Buying a website is a great way to get into the world of business -- or to diversify your business endeavors -- without having to spend months or even years of your time making a plan, choosing a niche and experimenting with different monetization models to figure out what works.
However, it is still important to evaluate individual websites to determine if the opportunities are actually worth pursuing.
Experienced investors usually have a well-defined auditing process that they follow to assess the websites they're interested in purchasing. Having a structured process can really speed things up, though it really depends on the website. Some will only require a quick review while others will necessitate a more in-depth look.
If you aren't sure where to get started, here are five areas you should be looking at when you're deciding whether to buy a website.
1. Assess the website's niche.
Do you have experience in a given niche? Are you passionate about it? Do you have the right skills to do well in it?
These are important questions to ask when you're going through the process of website evaluation. Even if you find a website for sale that you are particularly excited about, you still need to try to remain objective in your evaluation.
Consider whether the niche is actually growing, and if there are any reasons to believe that it may be a passing fad. Think about any external factors that could have an impact on the future of the niche. Also, take a look at how competitive the niche and its keywords are.
These are also important factors from an operations standpoint, but we'll be taking a closer look at that a little later.
2. Assess the website's traffic.
As you are evaluating websites for purchase, traffic is a something you should always be exploring in detail.
Is the website's traffic coming from a variety of different sources? How sustainable are these sources? How high is the website's overall bounce rate, and are its users engaged? Is the traffic trending towards an upwards or downwards direction? What devices are its visitors using to access it? Does the website rank for any keywords? Does it have a strong back-link profile? How are the referring domains stacking up?
Keep in mind that a website's weaknesses aren't necessarily a deal-breaker, especially if you are skilled in user experience, conversion-rate optimization and search engine optimization. There are plenty of free SEO tools available, and by taking advantage of these, you can positively affect a website's traffic volume.
3. Assess the website's penalties.
Evaluating a website's traffic goes more or less hand-in-hand with identifying any penalties it may have against it.
Google updates its algorithm on an ongoing basis. More recently, we have seen numerous updates related to low-quality content as well as mobile-friendliness.
Any website that has penalties against it is sure to be underperforming in terms of traffic, and by extension, revenue. Again, if you are well-versed in SEO best practices and are well-acquainted with making the appropriate changes to a website, the opportunity may be worth pursuing.
However, it is still advisable to do your due diligence and proceed with caution. It may prove challenging to restore a website to its former glory if there are too many issues with it.
4. Assess the website's financials.
When assessing a website's financials, it's important to evaluate their accuracy and to spot trends. A business could be doing better in certain seasons compared to others. Its revenue could also be trending upwards or downwards.
You also need to take a close look at a business' overhead and ensure that all costs have been included in financial statements. You need to know exactly how much it would cost to run the business.
Here is an overview of what to look for in terms of a business' financials:
- A stable source of income: Is the monthly revenue growing, declining or staying about the same?
- Seasonality: Is the website's traffic and income subject to change during certain seasons?
- A well-diversified income: Keep in mind that its main source of revenue should be stable.
- Whether owner-specific revenue generation relationships are in place: If the business changes hands, would these still remain, or would they go away?
- Whether the business valuation accurately reflects its financial performance.
- Whether the seller discretionary earnings (SDE) seem reasonable.
Remember to look at a website's financials and traffic side by side to flesh out a big-picture story.
5. Assess the website's operations.
Assuming the business looks healthy on paper, you still need to be able to run it for it to be a worthwhile investment. Do you have the right skill-set and experience? Do you actually have the time to run the business?
You need to take a look at:
- Whether the website is built on a well-known platform such as WordPress, Joomla or ModX.
- Whether the website has high-performance requirements.
- What experience or technical skills are required to run the website.
- Whether you can outsource the required work inexpensively.
Businesses that don't have staff or infrastructure can be maintained without a huge investment in time. However, operations are something you absolutely need to audit before committing to purchasing an online business. A site's niche, traffic and financials could all be perfectly in line with your decision-making process, but if the business requires a large time commitment and is difficult to run, you may want to consider other options.
Going through a broker has many advantages, as they vet websites before making them available for sale. However, it is still advisable to do your due diligence and to have a process -- like the one described above -- in place for auditing a website.
There is usually plenty of back and forth between the buyer and the seller when it comes time to an online business transaction. Make sure to put together a list of questions, and talk to the broker or the seller to get a holistic view of a website before diving in and making the purchase.