December is always a time for looking forward to the new year, and looking back to the year gone by.
What better way to do the latter, than by brain-dumping everything we’ve learned from buying sites throughout 2019?
If you’ve followed us for some time, you may have noticed an evolution in investment philosophy. This has been a direct result of analyzing our experiences.
Doubling down on what works, learning how to avoid what doesn’t work, and constantly improving is an obvious thing to do, but few people do as many deals as we do, especially as buyers. This puts us in a fairly unique position to create a meaningful resource to share with the world.
We’ve split this article up into categories, but there’s no order of preference or importance. Something that may appear a small learning at first, may prove to be a huge nugget for you when looking at your next deal, so take each point on its own merit.
Before we jump in, let’s take a bit more look at the deals we did in 2019:
- Sum of all deals – $2,720,000
- Average deal price – $90,666
- Largest deal – $600,000
- Second largest – $410,000
There was a wide range here and we started the year making smaller deals (sub $50k), which grew in size in the second half of the year, where we closed 3 deals above $400,000.
In terms of where we found the deals, all of them were from either FE International, Empire Flippers, or through private dealflow. We’re known as good buyers, so people reach out to us fairly frequently.
We don’t refuse to buy sites off other brokers or marketplaces, it just happens that FE and EF happen to have the deals that fit our criteria the most.
Know Your Wheelhouse
We went into 2019 with a good idea of what our wheelhouse was – content sites – but we’ve defined it even more throughout the year, and have a strong idea of what tactics will work, which ones we are less confident about, and what specifically is a screaming buy vs a maybe.
For you, this criteria may be different. You might excel where we are weak.
Knowing what your skillset or preference is will allow you to not only avoid making bad purchases, but it may allow you to spot opportunities that others consider dangers.
How do you go about identifying your core strengths without losing all your money in the process?
1.) View as many different deals as you can, read about the different ways sites are grown and monetized. Flippa is a good place for this.
2.) Practice on a smaller scale with starter sites or even by starting your own sites. Smaller sites will teach you in a limited fashion, but you’ll learn about yourself.
Understand The Different Strategies
Are you going for a short flip? A long term hold? Different strategies will suit different properties and valuations.
An example: You might think it’s counter-intuitive to pay a higher valuation for a site you want to flip in the short-term, but if that site is trending well and is going to trend higher for the next 6-12 months, you should pay whatever you can to acquire it. You’ll likely get the same or higher multiple when you exit anyway.
Worried about a site’s lack of growth potential? That might not be an issue if you want a long term hold. In this scenario, you’ll want to focus more on stability, diversity, and history than upside.
There are different ways to play in the space, and one reason I see people making mistakes is flying by the seat of their pants.
Websites ALWAYS need an evolving strategy, but that doesn’t mean you can make it up as you go along.
Remember that what one person considers expensive, might be a bargain for somebody else.
Speak With Brokers To Learn Perspectives
One of the best sources of learning for me this year was the brokers I had conversations with. Many people seem to view brokers as their enemy, whether that’s a seller who resents the 15% commission they have to give up or a buyer who thinks the broker is too salesy.
When I don’t understand the logic behind a valuation, I ask. This helps me better position sites for a sale, but also helps me learn what to look for. As I alluded to earlier, sometimes a 36x multiple is cheap, other times 30x is expensive.
Brokers do their best to always make the multiples fair, but as you will have your own wheelhouse, sometimes you can find something that’s a bargain for you, but not others.
You also learn to be a better buyer, which allows you to beat others to better deals, or allows you to spot better deals in the first place.
Not ALL brokers are equal, some are part-time and literally just looking for a quick commission. Some have less dealflow and are desperate for a sale. Most are representing the seller, not the buyer.
It’s not hard to determine who the professionals are, and to try to strike up a relationship with them. You’ll learn a ton.
Just remember that there’s a fine line between building a relationship and time wasting while kicking tyres.
Everything is nuanced
You can set rules like “no more than 30% of traffic to one page” or “must have 3 traffic types over 30%” but realistically every site is different and your rules need to be flexible.
How To Be A Good Buyer
Don’t lowball for the sake of it
Everything is generally negotiable, but sellers often have a valuation anchored in their minds and they push back on pricing. If that’s how the relationship starts, it can be a bumpy ride.
Of course, if you can save $20k on the list-price, then it’s well worth doing so.
However, I’ve seen plenty of people miss out on deals because they lowballed and the deal went to someone else in the meantime.
This is especially true in the lower price range, and at places like Empire Flippers, where sites fly off the shelves while you’re trying to save $1k.
Remember you are not as important as you think you are
We all think we deserve special treatment and as the buyer we are used to be a customer, but in reality we are in a seller’s market and most brokers have tens of thousands buyers on their email list.
Of course they are not going to be dicks to you, but they also don’t care if you say you’re planning to buy multiple sites over the next few months. You have to earn special treatment.
