Buying a ready-made website that is well established and already successful is a good way to start an online business. This could limit any risks and allow someone with the right resources to get into the space without having to wait years to build a brand.
With that being said, buying existing websites still comes with a few risks. First of all, you could easily get taken advantage of or swindled, and you have no guarantee that you’ll be as successful as the person currently running it. This is why you need to ask yourself and the owner a few very specific questions before you buy any piece of online real estate. Let’s take a look at a few things you need to know before you buy a website.
What Makes a Website Valuable?
Knowing how websites are valued is important whether you’re buying or selling them. This will ultimately give you a good indication of whether a site is a good deal or not. The most common way to value websites is to use a profit multiplier, but many other methods can be used. You can perform what is called a DCF analysis which would consider future cash flow, for instance. This usually works better with long-established businesses with predictable revenue, however, which is not often the case with internet business. It’s up to you to look at different valuation methods and see which one would work depending on the case, but it’s hard to go wrong with a 2x to 6x earnings multiplier.
How Long Has the Website and Domain Been Active?
Some businesses will try to inflate how long they have been established for by emphasizing the age of the domain. There is value in an older domain, but you have to know for how long the actual business has been active. If the business has great numbers but has only been in operation for under two years, you might want to review the valuation. If it’s a little bold, then you should try to drive it down since the model is not fully proven.
It’s generally recommended that you only start considering buying a website once it reaches the three-year mark. This will allow you to get a better idea of whether the profits are a fluke, or you have something that could be profitable long term.
What Traffic Generation Methods Are Being Used?
It’s easy to get impressed by massive monthly unique and recent visits, but they do not tell the full story. If the owners have been getting most of their traffic from active and paid methods, then you might never be able to get as much traffic. What you should be looking for is organic traffic from sound SEO. This will at least continue to bring dividends for a few months or even years and give you the time to build your own strategy.
Do not take the owner’s word at face value either. Look at their link profile and see how they rank for top keywords in the niche. Also, make sure that the keywords they’re ranking for will give you traffic for a long time and aren’t just fad-related.
Market and Competitive Research
One thing you have to be wary about when you see a website for sale is the reason behind the sale. Are there potential issues with the business model or regulatory changes on the horizon? Are they slowly getting pushed away by bigger and better competition? This is why you need to run a thorough market analysis before you assume that a certain online business is a good deal. There might be trouble brewing in that industry that you were not aware of. Or you might never be able to make sufficient margins with your limited buying power. So, think about those things first.
These are all very important factors to look at before you buy a website. Whatever you do, make sure you verify the seller’s reputation and consider working with a trustworthy intermediary to avoid issues.