About a month ago, I tweeted the following about my best website purchases:
While I was partly trying to be witty, I did have a point. A lot of the time, the best way to grow a business after buying it, is just to buy one that’s already growing.A lot of the time, the best way to grow a business after buying it, is just to buy one that’s already growing. – @teamOnFolio Click To Tweet
Sounds obvious, but it’s easy to forget when you are in the throws of due diligence. It’s also worth emphasizing, hence why I wrote it twice.
The tweet got a fair amount of engagement, so I decided to turn it into a blog post and add some more to the list. While I’ve done another post on the flippa blog about some of the things to look for, or how much upside a site might have, today’s post is more a case study/data point based on some of the most successful deals I’ve done.
- A website bought in June 2019 for $27,000 valued at $100,000 by Dec 31 2019
- A website bought in April 2019 for $80,000 valued at $144,000 by the same date.
- A smaller website, bought for $15,000 valued at $40,000 within a year.
These aren’t my only wins, but they were the easiest, so will be the focal point of this article.
It’s All About Buying Right
They say you make money when you buy, and they’re right, but it’s not always necessarily for the same reasons.
Usually this expression refers to buying sites knowing they’re already undervalued so you can sell them for a higher dollar amount even without growing them. This was the case for website 1 and 2, but not for website 3.
For site 3, I still made money when I bought, because going into the negotiations, I knew the website was leaving easy money on the table, and therefore I knew the asking price was not aligned with what the website would be worth after I’d spent an hour or two optimizing it.
Let’s talk about the trend.
In trading, the trend is your friend, and when buying websites, this is almost always the case as well.
Here’s how a site that is trending up nicely may have earned over the past few months:
This month: $3,000
Month before: $2,500
Month before: $1,500
Month before: $900
Month before: $500
Month before: $350
This is fairly typical for a site which has just taken off, and if you know what you’re doing, you can analyze the likelihood of that site continuing its trend. If it WILL continue, or even if it stays flat at $3,000, you could have a very nice acquisition on your hands.In trading, the trend is your friend, and when buying websites, this is almost always the case as well. – @teamOnFolio Click To Tweet
The site above has a L3M average of $2,333 and a L6M average of $1,500. This might put its value at somewhere around $45,000 – $65,000, which is fantastic for a site earning $3,000. In a few months when the average increases, the site could now be worth $90,000+.
That’s exactly what happened with site 1 above. I bought it for $27,000 because it had literally just started taking off, and within a few months it was earning $3,000 per month without me doing anything. Of course, I did start to do more and grew it further, but the point is that the trend did most of the work.
Now, not many sellers will part with a site which has just started taking off, and I definitely benefited from the fact I’m a known buyer in the space and have a lot of inbound dealflow, but the point remains that when you find something trending up, you can often pick it up for a price that doesn’t reflect its true value.
Site 2 was trending up as well, although less dramatically. This one was a bit more stable and had recently gone from $2,500 per month to $3,000 per month, so an $80,000 purchase price wasn’t too far below where I felt it would be.
That said, it WAS still trending up, and I also saw areas where the seller had left money on the table. In this case, he hadn’t added any private affiliate programs when his biggest Amazon sales were products that also had their own affiliate programs offering higher commissions than Amazon.
He also hadn’t added a lot of content that I knew was profitable and would likely rank well and quickly on a site trending upwards. By combining the trend with this knowledge, I was able to pour some rocket fuel onto the fire and keep things moving upwards.
Oh and I also added display ads to the site later once its traffic had grown further. Another easy win.
Speaking of display ads, this was the main play I did with site 3. The site was making small money, but was only monetized by AdSense. The traffic wasn’t big enough to get into a network like Mediavine, but adding ezoic still doubled the site’s ad revenue over the next few weeks, which was very nice.
From there, it was really just a case of adding more content and growing the traffic, knowing that the revenue was going to increase automatically with the traffic (which is why people like display ads as a business model).
When The Trend Might Not Be Your Friend
Apart from the obvious situation, like a site has started to trend downwards…when might a site trending up NOT be such a good opportunity?
- When the site has reached the peak of its trend and has more downside risk than upside
- When a site sells for a higher multiple because of its rapid growth, which is usually unsustainable.
Point 1 is very hard to predict, which is why I usually negotiate a lower multiple if I can, to offset that risk. It also means that when the trend continues, you got a growing site for a lower multiple. Double win.
Point 2 is generally something you can spot fairly easily. The steeper the climb, the less sustainable it is, so don’t get dollar signs in your eyes if something has gone vertical. The exception would be where you’re a sophisticated buyer who knows how to analyze whether or not a trend is sustainable.
Don’t Try To Swim Against The Tide
If I could leave you with one thought, it would be that it’s a lot easier to maintain a trend than reverse one.
A lot of people will buy a site that is trending downwards, because they think of it as a “good deal” or a fixer upper type acquisition.
That might well be the case, but the majority of the time, you’re not going to be able to reverse the trend, and if you are, you could’ve just had a lot more success by doing the same amount of work with a site trending upwards.
Even if that means paying a higher multiple.It’s a lot easier to maintain a trend than reverse one. – @teamOnFolio Click To Tweet