Category "Buying A Website"

The domain name marketplace is still such a wild west subjective market it is not easy to always discern what makes a domain name valuable – or what is known formally in the industry as “premium”!

Having represented many domain name owners in selling their assets – either as established websites or parked domains – I have gotten pretty savvy at establishing value according to market comps as well as sheer branding power, recognition, and generic type-in potential.

It is also interesting to note people’s perception of what constitutes a premium name to begin with. I have basically created a process of elimination that defines what is not, in my humble opinion, a premium domain name:
 

• hyphenated domain names
• most names ending in suffixes other than dotcom, dotnet,  dotorg or dotca or dotco.uk etc
• misspellings
• nonsense words

What constitutes ultra premium names are :

• Primarily Dotcom suffixes
• Generic words – one or two max with no hyphens – acting.com
• Words describing a specific product or service – ie strollers.com
• Words with high brand identity – like Amazon.com
• Popular adverbs or verbs and nouns – ie sex.com , parties.com

Other factors to consider when appraising a domain name are of course if there is an established site built for the name, how much traffic it receives, revenues it earns, members or subscribers it has, SEO , etc. These elements, more often than not will influence the selling price of a domain name than the actual name. In actual fact, once a site is earning money the focus is often placed more on the current earnings than on the domain itself when tabulating the value. It is almost a catch 22 when revenues are marginal verses when there is no history at all and just ‘potential’.
 

Another determining issue of the ultimate perception of value will come from how and where the domain name is marketed and offered for sale.
 

There are many domain names offered up in auction format via Sedo, Moniker, T.R.A.F.F.I.C. conventions/auctions, Namedrive, etc. These have been pretty successful for many domain name sellers. However, the vast majority of buyers at these are ‘domainers’ who have a speculation model they work from for the most part – like some real estate investors.

An alternate path of selling is to target sophisticated business buyers who have a more developmental approach when acquiring domain names – buy the name to develop out into a major site or portal. These tend to be longer term buyers who want to create a substantially bigger cash flow and exit at a much bigger future multiple – think business.com – purchased domain in 1999 for $7 million and reportedly listed the site for sale at $400 million in late 2007 . The owners developed the site into a massive and highly trafficked very profitable portal. The price they paid does not look so inflated, afterall!

The best case scenario is typically to develop the domain name into a useful website and get it indexed and ranked in the search engines – often the generic name comes up to the top of the search results because of the exact name equated to the search – like divorces.com for example. This will ultimately create far greater value for the domain name from more exposure, traffic and revenue.

Surfers are clicking less on the squatter domain name sites with PPC links these days so the value of undeveloped websites has been deteriorating steadily for the past 12 -18 months. Domain name owners are starting to turn their domain names into real websites because of this – which is good for everyone overall.

 

David Fairley

President,

Websiteproperties.com

There is a lot of websites popping up recently promoting the fabulous virtues of flipping websites for a living and making BIG money. Many offer extensive courses and consulting on the do's and don'ts of this business model. There are certainly plenty of self proclaimed experts and gurus who are now exploiting this niche by selling off their e-products and personal coaching on how to capitalize on unwitting, naive, or unmotivated sellers. The premise is to find websites that have certain fundamentals like age, search engine positioning, and original content that have been under optimized and under monetized and convince the owner to sell at a lower multiple - say 10 - 15 months net profits. Once accomplished, the new owner, flipper, redeploys the site with better on page optimization(keyword enrichment in tags and copy as well as good internal linking/navigation) which can be accomplished pretty quickly and getting more back links using keyword anchor text in the links to make them more effective. Concurrently, new monetization elements such as pay per click(PPC) code like adsense, banner ad networks, paid links, affiliate program links, etc are placed on the site or reformatted to more strategic positions on the pages for better conversion. The end game is to improve monthly profitability and traffic so the site can be sold for more money - and typically at a higher multiple!

The strategy can work very well for entrepreneurs who take the right approach and do their homework. I have personally bought and sold over a dozen websites in the past, selling them for 10 -20 times what I purchased them for because I had developed the websites into thriving profitable businesses with solid fundamentals and cash flow. That is the point - to create better website opportunities for a future owner that is more solid fundamentally and more viable long term with lots of upside in profits. Buying an existing business that has a good foundation saves a lot of time over creating a site from scratch - so it can speed up the process of becoming very profitable and has more history of stability and growth which buyers will appreciate and value.

