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A Website Investing Blueprint | Digital Wells

A Website Investing Blueprint

How To Invest In Websites And Actually Get The Returns You Want

It’s generally accepted that 5% yield is what most people can expect from their investing efforts, unless they’re prepared to learn the intricacies of trading the stock market, or brave the turbulence of more volatile investment vehicles.

But for savvy website investors, 30-40% is a much more reasonable expectation…and it’s something that is accessible to anybody. You don’t need to develop years of technical knowledge reading stock charts, and spreadsheets, and you don’t have to have a shrewd understanding of macro-economics.

You don’t need to qualify as an accredited investor or become an angel investor.

Buying an established website that is already generating consistent, proven revenue, is one of the hidden gems of investment opportunities, and something that more people should be doing.

In fact, the only reason more people aren’t doing it, is that they lack the knowledge of the entire process, and no good investor would put their money to work in a business model they don’t understand.

That’s where this blueprint comes into play. By the time you’re finished reading it, you’ll understand all the concepts at play, and you’ll realize how accessible this investment opportunity really is to somebody like you.

You’ll also have a map towards making your first purchase, and you’ll understand how you need less initial capital than you initially thought.

Why Website Investing?

Every year, websites become more and more profitable. They also become more stable as businesses, have more reliable income, and through developments in technology, they become more accessible for the masses. You don’t need to know code to make money from websites anymore.

At the same time, the rest of the world has not yet fully woken up to this fact. Most websites can be bought at 2-3x annual earnings, which leaves space for 30-40% ROI for those who buy them.

Yes you read that right.

Popular website marketplace EmpireFlippers often lists websites for sale in these price ranges. These are real websites, with verified earnings and vetted sellers. FE International and Flippa.com also have sites in this range.

Let’s do some quick math:

You buy a site for $50,000 at 2.5x earnings. This means it’s bringing in $20,000 per year, or $1,666 per month profit.

$20,000 earned in a year on a $50,0000 initial investment, is 40% ROI.

Of course, this simple calculation doesn’t include taxes (which are by the way, very kind to website investments in many parts of the world), but you can see the potential here.

That’s 40% that is based on an established business with a proven track record, much like an offline business. Generally sites that are sold through brokers will have six months of earnings minimum, but most will be over a year old. That takes a lot of uncertainty out of things too.

Digital Real Estate Is A Unique Opportunity

Let’s compare a website bought at 2.5x to traditional real estate.

Using the average 5% ROI you might earn from real estate, in order to earn that $1,666 per month from an investment property, you’d have to spend $400,000. That’s almost 10x the amount.

You can spend $50,000 on digital real estate, or $400,000 on physical real estate (and acquire some debt in the process), to earn the some amount.

And you don’t have to deal with tenants.

Let that sink in.

See why this is a unique opportunity?

The rest of the world hasn’t woken up to these opportunities yet, but they are slowly starting to. Website prices are increasing, with multiples that used to be 2 years earnings, now creeping towards 3 years. That’s still a great price though.

One of the reasons that the majority of people haven’t taken website investing more seriously, is largely because to the average person, how a website makes money is a mystery.

So let’s look at that now.

How Do Websites Actually Make Money – And How Much Can They Earn?

You’d be surprised how much websites can earn.

Just a few dollars right?

Well, let’s take a look at these businesses for sale on EmpireFlippers:

That’s right, some of these businesses can earn upwards of $50,000 per month…profit.

The one we’ve circle, is an “affiliate” website, which means it doesn’t even have to deal with its own customers or fulfil any services. It doesn’t deliver products like the eCommerce or Amazon FBA businesses listed around it…according to EmpireFlippers, this business requires just 2 hours work per day.

Let’s look deeper at another one, lower down the price range:

This site makes money from Amazon Associates, the Amazon.com affiliate program. It has content in the music niche, and it recommends products on Amazon. When people buy, the site earns a commission from Amazon.

It’s a very simple business model, and at 30x monthly net profit, you’re right in that 2.5 year/40% ROI sweetspot.

Notice the revenue is only $500 per month higher than the profit? That means this business runs for only $500 per month in expenses, and according to the seller, requires just 4 hours per week.