Don’t be offended if you need to sign an LOI or show proof of funds before they will show you google analytics; you’re one of hundreds of potential time wasters, prove that you’re serious.
Try to understand the process in advance as much as possible
Different brokers have different processes so knowing the basic way things work will make things go smoother. This involves everything from the due diligence stage to the migration and account transfer stage.
If you’re working with us to land a site, we’ll brief you beforehand about the general process, and walk you through everything, but if you’re going it alone, make sure you read up. Every broker has a different process too, which can be confusing at first.
Learn to see through hype
Most prospectuses or marketing materials will “sell” a website. That’s a given. That’s where brokers earn their commissions.
Some brokers overdo this and pitch things as 100% autopilot and hands off, while showing a graph of a site’s income trending downwards.
We generally avoid the less-used brokers for this reason. They also give pretty ambiguous or dismissive replies when you ask for more information.
No, that site isn’t fully hands off.
How To Buy Well
Understand Google Updates
Google updates are one of the biggest reasons why a purchase can turn out badly, and since 2018, a lot of quality sites have been hit by updates, which makes it even harder to account for.
This subsection is not just about factoring the risk of an update into your due diligence, but also about understanding how a site’s income might change afterwards.
It’s quite common to see a site listed shortly after it’s been hit by an update. The site may have been steadily earning $5,000 per month for 5 months, then after the update, it’s earning $3,000.
Naturally, the listing will state something along the lines of $4,700/mo as the site’s average income, while in reality, $3,000 should be the new level.
The site may still make a great purchase, because a lot of the recent updates have just been about tweaking the dials on which sites to rank where, and not about punishing bad sites. You could pick up the site in the example above, and still grow it.
But you should make sure you’re basing the sales price on a $3,000 average, not a $4,700 average that the site won’t achieve anymore.
Pro Tip: Equally, a site that has BENEFITTED from an update could be a great purchase flip. Imagine if those numbers were flipped and the site did $3,000 per month for 5 months, then did $5,000 the month after an update. You’d be able to pick it up based on an average income of $3,300.
Just remember, after a site has been hit by an update, it could still be a good site, but any traffic or income averages prior to that are no longer accurate.
Master the difference between upside and a good deal
I’ve definitely talked about this one in previous posts.
Never buy a website purely because of the upside.
By this I mean, if you see a website that has nothing amazing about it, but it has potential, then you should probably avoid it.
Another common mistake is paying extra because of the potential.
I see seller’s mentioning the potential all the time.
“The email list hasn’t ever even been used!”
“Half of the content doesn’t rank anywhere, so there’s room to grow”
“I just published 50 new articles”
These are indeed all things that could potentially add value to a site, but you shouldn’t buy it purely for these reasons, and you definitely shouldn’t pay extra for it.
Jase Rodley and Dan Andrews discuss it really well in this podcast, where they talk about a deal needing to make sense WITHOUT all the things you can do to improve it. (The whole episode is worth a listen, but the passage I’m referencing starts around 11 min mark).
I don’t want you to confuse this philosophy with me saying it’s not worth chasing upside or that it’s not worth trying to grow a website.
Of course you want to grow them; but you have to protect yourself by purchasing something that is still a fantastic buy, regardless of growth.
This is also why I don’t pay too much attention to multiples either. A bigger multiple is usually a sign of a better website.
I’d rather overpay for something I’m not afraid to hold, than underpay for something risky. Remember though, everything is nuanced.
The trend is your friend
How many sentences are there in the investing world about this?
“The trend is your friend”
” Don’t catch a falling knife”
…wait only two? There should be more.
As you may have guessed, it’s almost always going to be better to buy a site trending up than one trending down.
The only exception I’d say is if you’re an expert at removing penalties, or turning around declining sites, or if you can see a very simple reason why a site is declining and you’ve got a tried and tested way of reversing it.
Even in these cases, you’d probably still just be better off buying something trending up.
Understand spikes and Q4
Late November and December will always be a spike. Just make sure you’re aware of this. Don’t expect a site that earned $10k in December to repeat that in January.
Similarly, if a site made $9k in October, lost traffic in November, but still made $9k in November, it probably isn’t a sign that site is ok.
It definitely should’ve done significantly more more in November than Oct.
This is particularly important right about now, where sites have lost 30% of their traffic after the Nov 8 update, but it’s not yet reflected in the revenue, as Nov and Dec are performing well.
Make no mistake though, these sites are likely to earn less in the next 12 months than they did the previous 12, unless you grow them.
What Matters With Due Diligence
Not everything that you think is important, really matters afterall.
There are obvious things like making sure the financials are verified, getting Google Analytics access, and checking the backlink profile of the site.
These will always matter and are the 80/20 of your diligence.
But there are other things that people focus on which are actually less important:
- Why are they selling?
- How have other sites they’ve sold performed later?
- Is the site at least 3-years old?
- Did they use PBNs?
As an aside, the riskiest links a site can have these days are dodgy niche edits, paid guest posts from sites that literally only exists to sell guest posts, and even scholarship links.
