Guide to Buying and Selling Websites
I've been participating in Australian internet marketer Ed Dale's course, the 30 Day Challenge, which he offers free every August, complete with free access to specialist tools (as an aside I'd urge everyone to look at the training videos on the site - they will be available permanently even though access to the tools is closed till the challenge reopens next year).
On Day 25 of the Challenge he touched briefly on making money by selling your site, which I found very interesting indeed. It turns out that Ed Dale made most of his fortune from flipping his websites. In the wild west days of the late 90's he sold a website for $3.5 million to a company that then went on to list on the stock market. Having realised the potential of buying and selling sites, he then created 38 sites with the specific intention of selling them - and then sold them all for $5 million in 2004.
There are a few YouTube videos created by Ed Dale two years ago on how to go about flipping websites, but of course the best stuff was on his Dominiche course (which he has closed as he says it created too many competitors to him).
There is not a lot of information on the net about the perils and pitfalls of buying and selling websites (other than the usual "I made $xxxxx from selling my site!" type posts). However, being an internet supersleuth myself, I have combed the net for information and managed to winkle out the most valuable nuggets of information on how to go about trading websites, and have distilled it all on this page.
How to value a website
Valuing the website is the trickiest part of the process. Here's how to work out if a site is under or over-valued:
Valuing the traffic using Adwords
For the normal webmaster, there are just two ways to get good "money" traffic (traffic that buys products or clicks ads) - SEO, and buying the traffic from Google through Adwords. Traffic from social bookmarking is worthless.
The potential purchaser of your site has decided that SEO is too difficult or takes too long - therefore he has two ways to get traffic for a particular keyword - buying the traffic via Adwords, or buying a website from you that is already SEO'd and gets organic traffic from the search engines. He's hoping to pay less to you than he would to Google for the Adwords campaign (for those raising their eyebrows at this, remember that the type of person who buys websites rather than start them from scratch is the type who buys traffic from Adwords - they have money to spend, but are time poor).
Given that the lowest cost per click (CPC) on Adwords is 5 cents, the barest minimum your traffic is worth per month = monthly organic search engine traffic x $0.05
Of course you can check the Adwords CPC for your main keyword on the Adwords External Keyword tool. However, do note that the Adwords tool is just an estimate - Google charges Adwords users by rating how relevant their website is - the more relevant the less they pay. Assuming that the buyer of the website understands relevancy, he could potentially pay a fraction of the quoted CPC in the Adwords tool.
To be conservative, assume that your landing pages are super-relevant and the CPC you would pay is 30% of the CPC in Adwords. Use this to value the traffic.
If you are buying, you also want to make sure that the traffic is all organic search engine traffic. Don't pay for social traffic or RSS traffic. Visitors from the social bookmarking sites, and RSS readers rarely buy products or click ads - therefore that traffic is valued at zero.
Calculating visitor value based on existing income from the website
Most websites for sale will list their monthly income, and will also tell you their monthly unique visitors. To work out how much each visitor is worth, simply divide the monthly income by the number of unique visitors. (If you want eCPM, earnings per 1000 visitors, multiply your result by 1000).
Value per visitor should be higher than 30% of the CPC in the Adwords tool (the conservative amount an advertiser would pay if their page is relevant) - think about it, the Adwords advertiser is expecting to make more from his traffic than he purchased it for, otherwise he makes a loss.
If the value per visitor is under what you would purchase it for via Adwords, investigate further. Is their traffic suspect - are the numbers inflated by social traffic rather than search traffic? In this case you are looking at a lemon, and you should stay clear. Or is the problem that they've simply not monetised it properly - perhaps their sales copy is poor, or they've got the wrong affiliate product. These are things you can easily correct when you've bought the site, so you might be looking at a potential bargain if they've valued their site based on existing income. The value per visitor might be low because they are monetising with Adsense (which by definition will pay only about a quarter of the CPC Google charges). In this instance you need to ask yourself whether you would be able to monetise it better with affiliate marketing or selling a product or service direct. Or decide if you are happy with the lower Adsense income.
Use your knowledge of a niche when assessing how much to buy for
If you are an experienced internet marketer, you should have built up an Excel spreadsheet (or Open Office spreadsheet) full of stats about click-through-rates (CTR) and convertability into sales once someone has clicked onto the buying page for the niches you are familiar with. You should use this data to assess the amount of income you could get if you bought a site with a certain level of organic traffic in a particular niche, and thus put a value on it.
If the value you could extract is higher than the amount the site is selling for, you have a potential bargain.
Always look at net income when valuing a website
Many sites for sale will quote their monthly revenue, but not their monthly costs. If it turns out that their traffic is purchased through Adwords, then you need to subtract the Adwords cost from the revenue to find out the net income. It's very important to check the source of traffic. If you are purchasing in order to SEO the site to get natural traffic, then note that while you are doing this your traffic will plunge initially when the Adwords is switched off, and the price you buy the website for needs to reflect this. The headline revenue just indicates the potential future value to you (i.e. there are buyers in the niche if you can get organic traffic to it).
Note that monthly costs also include hosting, the cost of the domain, and in the case of the larger sites, the cost of running it (outsourcing, employing a full-time staff member etc).
How much do sites sell for?
Sites normally sell for about 10 months income to a years income. And the really valuable sites go for multiples of two to three years income. The steps detailed above (using Adwords to value a site) are to give you an indication of true value and potential value. If you are a seller, and your visitor value is significantly lower than the CPC indicated by Adwords, your site is underperforming. Instead of going ahead and selling, you should take a few months to relook at your site to see if you can increase the income - that way you'll get a better price when you come to sell.