Here are some of the most common ways that websites, or digital real estate, generates revenue:

  • Advertising – Think about websites like WebMD, which generate millions of dollars per year in ad revenue.
  • Affiliate Commissions – Much like Amazon, many businesses pay commissions to websites who promote their products
  • eCommerce – There are many businesses that are basically online shops, people give you money, you send them products.
  • Dropshipping – Much like the eCommerce model, but you don’t even handle the goods yourself, somebody else ships them out for you, and you pay them less than the customer pays you.
  • Saas – A slightly more complex model, Saas stands for “Software as a service”, which is a fancy way of saying software that has a monthly subscription fee.
  • Services – There are many different ways to deliver a service online to somebody, one such service is Web Design.
  • Info Products – instead of selling physical products, many businesses create their own informational products or online curses, and charge people to access them.
  • Memberships – Often a membership is similar to an info product or course, but you’re paying a monthly fee for ongoing access to something, like a community, or ongoing training.
  • Lead Gen – Similar to affiliate commissions, except people are paying you for leads rather than a % of a sale.

Some of these business models will require more work than others, some will require more skill or knowledge of the business. Many of them can be considered relatively passive, like the Amazon associates examples above.

All of them can be very lucrative, and represent a fantastic opportunity for you, the investor.

And you can pick up your first website for as little as $5,000 if you know where to look.

As well as different forms of monetization, websites have different ways that they generate traffic (visitors) too. The two most common forms of traffic are “organic” traffic (basically people searching for something in Google, and finding that site) or paid. Paid traffic can be Google ads, Facebook Ads, or any form of advertising.

Many people prefer free organic traffic from Google, but there are a ton of benefits to paid traffic too, since it is more controllable, and if you can make more money from the traffic than it costs you to get it, then you can scale it to the moon.

Here are some other ways websites get traffic:

  • Email subscribers
  • Social media shares
  • Social media followers
  • Organic traffic
  • Referral traffic (links from other websites)

The traffic method and number of different methods that a website has will be something that contributes to a website’s value, and its attractiveness to an investor.

How Are Websites Actually Valued?

There are different places that you can buy a site, so how they’re valued will vary too. Marketplaces like Flippa.com work on an auction model, so the price a website sells for is really determined by the number of bidders and how much they’re willing to let the price rise.

Websites sold via a broker like FE International or EmpireFlippers are sold at a pre-determined price, which as mentioned above, is a multiple of the site’s yearly or monthly sales. Over the years, as demand for quality websites has increased, those multiples have increased too.

At the time of writing, you can expect to pay anywhere from 24-36x monthly profit for a website at a broker. At Flippa, you can definitely see sites going for lower multiples, but there is less vetting done, so you’re also more likely to find a dud (unless you follow our tips in this blueprint).

What actually determines the multiple though? Why do some sites go for 24x while others go for 36? There are a few factors:

  • Age of the business
  • Consistency of earnings
  • Amount of work required
  • Traffic diversity
  • Type of business (service businesses usually sell for lower multiples than affiliate sites, for example).
  • Popularity of niche (though this is only a minor factor).
  • Selling prices of similar sites historically.
  • Backlink profile (an SEO factor)

If it’s at an auction site, or a private sale, it may also depend on the negotiating skills of the seller and buyer too.

Generally speaking, the website buying market is still growing and multiples are mostly set by supply and demand. We’ve seen increases every year, but like with any form of investing, you can see sites valued at different ranges. It all depends on how much someone is prepared to pay.

As a rule of thumb though, 24-36x is a good range for any business earning above $500 per month. If it’s lower, you can usually get a lower multiple, since the income is less established.

How Stable Are Websites?

One of the biggest fears we see when talking with potential investors, is buying a website, only for its earnings to go to zero shortly afterwards.

There are definitely some horror stories out there, but these are generally outliers. If you’re buying an established website, with verifiable earnings and traffic history, then the risk of the site going to zero is very low, much like with buying an offline business.

There does seem to be a belief out there that an online business is “not really a business”, when in fact online businesses are very much real, and have been for decades.

The dotcom boom era where websites reached crazy valuations based purely on numbers of users and hype is long gone. Online businesses generate a lot of money, and many of them are very stable.

Still, the risk with websites IS still higher than with something like real estate, although the risk:reward ratio still favors web businesses.

