Flip a Web Site Fixer-upper

One of my favorite cable television networks has a show called “Flip that House.” The concept is as simple as the work is hard. You buy a house that needs work, do the work, and sell it for a profit. We can do the same thing with web sites, without getting our hands dirty, or risking as much of our precious capital resources. You’ll find it possible to make an investment of well under a thousand dollars and, with a little conceptualization and time, use that investment to achieve a rate of return that’s unheard of in other industries.

It’s like playing a game — a game that has the potential of enormous profits, sure, but it’s always been the thrill of the chase that keeps me interested. Ever since I started buying and selling web sites about four years ago, one fact has remained constant: web sites are undervalued assets. Trends have seen a rise in site values across the board, which is somewhat comparable to the US housing market up until last year — online property will naturally increase in value over time, so if you simply buy a property, and hold onto it for a while, we should be able to sell it for more than we paid. But, if we add value, we can flip the property for a quick capital gain.

Flipping a site involves the following steps:

Identify a property to purchase.

Evaluate, negotiate, and complete the sale.

Add value to the property.

Find a buyer and sell the property.

Identify a Property to Purchase

Before you start to look at specific sites for sale, it’s helpful to come up with some sort of specialization to narrow your focus. Is there a particular type of website that you know best? For example, I’ve worked a lot with forums, so I find it easier to evaluate a forum than an ecommerce site at a glance. You might focus on content sites, or blogs, or sites that sell a digital product like an ebook. Web-based services are good types of sites to look at, as are sites that sell physical products. Forums and other types of communities can also offer a lot of opportunities. Sites that defy categorization might also be good places to look.

It’s also helpful to narrow down your search by a particular market vertical. So, instead of just looking at one type of site (e.g. content sites), you might look at any type of site on a given subject (e.g. fly fishing sites, including forums, online stores, etc.). Choose a specific vertical, and own it. For the sake of argument, let’s say you’re looking at the meat processing industry — unusual, I know, but let’s use our imaginations! Now, choose one or more niches within the vertical — let’s say you choose bologna, hot dogs, and sausages. Fire up your favorite search engine and go to work. Look for ecommerce sites selling bologna. Look for a site focused on a groundbreaking method of making hot dogs, which sells this revolutionary information packaged up in an ebook. Look for a content site about sausage making techniques and recipes.

Before I become interested in buying a site, that site must have some compelling factors, and a problem. When you’re looking at a site, keep one key question in mind: where’s the hidden value here? For example, a site might have good traffic. Look at its Alexa rank — is it in the top hundred thousand? Perhaps the site seems to have traffic, but it doesn’t look as if the owner has monetized the site very well. Maybe the site offers a good product or service, but hasn’t gained traction in its marketplace. Is the offering something that isn’t easily reproduced, and that can allow you to make a decent profit margin? Perhaps it provides some really unique and valuable content, but hasn’t been marketed and isn’t attracting the kind of traffic you think it potentially could attract.

Every site has compelling factors and problems. Find the compelling factor about the web site you’re considering, and formulate a plan to take advantage of that factor. Buying a fixer-upper of a site isn’t going to do you any good if you don’t have the skills or resources necessary to solve the problem. Buying a web site with so much traffic that the owner can’t handle it only makes sense if you can move it onto a new server that can handle the traffic, and then properly monetize it. Buying a site that sells a script or a digital service is no good if you’re not prepared to support it, which may include fixing any bugs in the scripting.

Now you know the primary assessments we must make on sites we’re considering for purchase. Just to recap, here are the tasks we’ve completed in this section:

Identify your specialization.
Find web sites with hidden value.
Know how you can capitalize on that value.

Finding a Site to Buy

There are numerous strategies you could incorporate into your quest to find good web sites to flip. You can sink a lot of time into the selection process, but this process is necessary. I might look at several hundred web sites before I make a decision to buy one. For every good deal, there are dozens of duds. And, out of a dozen good deals, you might find that only one makes good sense to you.