Most due diligence hasn’t caught up to this fact yet, as brokers tend to only focus on whether or not PBNs were used in the purchase.
When it comes to link profile and risk, people do tend to look at the wrong things. A few dodgy links can be disavowed and replaced easily enough, but there are more fundamental risks out there.
I would consider a white-hat health site as much higher risk than a grey-hat site in a hobbies niche.
Success After The Purchase
The 80/20 of success after purchase, at least in the short term, is the trend of the site. Beyond the first six months, your strategy will be more important.
Fix your technicals first, focus on speed, index management, and a complete audit to make sure nothing fundamental is broken.
Next, work on onpage SEO, tools like Surfer SEO are increasingly popular because they make it easier than ever to optimize your onpage.
Beyond that, it turns out all you need is more content and links (except when you don’t).
Get the right strategy
Some people love buying sites where most of the keywords are on page 2 or not quite the top of page 1. This is definitely great if the competition is fairly weak.
What seller would sell a site without first putting a lot of effort into getting those number 1 rankings though?
We always assume that “just boosting the rankings” is going to be easier said than done.
If getting the position 1 is upside, then great, but don’t make it the sole reason to buy the site (see earlier comments).
Understand what you’re doing
I’d hazard a guess that of all the sites that have died after purchase, at least 50% of them have been down to poor operation post-purchase.
This is because:
- People think websites are more passive than they really are.
- Running a website has a lot more moving parts than people realize.
- People enter into a purchase without a clear strategy.
All three of the above are simply a case of people not knowing what they’re doing.
This is the part of the article where I point out there’s a reason why so many people come to Onfolio for help with both website operation, and the larger asset management part of investment.
I can’t really say much more than simply make sure you know what you’re doing. Websites provide great value and ROI because they’re valued fairly low compared to other investments.
The reason for this is because it’s easy to get burned if you don’t know what you’re doing.
It should be self explanatory.
Finding The Best Deals
The key to finding the best deals is not just about finding off-market deals.
It’s not about negotiating the best price or the best structure.
It’s not about speed (unless you’re using speed as a reason to get a better price).
It’s simply about knowing what really makes a good deal, and then looking out for it, even paying a premium if it helps secure it.
At this point, I was going to write my definition of a good deal, but I realized it would make more sense to let the data do the talking.
Based on the deals we’ve done, and how they’ve turned out, here’s what we can conclude to be the best deals:
Recent, Rapid Growth
Some of our biggest wins came when a website had recently had a breakthrough with its growth. For example, a site making $1,500 might suddenly have had a ranking increase, causing it to hit $2,500 the next two months.
In a case like this, you’ll be able to buy the site for a lower price than you’d expect to secure $2,500/mo cashflow, and the site would likely keep increasing too.
Some investors we worked with were initially wary of this kind of sudden growth, as it appears unsustainable. While that may be true, you’re getting a margin of safety.
Some brokers will account for this in their valuation though, so you don’t always get that cash flow at the discount you’d like.
Large Traffic, No Display Ads
This one has been talked about a lot in various investing circles, and probably is the easiest win out there right now.
Pick up a site with 50,000 or more monthly pageviews, and add it to a display ad network like Mediavine (or AdThrive if it gets more than 100,000 pageviews). This will add a few hundred to even a couple of thousand dollars per month in income. Even if the site already has ezoic or adsense, you can make more by switching to a network with higher payouts.
Despite what many people fear, display ads in our experience do not negatively affect other income streams. You need to make sure the site speed doesn’t suffer though.
Quality Content, Broad Niche, Longer Term Growth
All you need is good content, who would’ve guessed?
While the first two findings can give quick, big wins, once they’ve been realized, you may not have much more to do to grow the sites if other conditions don’t exist.
With this third point however, it’s more of a tortoise and hare situation. Slow and steady wins the race.
Growth might take time, but when you have a site built on quality content, all you have to do is maintain that level of content in order to grow it.
Equally, a broad topic is hugely important. ‘Niche’ is becoming a thing of the past, and “general topic” sites (also known as 10beasts ripoffs) are slowly taking over the serps.
You can still have success by sticking to a single topic, but make sure it’s broad enough to give you ample room for content expansion.
Finding sites with large traffic and no display ads or sites with recent vertical growth are probably the best short-term wins, and certainly the best flips, but they are not exactly common.
This latter group offers the most consistent, and longer term opportunity.
They are also more defensible, and you can build audiences around them, which is nice in the current Google climate.
It’s naturally hard to summarize this entire post into some bitesize takeaways.
That said, as I was writing and reading through again, I noticed a theme coming out.
It’s a theme of thinking quality over quick wins, going for predictability over gambles, and knowing your core strenghts and preferred strategies.
To any value investor reading this, it might all sound fairly obvious, but this is an industry of marketers used to getting scrapping in order to make some quick money.
The overwhelming takeaway I’d like you to have, is to think more like an investor, and less like a marketer.