The biggest risk comes when a website relies on one source of traffic, and to a lesser extent, when it relies on one form of monetization.

Of these, the riskiest is Google traffic.

When you’re at the whim of Google and its constantly updating algorithms, your traffic has the potential to evaporate (and your earnings along with it) at the blink of an eye.

There are ways to mitigate this risk though:

  1. Don’t buy a website which relies too heavily on Google traffic
  2. Don’t buy a website which used tricks or spam to get to the top of Google.

If a website is “white-hat” (it followed Google’s guidelines rather than trying to game the system) and has been focusing on quality content for a long time, then chances are that Google loves it, and isn’t likely to slap it with a ranking penalty any time soon.

So in other words, don’t buy sites with questionable SEO strategies or shady content strategies.

Here are some other things that will really contribute well to a site being considered less risky and more stable:

  1. At least one year of earnings history
  2. Multiple traffic sources. A mixture of organic, social (things like Pinterest can contribute a lot of traffic), and paid traffic work well. In fact, if a site can make paid traffic profitable, then you rarely have to worry about traffic volatility.
  3. White-hat link building. In other words, the site didn’t use any spam or black-hat tactics to rank at the top of Google. It just focused on quality content and waited for Google to reward it with good rankings.

That’s really all it takes. If a site checks those three boxes, the risk is significantly lower.

As a bonus, you should also ask yourself if the site is in a growing niche, or something that may not be as popular in the future as it is now. Much like with any other investing.

The vast majority of sites never experience a big drop in rankings and earnings anyway. As a percentage, it’s in single digits.

How To Find Websites For Sale?

We’ve talked about a few different places already, but let’s go into more detail here.

There are generally three main ways of buying an established website:

  1. Going through a broker/marketplace
  2. Certain Facebook groups or forums
  3. Reaching out to website owners to see if they’d be willing to sell.

Going Through A Broker/Marketplace

Flippa

One of the most famous marketplaces is flippa.com. Think of this as “eBay for website sales”. Sellers can list their websites, set starting prices, auction lengths, reserve prices, and “Buy it Now” prices, which are usually higher than they’d really sell for.

Over the years, Flippa has added various tools to help verify the legitimacy of the sites and see if the sellers really are good quality, but for the most part, Flippa is still a case of “Buyer beware”, and you need to do thorough vetting to make sure the site you are bidding on is indeed a legitimate purchase.

Sometimes Flippa can feel like searching for a needle in a haystack, but every month there are definitely sites listed that would make for good purchases.

EmpireFlippers, FEInternational, DigitalAcquisitions, QuietlightBrokerage

These sites take a much more professional approach than Flippa, and thoroughly vet their listings. Not only do they use a pre-determined sales price rather than an auction model, but they also make sure the claims made by the sellers are accurate.

They still represent the seller above and beyond anything else, but these companies have built a reputation based on not selling junk or scams, so it’s in their interest to only list quality sites.

As such, you usually have to pay a premium, since there is far less risk with buying one of the sites they list.

You also won’t find many sites below $20,000 USD, since the commission they earn wouldn’t be worth the effort vetting the sites at a lower price point.

There are a few other marketplaces emerging too, but these three take up a majority of the market.

Facebook Groups and Forums

There are also sites available in various Facebook groups, particularly “marketplace” or “buy/sell” ones in the affiliate marketing niche. For example, Lion Zeal Marketplace, or Cloud Living Marketplace.

People who list sites for sale here typically do so because they’re not earning enough to be listed on a marketplace like one of those listed above, or because they don’t want to have to pay any commissions.

There’s definitely more chaff than wheat in these groups, but you can also find sites with good potential for only a few thousand dollars.

We recently bought two sites for a combined total of $3,000 and they’re now worth around $6,000 after a few months, so there is potential with this model.

The main thing to be aware of is that you need to know what you’re doing when it comes to due diligence, and the inexperienced buyer may end up buying a worthless site.

This is why it’s important to know how to do due diligence, and how to recognize opportunities, which we’ll cover below.

Manual Outreach

This is also a more advanced strategy, but can yield fantastic opportunities. There are many sites that are either languishing on page two of Google, or are getting traffic but have not been monetized very well, and for the right offer, the owner would be willing to sell.

