I have been actively buying established websites for about seven years now. During that time I have made some big mistakes and also had some big wins.
Through a lot of trial and error I have learned that there are certain questions that you must ask before you buy that can make or break the success of the website.
1. Can the Sales Process Be Automated?
One of the biggest things I look for when buying an existing website, and highly recommend if you are new to the online business world, is sales process automation. In other words, if you can get traffic to the site it can make money for you without you having to spend extra time processing orders.
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For example, I used to own a website that sold a kit on how to start a lawn care business. The kit included an ebook, some forms and contracts and a listing in a national lawn care directory. What was so great about the kit was that it was all digital. There was nothing to ship, no product to manage, no overhead. It made things extremely simple for me.
What made it even better was I found a service that allowed me to get the digital product delivered automatically when they ordered. So I literally took myself out of the equation.
People came to the website through Google, they went to my sales page, bought the kit and it was automatically delivered to them. I was never actually involved in the transaction.
100 percent automation.
Now just because I didn't have to be involved in the sales process doesn't mean I was sitting on the beach working on my tan. I was working on driving more traffic to the site to make more sales. I was doing SEO and setting up strategic partnerships. I was running split tests to increase conversions.
But those are things that you should be doing with any online business you own. Those are the things that truly will improve your bottom line and grow your revenue and your websites value.
So if you can automate much of the sales process it gives you more time to work on those things. I remember in the olden days I was creating a CD (with a label) that I would mail out to the person and it had all of the digital information on it. I had to make daily trips to the post office. It ate up a lot of my time and added no value.
Now I understand that some online businesses can't have a fully automated sales process. That's OK. Just automate as much as you can. So if you are first starting out, or if you are looking to add to your portfolio of Internet businesses, make sure you have automation in mind first.
2. Is There Good Revenue History?
Typically when you purchase a website you are going to base your offer from the last 12 months of revenue. You must be very cautious when a website doesn't have a long revenue history. Many Internet marketers out there have a big following and so they can launch a product and make sales and create the illusion of good revenue. When in reality the reason they are selling a site is because they know they have bled their audience for all they are going to get and are moving on. This happens more than you might think.
You want to see consistent revenue from real sources in the analytics which will mitigate the risk for you when you purchase. Ideally you will have 12 months or more of revenue so you can get an accurate gauge of what the website is actually worth. You also want to make sure the revenue is trending down, if so take the average revenue of the last three months and base your multiple off of that number.
3. Does the Site Have Little or No SEO?
If you know anything about SEO, then you are familiar with all of the changes in the SEO world over the last several years because of Google. Many websites were penalized and lost rankings and traffic when these updates hit. If you look at a website's analytics over several years it will be really obvious if they were hit by an update and it will look something like this:
You want to avoid sites with this type of history if it is at all possible, unless they have recovered and are back to (or surpassed) where they were before the updates.
Ideally you want a site that has traffic and maybe even some rankings but the owner didn't really do any SEO and so there is potential to make changes and get more free traffic from search engines with just a little bit of work.
If you aren't familiar with SEO then you should learn what is working now because that should be a major part of your strategy. The best way to automate a website is to get targteted traffic coming 24 hours a day from search engines.
4. How Much Potential Is There for Growth?
Sometimes you can't base a website evaluation off of raw numbers. If you know an industry really well, and understand the potential, then sometimes you may make a high offer based on that potential.
That worked heavily in my favor one time. I was running an online business in an industry that I knew extremely well and I had not even scratched the surface of meeting that potential. But I still received an offer from a company to buy that website from me. The offer was good ($38k) as the site was only earning about $1,500/mo. I turned it down because I knew the potential of the site if I could drive more traffic and get better rankings in Google.
The site continued to improve over the next couple of months and revenue had doubled, and that same company came back and made another offer. This time they offered $250k (no that is not a typo). They offered me a seven year multiple on the site because they knew the potential just like I did.
Now I'm not saying to go out and do something crazy like they did. In fact, I was very skeptical about the whole deal until the money showed up in my bank account. They overpaid, and you should never do that. But you should take into account potential growth and if it makes sense, use that as a factor in your offer.
5. Is There Existing Traffic?
When you're trying to make money with an online business, the one thing you must have is traffic. Many people (read: most people) just don't know how to maximize the revenue from their traffic. This means that often websites aren't reaching her potential. For those of us looking to buy undervalued websites, this is a good thing.
There are many websites out there that have lots of awesome traffic but because the owners don't know how to properly monetize a site, they are willing to sell at a discount. For me these websites are a dream. This means that all I have to do is work on increasing conversions and I can't get a big return on my investment.
Note: Not all websites with traffic will have a good way to make money. So before you buy make sure you have a good monetization plan. If there is a legitimate way to monetize that traffic, then quality traffic equals money.
I once purchased a website that had decent traffic (about 4,000 visitors a month) but wasn't making much money. Once I got control of the site all I did was make a few changes to increase conversions. My revenue went from $208/mo when I took ownership to $1,992/mo in just 30 days.
I didn't do anything to promote the site. I didn't do any SEO. I simply made three changes (you can read the case study here) and the revenue grew like magic. So much so when I flipped the site a few months later I made a 718 percent return on my investment.
When you have good traffic you can figure out how to monetize and increase revenue. Good traffic is the hardest part. So if you find a website that has good traffic, but low revenue, you should figure out if there is a good way to monetize it and if so it's a winner.
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There are other smaller factors to consider when purchasing an existing online business, but if you follow my advice on these five questions it will most likely safeguard you from making any big purchasing mistakes, and allow you to give yourself the best chance for success.