Have you seen A&E's TV show Flip This House? The idea is to buy old houses for affordable prices, remodel them, and sell them for a nice profit. In another post I recommended buying established web sites as an excellent link-building tactic. I actually mentioned that this is a practice for big leaguers because web sites with worthy traffic and links are usually expensively out of reach for most bloggers. But I neglected to mention a strategy that can be used by anyone, not only those with big budgets: find a web site with a lot of traffic, but with terrible monetization efforts.
Sites that are already making money sell for 4 to 7 figures, but usually those sites have savvy entrepreneurs behind them that succeed in monetizing every single visitor that lands in their clutches. On the other hand, there are many sites that receive several thousand visitors per day, but make less than 3 digits a month. Why? While they have succeeded in gaining the eyeballs, they don't have a clue as to how to turn those into dollars. They don't have a monetization strategy, or else they have a very poor one.
As the owner is not making much, he or she will usually be very happy to sell the web site for a very affordable price. And just like Flip This House, all we have to do is remodel the web site and improve its value. But instead of selling it off, we are going to keep it as a solid source of traffic, links and money. My previous post about split testing should provide you an excellent start toward dramatically improving the site’s monetization. But let me tell you about some other considerations.
How can we find these web sites?
One answer familiar to those in the web site buying and selling industry is looking for bargains at popular auction sites like SitePoint or eBay. You can find really good deals if you know what to look for: sites with good traffic, but with very low monthly revenues.
The most important thing to consider before buying is the site's traffic stats. You need to analyze this to see how defensible the traffic is. Do not buy a site whose traffic comes primarily from pay-per-click (PPC). You don't want a popular site that suddenly becomes unpopular when you hit pause on the PPC campaign. Some of my best signals of defensible traffic, listed in order of importance, are:
- A high percentage of direct traffic. A great number of visitors know the site and type the URL directly.
- A reasonable number of visitors come from search engine navigational searches. Some visitors don't remember the URL, but remember the site name or related brands and type them into the search box.
- A good number of visitors coming from related sites (editorial links, blogrolls, etc.).
- A sizeable mailing list, customer list, or RSS subscribers. In case all else fails, at least you have a loyal audience.
- A decent affiliate network.
- Consistent and growing search engine referral traffic from multiple search engines (not just Google).
Andy Hagans has a 10 point quiz to check how defensible is a website that you might want to check it out too.
Now, let me share an alternative strategy to finding good web site buys: search the back links of popular free traffic counter websites like Sitemeter, Webstat and Gostats. Why? First of all, you get to see the real deal before making any offer. You can tell the value of the web site and determine how defensible the traffic is. You can also look at how the site monetizes the current traffic. One way to measure the potential and current value of the traffic is to use Google Adwords’ traffic estimator to find out how much advertisers are currently bidding for similar traffic.
Another possibility is that, in rare cases, a savvy entrepreneur would want to display his or her stats publicly for everybody to see. There are many competitive reasons for keeping them private. So, if you find a good site with poor monetization using this method, the odds that you will strike a good deal are in your favor. Again, make sure you look for the signals I described above before you make an offer. Also, think about what you are going to do to improve the monetization of the site, how you will turn more of that traffic into money. I'm not a big fan of Google’s Adsense, as I recall doing far better with affiliate programs when I tested it. (And it seems that I am not the only one unimpressed.)
Consider the time and money you will need to spend on the site to make it more profitable. In any case, make an offer that you are sure you can recoup in at most 10 months. It’s wise to consider the cost of paying others cash or a percentage of revenues to help maintain the site during that time. Just as you are unlikely to remodel a house all on your own, you may want to consider hiring some contractors to help you spruce up the site’s aesthetics, web copy, and backend software.
This will free up your time for more interesting projects…and maybe even another purchase!