The Flippa Marketplace really stands out in terms of reducing the amount of noise you have to block out to find the deals with potential. By implementing fees for listing sites for sale, SitePoint weeded out a lot of the bad deals from its boards. Naturally, you need to do as much due diligence here as you would elsewhere, but if you’re a novice getting into this game, I’d recommend watching the SitePoint Marketplace first.

A number of other webmaster forums that now include sections for web sites for sale — Digitalpoint and Namepros to name a couple. When SitePoint instituted fees, many of the lesser deals ended up at places like these. A big time saver, which was recently launched, is BizMP, which aggregates a number of the marketplace listings from webmaster forums. Once you’re comfortable with the nature of these listings, you could rely more on this service than on directly visiting several forums each day. I have BizMP bookmarked and visit it several times a day.

There are other marketplaces, but I’d consider them more difficult to use than the ones I mentioned above. Ebay, for example, offers many hundreds of listings at any given time. However, it’s the biggest time waster I’ve found. It’s very difficult to find anything worth bidding on there. However, there are a few tricks I use when looking at Ebay to help locate the odd good deal among the rubbish. For example, I’ll scroll through and pick out any site that has attracted two or more bids. Another thing that might help is to perform a search for a term that might be important (for example, if your strategy is to pick up sites that have an established membership, you might search for “members,” being sure to check the “Search title and description” box), then sort by price to see what’s in the middle. If the search shows ten pages of results, look through pages three to seven, for example.

Some other marketplaces that might be worth your time are BizBuySell, WebsiteBroker, and WebHostingTalk. The offerings at BizBuySell will tend to be more expensive, but if your strategy is focused on ecommerce, a search here might turn up some interesting possibilities. WebsiteBroker has a lot of silly listings, but is quick to check and I’ve seen a couple of interesting deals there. WebHostingTalk is primarily a forum for hosting companies, but I’ve found some of my best deals there.

Where I’ve spent the most time, though, and found the most deals, is by hunting for sites using search engines. For example, for a couple hundred dollars I bought a content-based site that I found through a search engine. The person who built the site was an expert on the topic, and he build a web site that offered about twenty pages of tips and how-to type articles, and had simply put a “This Web Site is For Sale” sign on the top of the site. The site had virtually no traffic, and no revenue whatsoever.

My goal was to rewrite the pages with specific keywords in mind, in an attempt to optimize the site for search engine traffic. I researched appropriate keywords for each page, and made some simple modifications such as changing the article (and page) titles. I had the site listed in a couple of relevant directories, and obtained some other back-links from important industry web sites. The traffic didn’t skyrocket, but it showed a nice gradual upturn, and was receiving over a thousand pageviews a day when I sold it. Between AdSense revenues and the sponsorships I sold directly to ecommerce businesses within the vertical, the web site was pulling about $250 a month by this time. I sold it for $3,500 to a buyer I had worked with in the past. Not bad, considering I’d put maybe eight hours of work into refurbishing the web site.

Now you know where to look for sites for sale, but here’s an at-a-glance list for your reference:

Evaluate, Negotiate, and Complete the Sale

The most traditional mechanism for evaluating a deal to purchase a web site is to use a multiple of the monthly revenues the site is generating. This may make great sense to you, but it’s not always applicable. Typically, for small web site deals, you can expect to see prices that equate to ten to twenty times the monthly revenues. Now, even that’s a tricky number. For example, last week I saw a site for sale in the SitePoint Marketplace that I liked, but it turned out that of the $1,000 monthly revenues the site made, the net profit was only $100 tops. While a purchase price of $4,600 might seem like a good deal at first glance, when you see net margins like that, you know the one making the good deal is the seller. Be sure about the numbers before you start talking in multiples of revenue.

More often than not, the kinds of sites that I look at don’t easily lend themselves to a purchase price that’s based on a multiple of monthly earnings. If the site’s not making any revenues, for example, I find it helpful to try to find a suitable figure by estimating how much I think I could be making off the site in its current condition. If the primary source of revenues would be AdSense, for example, and you know the approximate eCPM (effective cost per thousand impressions) for the site, you need only know the traffic figures in order to work out your revenue projections. You can reach an eCPM by knowing the CTR (clickthrough rate) and multiplying that by the projected average earnings per click.

