the online world where people have the ability to stay much more anonymous than in the real life.
Last but most certainly not least, make sure to take a look at the seller’s history on Flippa, as well as their Feedback Score. If the seller has been active for years and has a lot of positive feedback then chances are that they are worth dealing with. If, however, their previous buyers have given negative feedback about them, it’s usually best to stay away.
While all of the above is based on real world scenarios, it’s also important to understand that even though the risks do exist, most sellers are still honest and there is no reason to feel discouraged or to “expect” landing on a bad deal.
I urge you to think about what’s pointed out in this article, utilize it, and by doing this stay on the safe side and place those bids without having to worry about what happens next.
To learn more about Due Diligence and Buying and Selling Websites in general, you can sign up at FlippingPlanet.com – an online community for sellers and buyers alike.
Image: gerlos (No, it isn’t Thomas or Bryan!)
Agree with these tips? Are there any missing? Let us know in the comments below.