It shouldn’t be a surprise that the majority of mistakes made in website acquisition are by first or second-time buyers.
Second-time buyers are potentially more at risk. They’ve done it before, so they’ll be more likely to become complacent than a first timer.
Complacency is definitely a common mistake which can lead to some pretty bad outcomes. You could miss some red-flags, mess up the website migration, or accidentally tank the website with some poor decisions.
What other mistakes do beginner buyers make? That’s what we’re going to cover.
To be clear, these are mistakes that can be made by anybody at any time, so if you’ve bought more than two websites, it’s still worth reminding yourself of what can go wrong.
Not Zooming Out
When evaluating a website, always look at the bigger picture, especially when it comes to Google Analytics. A website might be up 20% over the previous 7 days, but down 150% on a longer timeframe. Make sure to check at least the last 90 days, and see how they compare with the 90 days before.When evaluating a website, always look at the bigger picture, especially when it comes to Google Analytics. Click To Tweet
Depending on the time of year, a drop in traffic might be natural (for example, after Christmas, Black Friday, or Prime Day, you’ll see a drop simply because there was a massive spike beforehand). Or, it could be that there was a Google update just released and the site has been hit hard.
Make sure you can tell the difference.
Conversely, it can also be a mistake to zoom out too far. If a site has been trending up for the past 3 months but is still down compared to the year before, that doesn’t necessarily mean it’s a bad purchase.
Just make sure you’re basing the purchase multiple on the shorter average income period and not the period a year before when things were higher.
Not Being Up To Date On Updates
Google updates, Amazon commission changes, even seasonality is something that can burn a buyer who is unaware. Since the vast majority of a website’s purchase price is based on what’s happened before, you need to make sure that thing is still likely to continue to happen.
It’s very common to see people selling after a Google update has dinged their site, which means you’ll need to wait a bit longer and see where the new traffic and income levels settle.
Again, conversely, sometimes a seller’s site benefits from an update and they’ve not realized, since they’re already mentally checked out of the site.
If their site has been on the market a little while and then a Google update happens, it’s worth checking to see if the site has started recovering. You might be able to pick up the site based on its previous poor performance, and reap the rewards.
Keep this trick secret though, definitely don’t blog about… ah, crud. Never mind.
Not Understanding The Website Migration Process
The first time I sold a site on Flippa, the buyer just wanted me to send them the domain only. I had to explain that I also needed to send them the website files and that they’d need to get hosting (I had other sites on the same host, so couldn’t transfer it).
I’ve since worked with several buyers who also weren’t aware of the process, which leads me to believe it’s fairly common.
The whole migration process is best learned about in another blog, but the main thing you need to know is – make sure you get the website files and/or hosting logins as well as the domain name. It seems obvious, but until you know how websites are migrated, it is easy to miss.
Paying Too Much For A Website Based On Potential
It’s not actually true that a website is valued based on its historical earnings, despite what most people think. Instead, a website is valued on an estimation of future earnings. Historical earnings just happen to be one of the biggest indicators.
That said, you shouldn’t be paying extra for a website based on “potential”, or at least not based on unrealistic potential.
A website that is trending up, that has a lot of room to grow, and is one you know how to grow easily…sure, pay a little extra for that, or apply a higher multiple.
A website that is earning $1,000 per month but “Could be a $10k/mo business with minimal work” on the other hand…don’t pay more than market rate for a site that makes $1,000. Sellers love talking about potential and how easily it can be unlocked, but the truth is that if it were easy, they’d have unlocked it already.Website sellers love talking about potential and how easily it can be unlocked, but the truth is that if it were easy, they’d have unlocked it already. Click To Tweet
As such, it’s YOU that needs to unlock the potential, and you that deserves the upside when you do.
I had a conversation with a deluded broker recently who told me why 50x was a fair multiple for a business based on all the things I could do to grow it easily. I told him if I did all those things and it worked (which was a risk), then I’d deserve the new valuation, not the seller.
Needless to say, we didn’t do the deal.
To be clear though, sometimes it’s ok to buy a business and pay extra, so I don’t want you to take this as an exact science. The point is, there are always unknowns and you can never be 100% sure that you can achieve the growth you want, so why pay extra for that risk? If you fail to grow it, you will have paid too much.
Paying Attention To The Wrong Risks
One thing people tend to do is put too much weight on risks that are perceived, but not necessarily high (such as the presence of PBN links) and ignoring other risks that are much higher (such as a website relying on just a handful of articles for the majority of its revenue).
This really comes down to inexperience both as a purchaser, and a website operator, and the best solution is to get more experience, or work with professionals like Centurica to perform thorough due diligence.
The way to level up here is to do things like read this very flippa blog, listen to podcasts in the space, and consider signing up for Richard Patey’s paid newsletter, where he evaluates deals every week and explains the risks and opportunities he sees.
Either way, the point is, it can be hard to know exactly what things are risks, what things are “nice to haves” and what things are genuine dealbreakers.
Focusing Too Much On Multiples
Now, you WILL come across mediocre sites with an unrealistic multiple, and you will occasionally even come across a great site with a poor multiple (buy it), but for the most part, you get what you pay for.
I’m not saying you should just pay too much and assume it’s a good deal (see the section above about paying too much), but you should also understand that the multiple doesn’t make or break a good deal.
I’ve worked with people who passed on great opportunities because they had their minds set on a certain multiple and wouldn’t budge above it.
As I mentioned in an earlier post, some of my best deals have been ones where I paid a higher price because I knew the site was quality. In those cases, I actually ended up with a higher ROI.
The lesson here is to consider everything, not just the multiple.
As many people like to share on memes around Facebook, the price is what you pay, the value is what you get. Focus on the latter.
As I read this back, there’s a clear recurring theme throughout the article. The most common mistakes all revolve around misplaced focus. This is sometimes due to inexperience, and sometimes down to mindset.
Focusing on the wrong thing though, can lead to a minor learning experience, or a catastrophic failure. The biggest advice I can give is to become more sophisticated in your knowledge of deals, and to always take a step back and ask yourself what you’ve not considered.