Verify everything the seller tells you — do your “due diligence.” Make sure you know, understand, and are comfortable with the sources of the traffic the site receives if you’re buying a web site based on its traffic. Look at AdSense screenshots, and see if they make sense when you cross-reference them with the traffic stats. If it’s an affiliate site, find out if you can speak to the affiliate manager about the site, and verify its income if that’s an important factor. If you’re buying a site for the content, verify the copyright, and make sure you’re comfortable with it. The same goes for the products you’re going to be selling if it’s an ecommerce site. If it’s a drop-ship site, verify the relevant details with the drop-shipper. If you don’t verify, and you are defrauded, you only have yourself to blame.

If you do find a good deal, act quickly. On a number of occasions, I’ve had the rug pulled out from under me by someone who’s moved faster. And, on some occasions, I’ve been there to pounce. There have also been a few times where I’ve pounced on a deal, only to have the party who missed out on it contact me, and I’ve been able to turn the site around within a few hours for a healthy profit.

When you’ve identified web sites you’re interested in purchasing, get in touch with the owners. It’s easy enough to send them an email, but you could also consider calling them on the phone. I usually email first. I’ve found that the majority of people will have no interest in selling their web site. However, my success rate is much higher doing this, than by looking in the forums and marketplaces. The key here is that you’re moving ahead of your competition. In the marketplaces, you’re one of dozens of buyers ready to buy. While you may not be the only one who has contacted the web site owner about selling, your chances at getting a deal (assuming there will be a deal) are far higher if you go to them directly.

That first contact is, of course, something you don’t want to mess up. Firstly, if you offend the owners, there’s not going to be a deal. But, secondly, this is an industry that you’ve chosen to be a player in, and even if you don’t end up making a deal on a specific web site, you could end up forging relationships that will affect your ability to do business in the industry. Offend enough people, and you can sour the industry against you. Forge positive relationships, and you may have found new partners, customers, or service providers if not a deal to buy a web site.

I recommend taking a somewhat straightforward approach, but without tipping your hand. You can mention how you found the site, what you like about it, and that you’d be interested in purchasing it. I do whatever I can to get the web site owners to offer their asking price first. The reason I do that is to avoid hurt feelings. I might be thinking that a particular web site is worth a few thousand dollars, but the owner might think it’s worth a hundred thousand. If I offer a few thousand, I risk offending the owners. Even when I don’t make a deal, I don’t want to hurt the owners’ feelings. Burnt bridges are bad for business karma. If the web site owner tells me he wants a hundred thousand, then I can graciously exit the negotiations without him knowing that I think he’s overvaluing his website by a factor of fifty. If the web site owner comes back with a more reasonable asking price, then the dance begins.

The key points to rememeber as you evaluate, negotiate, and complete the sale are:

Learn to value web sites.
Verify documentation.
Act quickly.
Be exceptionally courteous.
Let the owner name the price.

Add Value to the Property

You’ve acquired a new web site, now what? Occasionally you can flip it immediately — as I mentioned above, sometimes, I’ve resold a web site after just a few hours or days. Perhaps you already had a buyer in mind, or you sell to someone who happened upon a site-for-sale listing after you had already purchased. But more often, you probably now own a site that’s broken or imperfect in some way. It’s up to you to fix it.

If you’ve been paying attention, you already have your improvement strategy in place. You’re going to increase the site’s revenue or traffic, or rebuild the site in some other way. I can’t cover every possible situation, but there are a couple of typical examples I can briefly detail to give you an idea of what you can expect.