Most of the website flipper gurus seem to focus on the lower end market for websites for sale making a few hundred or few thousand dollars. Personally, for a more seasoned investor/ buyer, I think it is a much more interesting and potentially lucrative focusing on existing website businesses that are already producing healthy monthly profits and are worth more than $50K. The reasoning is that the right kind of business that is throwing off this level of revenue can literally explode to 4-5 times that amount with some basic strategies implemented once purchased. You generally get what you pay for and so buying an internet business with better current revenues can be much more of a lucrative venture with less risk than buying less robust cheaper sites and trying to manage many small sites to flip for modest profits

The biggest areas of improvement to a website are optimization of the meta tags, and page copy to improve SEO rapidly. Many times a site can leap in position overnight just by improving the Title and description tags to target better or more keywords and phrases. Improving and honing the body content so every page of the site is unique will go a long way to improving SEO. Internal linking with keywords - using the main keyword phrases in the sites navigation - will make a big difference as well - providing more link relevancy as long as every page of the site has unique content. After the websites "on page" optimization has been implemented, the back links the site has pointing to it from other sites will radically bump the site's natural positioning over time - sooner than later with established older sites. The key here to is to get links from sites/pages that have good PR, are relevant in nature to your site and use keyword anchors in the link. Some experts argue that it makes no difference if the site is not relevant - this can be argued currently - however it is in Google's and other search engine engineers best interest to continue to refine their algorithms to achieve better results for users - results that are relevant and not manipultaed by massive inbound linking strategies.  I think it is better to to concentrate on quality more than quantity personally and expect this to pay off in the future.

Getting more traffic inevitably equates to more revenues for a site, however it does not guarantee it. Herein lies the next opportunity for a website flipper. Once the sites optimization is underway, the other areas to consider renovating are the sites layout and graphics.. Many of the best opportunities can be improved simply by giving a site an updated web 2.0 makeover. Visitors to your site will leave in a nanosecond if the site doesn't appeal to them quickly - ugly colors and graphics, busy wordy layout , poor quality digital images, etc. By giving the website a facelift - which doesn't necessitate spending a great deal of money - can improve the stickiness and appeal of the site and lead to much higher page impressions and conversion of the monetizing elements embedded throughout the website.

If the site is a content based model offering information, the areas to grow revenues will likely be with PPC links, testing different layouts and positions on the page, affiliate programs related to the subject matter - check out www.clickbank.com for thousands of e products to offer , paid one way links , banner ads , and even webpage advertorials.

For e-commerce websites, spiking sales revenue and profits can be ramped up by adding new products and product categories that get further optimized, implementing a targetet extensive PPC campaign with good copy and hundreds of tertiary keyword phrases for the individual products and categories, integrating an affiliate program and recruiting strong affiliates, promoting to existing customers who have purchased in the past - offering loyalty programs and incentives to return and buy more, and adding a toll free number for ease of contact (make it easier for customers to order and be comfortable they are dealing with a legitimate retailer).

Some websites and business models will be easier than others to optimize and monetize so be sure to measure all the attributes of the website itself, the niche, the model - ie e-commerce, social networking, forum, blog, PPC, etc - and see how much work will be involved post closing. This will determine the viability of the purchase - buying an e-commerce site may not be appealing to some buyers unless it is a drop ship model because of the need to inventory product, process and ship orders and answer the phones - all of which may necessitate hiring employees. This  may be ideal for a website owner that is expanding and has some infrastructure in place to manage the new acquisition until it is ready to sell again.

It is important to be clear as well on the timeframe of the investment. The longer you are willing to hold and build the sites revenues, the better the new history and the larger the multiple you can expect on the net profits. If you want to maximize your profit on the flip, it will be better to hold for at least 6 months before listing again to establish the trend. Remember, buying cheap sites is not guaranteeing a larger profit on the other side - look for solid sites as mentioned above that you can sink your teeth into for a longer period of time and you will enjoy much higher returns and profits when you sell your website business.

 David Fairley

Preident,

www.websiteproperties.com

With the summer rapidly coming to a close, people will start getting back into their business groove again as we head into fall and towards the 4th quarter bonanza.

For buyers, acquiring a new website business for sale at this time of year, particularly e-commerce internet businesses, can be highly advantageous. Christmas sales and the 4th quarter can amount to 40% of the years total gross revenues. Therefore the ROI(return on investment) for the business really explodes because the cash flow is really ramped up during the holidays. This can really be a big boost for new owners and allow for earlier debt retirement, greater cashflow to expand into new product categories or marketing avenues, etc.

On the reverse side, sellers listing their business opportunities at this time of year will typically get more interest because of the same compelling reasons. Transfering a website business prior to the 4th quarter means there is enough time to train and support the buyer so they can manage the surge at Christmas. In addition, it removes the stress of the seller having to redeploy their resources - money, time and energy - for the heavy and sometimes stressful holiday season. This period will be exciting for a new owner because of the sales volume and cash flow, but often can be dreaded by a seller who is burnt out or wanting to relax for a change during this period!

Another timing issue on the seller's side deals with sales and traffic trends. The best time to sell an internet business is when it is stable and growing at a reasonable rate year over year. This makes for an attractive opportunity for buyers because it will mean a quicker ROI as well. In addition, it shows strength in the long term for the business opportunity. For some sellers with sites having explosive growth it can mean asking a much higher multiple on the net cash flow/profits of the business to incorporate the upside increases. In some cases it may make sense to hold on tight during this surge until the trend is less dramatic - say going from 100% growth to 30% year over year as an example.

For a buyer, a website business with respectable or exciting growth of revenues, profit and traffic is going to be much more compelling than a business with flat or slow growth of course. Again, it comes down to expected ROI on their investment. In addition, most buyers want to buy a business they can grow and sell later for much more money while reaping the rewards of the growth.