In the past, we bought a site for as little as $500 that was ranking highly in Google for a few keywords, but was not monetized very well, and was only earning $10 per month.

Because we knew how to improve the monetization, we grew and then sold that site less than a year later for $10,000, which is an ROI of 2000%.

Of course, we knew what to look for, and how to grow the site. This is something we can teach you to do too, but as a beginner, we don’t recommend this strategy, as it can eat a lot of time just finding potential sites, let alone doing the outreach and due diligence.

How To Do Due Diligence

Due diligence is the toughest part of picking a good website. There are actually two main parts to it:

  1. Reviewing the site to make sure everything is as it is supposed to be and it won’t die after the purchase
  2. Reviewing the site for growth opportunities.

Not every site that you buy will necessarily need to be grown. Remember, if you buy a site at 30x monthly, that means you only have to wait 2.5 years before you get your money back, which is that 40% ROI we’ve talked about so often.

But if you COULD grow the site, and get your money back even sooner, you’d want to be able to right? Not only does this increase your ROI, it also speeds up your ability to buy a second site, and a third site, and it reduces the length of time that you have to worry about the site’s stability.

Plus, they say the money is made when you buy, so looking for opportunities to grow a site right from the get go is a huge part of the picture.

In the next chapter, we’ll look more at increasing a site’s earnings and overall value once it’s been paid for, so for now we’ll look at the basics of due diligence. What things do you need to check?

No matter whether you buy a site via Flippa, private sale, or a marketplace, you should still verify the following things:

  • Traffic
  • Income
  • Backlink profile
  • Seller claims about work required

There may be other things, depending on the type of business, but those 4 are the common starting points. Note: If the site does not have Google organic traffic as it’s main traffic source, the backlink profile is less important.

How To Verify Traffic

Most sites will use either Google Analytics, or a WordPress plugin called Clicky as a way of tracking traffic. Places like Flippa or other marketplaces will include these metrics on a site listing page. In both cases, you can get the seller to add your email address to their account so you can login and check the numbers are real, and you’re not looking at doctored screenshots.

The first thing you want to do is see if numbers match up to whatever the seller is claiming. If that passes, the next thing you should do is look at which pages are getting most of that traffic. If a site looks like 80% of its traffic is going to one page, and that page is ranking at the top of Google, this is a risk. One page losing its Google ranking could remove 80% of the site’s traffic.

On the other hand, if no page gets more than 30-40% of the traffic, or there are a variety of traffic sources going to the site, then you have a much more diversified traffic profile, and the risk is lower.

If a site DOES get the majority of its traffic to a handful of pages and those are relying on Google traffic, it’s not necessarily a reason to not buy the site, but it definitely is riskier than other sites.

How To Verify Income

This will really depend on the income source. If it’s Amazon associates for example, the seller can add your email address as a user to their Amazon associates account, and you can login to verify the numbers. If it’s a different affiliate program, this may or may not be possible.

In these cases, you should ask the seller to make a video of themselves logging into the affiliate account (or whatever account is where their revenue is generated) so you can see it is real and that you are not dealing with fake screenshots again.

Again, brokers will have done most of this part for you, so you only really need to do this with some listings or site purchases.

Verifying a business really comes down to how well you understand the business model, which is going to be difficult if you’re looking at making your first purchase.

With that in mind, it might be better to focus on something that is easier to understand, like an Amazon affiliate website, or a website that makes the majority of its revenue from advertising. These are easier to verify, plus easier to evaluate the opportunities too.

Let’s look at those now.

How To Analyze Potential Opportunities For Growth

Much like real estate, some website purchases can be considered “Fixer Uppers”. These represent a great opportunity, because if you can buy a site at 26x monthly, and grow it so that you get your money back in fewer than 26 months, you’re turning an already decent ROI into a very decent ROI.

In many cases, you can grow a site simply by adding more content, and letting the site’s authority compound even more.

But in other cases, the person selling the site may not have known how to monetize it as well as you do, or they might have only focused on one thing.

There are quite a lot of sites out there that get tens, even hundreds of thousands of visitors per month, and they just monetize via affiliate commissions. Adding advertising to these sites could add on a significant amount of profit, and doesn’t require much effort on your end.

