I joined a Mr Money Mustache Meetup group. MMMMeetup I’ve cleverly called it. On the hike we completed last weekend, I spoke at length about building, buying and selling websites.
The investors among the group perked up when I mentioned that websites trade at a P/E ratio of 2. That’s a deal an order of magnitude better than stocks or houses, which trade at ratios of between 20 and 30.
I realise there’s a good reason that websites trade at such a high discount rate; they’re inherently much riskier than owning land, labor or capital. These are some of the risk factors I’ve identified in a conversation with one of the MMMMeetup members.
Things that go Wrong with a Website
- A site with traffic based entirely on search might be using shady practices to get search ranking. A google algorithm change can wipe out search traffic. This can be a death sentence for a site, which is why vetting beforehand is so important.
- Server can get hacked and will require repair. Repair can take hours to days to fix fully. This happens fairly frequently with WordPress installs.
- A static site might start to slowly lose relevancy and will need fresh content to remain competitive in its space.
- A competitor site might be launched, taking a portion of your traffic.
- A site relying on time-sensitive information will become out of date (news sites, science&technology, health fads) and will need to be updated
- New browsing technology may require a site rebuild. The best example of this is the smartphone trend toward sites that work on any size screen. A more recent example is the move to SHTML as a more important ranking factor.
- A direct sale advertiser wants to place sponsored posts or custom ads, doubling your revenue for one or more months but requiring an account manager.
- Your site explodes in popularity and requires a server move and/or content delivery system.
- A new affiliate program needs to be integrated site-wide
Where to Buy Websites
- Flippa.com – This is the biggest website exchange as far as I know. Lots of cheap sites but there’s a lot of “pump and dump” type sites for sale – buyer beware and know how to do your due diligence on a site before buying.
- EmpireFlippers.com I don’t know that much about it but a colleague of mine says its the only one she trusts. I think this was built around a book or something.
- Quiet Light Brokerage – premium sites, usually costing $1 million and up. Well vetted by the brokerage beforehand, and you have to sign an NDA to get on their list. Not that many sites come through this pipeline.
Considerations for Vetting a Website
- Start with using SEMrush. Its stats are much more useful than compete.com or alexa, which are popular but I wouldn’t bother with at all. This gives an indication of a website’s potential for passive income through search engines. Although the subject matter of the site will have a huge effect on its income potential – finance related sites for example can push credit cards and startup business sites can push hosting services, which both pay a positively massive commission.
- Check the website with mozrank, open site explorer and Google Pagerank. What you’re looking for are high quality links and a decent track record.
- Also look into their demographics. I have 2 popular sites, one which caters to males in their 20s and another primarily used by men and women over the age of 55. The site for 20 year olds hardly pays its server expenses, the 55+ site performs amazingly.