The concern is to not hold too long and risk having the trend reverse - so that revenues and profits start going down from the previous period year over year. This creates doubt and fear in buyers and they will be less inclined to make an offer or one that is at a lower multiple to factor in the perceived risk.

Finally, mental and emotional timing is critical for a seller. As soon as the passion of running your business starts to wane, you either change your perspective and get re-fired up or you need to make a move to list sooner than later because most of the time the business begins to suffer and atrophy as a direct result of your lack of interest.

 Timing will make all the difference in accomplishing your goals and realizing your best deal - both for website buyers and sellers.

 David Fairley

President,

Websiteproperties.com

The last 6 weeks have been quite a shock to most Americans and people around the world. The economic upheavals have been monumental and without precedent. In our business as website business brokers, we have seen multiple deals fall apart or not move forward as a result of the uncertainty and fear in the marketplace. Of course, in any economic swing there will be people and businesses that reap massive profits and actually thrive. However, the vast majority of people and businesses feel the effects both financially and emotionally as a result of the meltdown on Wall St and now Main Street.

In this climate, there are definitely more sellers than active buyers in the internet business sales and acquisition field. The point is - is that there are buyers! These buyers are being extremely selective and cautious and are literally cherry picking the most attractive website business opportunities available providing the price is right. Sellers with online business opportunities that are stable or still growing despite the economic malaise because of the niche they are in, stand the best probability of consummating a deal in this period. The other sellers that will succeed in closing deals will be those that are more aggressive with their selling prices.

Just like in real estate, the seller that drops his price lower than the rest of the market gets more attention and sells quicker. If you hold out too long for a premium price or average price in volatile markets, you can find that you wind up selling for much less in the long term if things get even rougher.

A year ago, the average multiple on an average website business with solid fundamentals was 3-3.5 times the net trailing 12 month profit. In this global financial crisis, average sites are tending to be moving if they are priced between 2.0 -  2.5 times the trailing 12 months all cash at close. The selling price may be higher if more owner financing is involved, which, with the current credit crunch, has become more prevalent. The risks of a further down turn are tangible, so buyers are factoring this in when making offers. As I mentioned earlier, there will be lots of good deals to pick up for buyers with good capital reserves but buyers needing financing are just not able to secure the funds to get a deal done currently. The best opportunities will still get a better multiple on their business because they are able to thrive in this environment, but the pressure from the market means that it is a buyers marketplace and sellers will need to adjust their price expectations if they want to get acquired. The other choice is simply to ride this out and hope there is a quick turnaround later in 2009.

 David Fairley

President,

www.websiteproperties.com

I recently received the survey results from a major online multiple listing service for businesses for sale. The survey conducted included over 1700 business brokers in the US.

The report clearly established some trends I have been reiterating in my blog lately. In particular, the trend towards more owner financing in the deal structure. Because of the economic downturn and credit crisis, traditional bank and SBA financing has been much more difficult to acquire for buyers. Especially when there are no "real" assets involved like real estate or capital equipment. Banks still seem to have a bigger aversion towards 'virtual' real estate or internet businesses even though the financial statements are solid and show stability!

Consequently, buyers who are willing to make fair market offers that a seller is likely to accept are requesting owner financing of 20% - 50% depending on the deal. In the case where cash flows are strong and growing the percentage is less and higher when the sales trend is flat or in decline. This allows a reasonable and fair market price to be accepted, as well as keeps some 'skin in the game' as it were, for the seller - an often important element for buyers who consider this an act of confidence in the business's future.

The seller benefit is getting closer to their asking price and actually earning interest on their money in an investment they are familiar with and have more control over. A big issue for sellers is where they will invest their funds upon selling their business? With the uncertainty and volatility in the stock and bond markets and real estate and the ultra low interest rates for bank savings, there are not too many good options to invest larger sums of money at the close. So, doing some owner financing at a fair rate - say 8%-10% - can be an excellent long term strategy for a seller to contemplate.

Another aspect the survey unveiled was the time frame it is taking, on average, to sell a website business has increased by 3 months to an average of 12 months. This is the time from attracting a buyer to completing the close. Now, the vast majority of these deals are traditional brick and mortar which tend to take longer to close, however, we have experienced a similar trend from our previous average of 4-6 months , now stretching to 7-9 months. Of course a lot of this has to do with the attractiveness of the business opportunity as well as the price and flexibility of the seller.

We recently sold an ecommerce website that was listed and closed within 2 1/2 weeks - the niche, the price and the terms were all attractive and an ideal buyer was there to acquire it! The seller was also very organized, had clean books and detailed information available, and was very flexible and reasonable with regards to the fair market price.

So, despite the economic doldrums we find ourselves in, there are still internet businesses being bought and sold regularly. The keys are to maintain flexibility in the deal structure, be organized and prepared for intense scrutiny, and find a balanced selling price that is fair and acceptable for both parties.

 David Fairley

President,

www.websiteproperties.com