Or, you could switch the monetization of those ads to a network that pays out a higher amount.

Sometimes there are sites that are monetized with affiliate commissions, but the seller didn’t do a good job of getting the most out of their traffic. By improving the website layout or consulting a Conversion Rate Optimization (CRO) expert, you could increase the site’s revenue by anywhere from 10-100%.

We once increased one of our sites by 300% just by using CRO.

When you learn how to spot some of these opportunities, you can put the expression “The money is made when you buy” to the test.

Imagine this scenario:

1.) You buy a site for $30,000 at the 30x monthly rate. The site is making $1,000 per month.

2.) You already spotted some more opportunities for growth, but they take around six months to come to fruition. After six months, you’re earning $1,500 per month from this site.

3.) After one year, you will have earned $15,000, or a whopping 50% ROI.

4.) If you maintain that $1,500, it will only take you another ten months to make your money back, meaning you would have bought the site at 30x, but only had to wait 22 months to get the money back.

5.) The site would also now be worth $45,000, a 50% increase.

Here are some examples of sites with room to grow:

  1. Sites that rank well for most of their keywords, but there is room to add more content and rank for more keywords.
  2. Sites that get a lot of traffic (over 50,000 sessions per month is ideal) but don’t monetize with display ads.
  3. Sites that only have one traffic source. For example, just SEO, or just Social media. Adding paid traffic could work very well.
  4. Sites that are profitable using paid traffic sources. Presumably increasing the ad spend would increase the overall revenue and profit.
  5. Sites that aren’t very well optimized for conversions. These are usually harder to spot for the untrained eye.

Scaling A Portfolio

The great thing about this model, is how quickly you can create a cashflow snowball. As Perrin Carrell mentions in this article, buy buying a website and holding it, you can just save up the extra cash it brings in, redeploy it to another purchase, and watch your cashflow snowball in a relatively short time:

Even if you’re paying/partnering with an operator like OnFolio (also run by my team) to run your portfolio of sites, the cashflow can scale very quickly in a few short years, and there’s little to stop it from keeping going up.

Yes, running three or four sites requires more work than running one or two, but you can always trade up, by selling those four sites, and buying a bigger one worth roughly the same…but one that requires less time to run.

There are a lot of different possibilities, which is why right now is such a fantastic time to seize this opportunity.

Where Do You Go From Here?

If you’ve read this far, then chances are pretty high that you are interesting in learning how to invest in websites. Maybe you’re even considering making your first purchase.

Well, hold your horses on that purchase! Even if you started small, buying something for a few thousand dollars, you would be throwing that money away without the right training.

The important thing is that everything you need to know, can be learned in a straightforward fashion.

I’ve already explained in this article all of the things you need to learn, and I’ve even gone some way towards teaching them to you.

But if you want to learn even more, enough to be able to hit the ground running and actually succeed with this business, then my suggestion is to take a look at my course. Yes, that’s right, I’ve created a course!

However, what’s different from this course and every other one written by some internet guru somewhere, is that my course is not just a glorified textbook in video form. Think of mine more like a masterclass, with four to six weeks of study, accountability, and hands on tutoring. As well as the video content, you join in our group discussions, live training calls, and can ask questions whenever you want.

So if you want to learn more about the course, then visit this page to do so.

If you don’t want to go through a course right now, but DO want to learn some more about this kind of business, then I suggest the following resources to guide you:

  • OnFolio.co – Can help you purchase a website and/or operate it for you. Note, this is another one of my businesses.
  • EmpireFlippers.com – These guys run a marketplace where you can buy existing businesses, and their blog will teach you some of the things you need to know.
  • FE International and QuietLight Brokerage – Two more brokerages/marketplaces that also have great free resources, blogs, and podcasts.
  • This blog!
  • FlippingWebsites.co – Another good website and podcast.

But for the meantime, I suggest you check out this page to learn more about my course, as it is the best way to get yourself up to speed.

Dom
 

Dom Wells has been building, buying, and selling profitable websites since 2012, and has been teaching others to do various aspects of the same since 2013. He's bought and sold sites for six figures, five figures..even three figures, and this website is his place to teach you how to do it too.

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