I purchased a forum that had been around for a couple of years. I liked the topic, and the forum seemed to have been active at one time, but the owner seemed to have given up on it. I contacted the owner directly; he had started it as a high-school student, and had lost interest in the site, and was too busy now that he was in college. The forum used phpBB and the default forum skin. The owner was happy to sell it, as he had been planning to let the domain expire. I gave him $100 for it. The site received decent traffic — about 500 visits a day — but the forum was overwhelmed by spam. I upgraded it to vBulletin, made a nice skin for it, installed vbAdvanced (a CMS add-on on for vBulletin), removed all the spam, and sent out a note to all the former members. Once people saw that some care was being put into the site, it didn’t take long for the forums to become active again. I kept it for a while, placing some discreet AdSense and text ads through the pages to build up a revenue stream. I sold it last year for around $5,000.

The improvements you make to the site you purchase could be easier than these, or harder. Sometimes it’s simply enough to redesign the site. You can take advantage of existing traffic, for example, with a clever redesign that makes more efficient use of ad space. You can get a fully coded template for your site for as little as $200 by running a contest in the SitePoint Contests forum. I’ve seen AdSense earnings increase by as much as 500% when I simply moved ads around and used different ad sizes. If you have time, you can experiment with ad locations and sizes, and try blending them with the content and design of the site.

Other common ways to improve site revenues include the use of text link ads, affiliate programs, and advertising networks. Having the site sponsored directly is a great way to boost revenues too, and it opens up the possibility of selling the site directly to the sponsor when it comes time to sell. There are so many other ways to increase the value of the site — you’ll see many of the methods I mention used over and over again. They’re time tested, and they work well, but it’s often the unconventional that produce the most explosive results.

Whatever your path to improved revenues, make sure you:

Have a plan in place.
Look for an immediate flip.
Redesign and rebuild.
Test ad placements.
Try different revenue formats.

Find a Buyer and Sell the Property

Sometimes, it’s almost no effort at all to sell a site. You’ll do fine, for instance, selling your finished web sites in the SitePoint Marketplace. There is now enough of an established buyer base to drive each sale to an honest purchase price. Be sure to use the auction setting, and don’t set your Buy It Now price too low. Before you list your site on the SitePoint Marketplace, take a moment to review the two following documents:

Being active in this marketplace has opened a lot of doors for me. Last summer I picked up a forum that was listed at a popular domain marketplace for $1,200. Before I had a chance to do much of anything to improve its value, I had a serious inquiry. The prospective buyer contacted me through a private message on SitePoint, knowing that I had purchased the forum, and that I’m in the business of buying and selling web sites. Within a couple of weeks of buying it, I’d sold the web site for $3,000.

Just in case I’m painting a too rosy picture here, I must add that flipping sites isn’t necessarily a breeze. Three years back, I purchased a forum for $2,000. It seemed to be thriving, the topic was right up my alley, and everything seemed on the up and up. Within a week of taking over the forum, the former owner disappeared, and the administrator started up a competing forum and got most of the moderators and top members to defect to his new forum. The community never really recovered, and while I make $50 to $100 a month off the site, I doubt I’d be able to make the $2,000 back if I put this forum up for sale. I’d say that one in every ten sites I buy turns out to be a dud. And some of those that do make me a profit create huge headaches along the way.

Among the documents that you should be prepared to share with a potential buyer are screen shots of the site statistics (I generally use either AW Stats or Google Analytics) and proof of revenue (which might include screen shots of the Adsense, Text Link Ads, PayPal, and others). You’ll want to show that you own the domain outright and that it’s qualified for transfer. You’ll need to disclose any liabilities that will be transferred with the web site. Also, if you’ve hired anyone to help with the site, the new owner may need that information as well.

Generally, I’d recommend that you are as detailed as possible when you list your site. However, there are certainly instances when it may not be prudent to disclose all information in public. For example, if you’re concerned that certain details may make it too easy for other parties to copy the success of your site, those details are best left in private and only disclosed to the most serious of buyers.

Don’t forget:

Sell at SitePoint.
Price it right.
Prepare your documentation.
Be careful about what you disclose.

Getting Started in Site Trading

This is an exciting and growing market with tons of room for new people to jump in and make a success. Start small. Don’t put more money into a site than you can afford to lose, and build upon your successes. Network with others in the industry, and pass along information on deals that you’re not taking — it’s as much of a community as a marketplace. Enjoy it, and let me know how you do.