Older sites sell for more than newer ones. If a site has been around for say three years and has pagerank, it has survived several changes in Google's search algorithm and come out on the other side. That has value in itself.
Discussion about buying and selling websites
I highly recommend readers to listen to this 30 minute MP3 discussion from 2007 between two professionals about buying and selling websites which will inform you better than anything else about the potential for gain in this market.
Doing due diligence when buying a site
The biggest difficulty when buying a site is to verify the traffic. Most sellers will quote their Alexa numbers, and these will give you a broad rule of thumb about the traffic, but won't tell you where the traffic is coming from.
The easiest way to verify traffic is to email the webmaster and ask them to put a sitemeter or statcounter button on their site. They don't need to put it above the fold for everyone to see, they can tuck it away at the bottom of the site so only you can find it (suggest this to the webmaster so that the details of the traffic remain private and kept from your competitors). That way, you should be able to simply go to their site in a week's time and click on the button and look at the traffic for that week. You should be able to calculate the monthly numbers from that and to tell if the traffic is coming from search engines or social bookmarkling sites. Deduct any social bookmarking traffic from the numbers.
Another good way of verifying traffic is to simply ask how much bandwidth they use each month. If you own hosted domains yourself, you should be able to gauge pretty quickly whether the bandwidth they use correlates to the traffic they claim.
You could also ask for access to Admin - so you can log into their site and look at the trafffic yourself.
The next thing to do is to check that the material on the site is legal - that they haven't simply helped themselves to photos and articles that don't belong to them. You should be able to run the text of the site through Copyscape to check if it is original.
When spending a lot on a site, ask for proper proof of income - original bank statements, copy of their tax returns, or a letter of authorisation allowing you to go directly to the affiliate network to verify income.
Check the backlinks on Yahoo's site explorer. You want them to be from a diverse group of domains, and you don't want them to all come from sites that the seller owns and that he will take down once the site is sold. Also check that the seller hasn't used some short-term black-hat techniques to get yhis site to rank temporarily - Google will cotton on and downgrade the site eventually. If the backlinks come from some web 2.0 properties (blogger, weebly etc) that the seller owns, it might be an idea to buy them too if you can.
If the income from the site come from affiliate networks, check that you are eligible to join these networks, so that you can put your own affiliate links on the site.
Finally stay away from any domain that uses a trademarked brand name in their domain name - that's asking for trouble.
What you should disclose when you put your site up for sale
Lots of unscrupulous internet marketers snoop about the website trading places, looking for profitable niches. They are not looking to buy a site, they are looking for a niche that is profitable and steal your business model, so they can set up sites themselves, and by-pass you (or the poor person who buys your site) in the SERPs.
Therefore be careful what you disclose about your niche. This is especially important when you are selling for several thousand dollars.
You need to disclose uniques per month, revenue, costs and net income per month. But DO NOT feel obliged to list every single keyword you rank for, and what position in the SERPs you are there for.
If you can get away with it, don't even reveal the niche - be generic and say healthcare sector instead of diabetes support, or whatever. Advise that you are happy to reveal details privately by email. Only genuine buyers will email - the sharks won't if you haven't given any juicy details on the sales page to tempt them. (When the buyer does email, it won't hurt to explain that you were protecting their interests in not letting the niche get ripped off). Most marketplaces require the website url to be listed, so you can't do anything about that, but be close mouthed about the exact keywords that you get traffic from (only reveal this privately).
Finally, don't accept payment by Paypal or credit card for non-trivial amounts. You could find yourself transferring the domain and then suffering a charge-back, and you end up with no site and no money. Use escrow or bank transfer and wait till you have the money before transferring the domain. Note that you may also be liable for capital gains tax in your country on the sale of your site (especially if it is for a substantial sum). Contact your Inland Revenue service to ask about this, or employ an accountant to look into it for you.
Where to find sites to buy and sell
If you are buying, one of the simplest (and cheapest) methods is to type in your keyword into Google, go to pages 8-10 and have a nose round the sites there. They may have the keyword in the domain name, they may have a load of good content, but they arn't ranking because the website owner didn't know about backlinks, they just thought they needed to write and the readers would come.
Most of these sites have contact details, so you can simply contact and make an offer. Most will accept without quibble, delighted that their useless website has some value after all. And because they arn't listed in a marketplace, they won't have a chance to compare values and the internet market sharks won't ahve a chance to look at the blueprint for their business and rip them off.
You can also look at the following marketplace to see what is on offer to buy (or list your site for sale):
Flippa. This used to be called sitepoint. They charge you $19 to list your site, plus a 5% success fee. If you list and make no sale, you can relist for free (though you are still liable for the success fee). The success fee is capped at $498, and has a minimum of $5. To verify ownership you need to upload a txt file onto your site and let them know the url. If you are selling eb 2.0 stuff (blogger, weebly squidoo etc, you need to email to let them know first).
WebsiteBroker.com They allow you to list your site for sale for 90 days for $9.95 - so they are considerably cheaper than Flippa. They also don't charge you any success fees. They also have a premiere listing service for $29.95 - you get to be listed first in your category for this amount.
dnScoop is a tool to value websites (based on backlinks, age of domain, pagerank and traffic). They also have a marketplace where you can list your sites - it's a lot cheaper than Flippa - you can list a developed site for $10. You can also list articles for sale (costs $2 to list) or domain names (also costs $2 to list). However, their site is a little thin, indicating not much buying or selling takes place.
Transactions also take place in forums such as Digital Point - but be aware that the scammers hang out there