Photo Credit: Brandon Warren
As an Internet lawyer I have had a bird’s eye view into many, many website sales. I have seen amazingly successful sales, and I have also seen very unsuccessful, messy purchases. Through this experience over the past 14 years I have been able to draw some conclusions about how savvy website buyers and sellers operate and what they look for. Here are the highlights:
Savvy Website Buyers Tend to Stick With What They Know
The most successful website purchasers tend to only buy websites related to industries or niches that they have experience with. For example, a purchaser will develop a long-term knowledge of, let’s say, lawn sprinkler system lead generation, or the kite flying community. Or perhaps it is a broader area of expertise, such as online education or travel. The reason they develop and stick with subject matter is that that being in business, even online businesses, is about more than developing and managing a website; you must know your customers, be familiar with the product, have connections to preferred suppliers, have a handle on mark-ups and profit margins, and be able to cut the best deal with advertisers.
In other words, the savviest website buyers tend to not consider themselves to be in “the website business” per se, but rather consider themselves to be in the particular industry that they operate, such as the “travel business”. Only once the savvy buyer masters their particular chosen industry do they then try out another one and try to build expertise there.
Savvy Website Buyers Are Most Interested In Underperforming Websites
In order to “buy low”, savvy website buyers look for underdeveloped and underperforming websites. Websites that are fully developed and have reached a point of maturation and stable success are not generally of as much interest, since to buy such a website they would have to pay a premium and would generally be unable to increase revenues dramatically.
In other words, the savviest purchasers are adept at identifying a website that has potential but where the current owner and operator has not completely succeeded in monetizing it or building out its traffic-generating capabilities. This ability particularly comes into play when a savvy purchaser sees a website that could benefit from the relationships, expertise, and industry knowledge that the buyer has from being experienced in the operation of related subject-matter websites. Accordingly, a smart website buyer with deep industry experience may be able to turn a website that is earning only $1000 a year into a website that earns $3,000 a year, thereby recouping its purchase price in a much shorter period of time.
Savvy Website Purchasers Spot and Capitalize on Trends
The best website buyers have a keen ear and nose for the latest trends in products and services, and are able to nimbly get ahead of the rest of us by purchasing related key word domain names and related subject-matter websites, before the trend has been fully recognized and exploited. For example, there was a time when Acai was a hot consumer product. At the height of the Acai craze, people were making a ton of money not just through online sales, but through selling related domain names and websites. But it was the savvy buyers who spotted this trend early one who were able to make the most out of it while it lasted, by buying domain names and websites at low prices, before the trend hit its apex and prices skyrocketed.
Some trends are “micro” trends, such as a particular product or service that is getting a lot of attention in the media, but other trends are “macro” trends, based upon much larger dynamics, such as a demographic shift. An example of the latter would be identifying the aging population and focusing on health care and retirement — this is a strategy that has already paid off for many entrepreneurs. With macro trends, the savvy buyer is looking for a much longer-term play, rather than a quick hit.
Savvy Buyers Know When to Sell
Playing the trend game can of course be risky, a bit like web musical chairs. One must always be first, and must also know when to quit before being left holding unsellable properties and merchandise. But the savviest buyers play this game well, and have developed expertise with the most crucial aspect, which is timing. The savviest sellers are often prepared to sell their website even while their website is still making good money, thereby “leaving some money on the table”. They will do this because they try to sell before there is market saturation and while the market is at its apex. They figure that it is best to sell now, rather than risk being left holding the bag, even if it means not fully realizing all the potential ongoing revenue.
Savvy Buyers Have Long Term Plans
In real estate, it is very rare to buy an investment property and get enough rental revenue to pay off the purchase price within the first few years. These days, real estate investors are often happy in getting just 5% or 6% of their purchase price back in rental revenues per year, and hope that over the long term, they will ultimately be able to sell their property at a large capital gain, thereby making up for the lower annual returns. Others will be happy just having an investment vehicle that spits off some modest returns instead of making next to nothing by having their money sit in the bank.
With Internet website property development, there are similar considerations for many investors. Savvy website buyers will identify Internet properties that may only make a modest net revenue, but that demonstrate steady income, and therefore provides some long-term investment revenue, aside from the ultimate potential capital gain. Accordingly, a modest but steady income stream can sometimes be considered a “blue chip” website property, since it is treated as an “annuity” of sorts, with little risk of any dramatic downswing, but also little potential for any dramatic upswing.