In the previous articles in this series on How to Invest in Websites, I discussed how to make money from buying established sites, starter sites and aged domains. In this article I talk about how to make instant ROI from buying an undervalued website on Flippa.
Domain investors always say that you make money when you buy a domain, rather than when you actually end up selling. The same is the case for website investing.
How to Search
For the weekly hand-picked Deals email (for paying subscribers of the website investing publication) we look for established sites on Flippa using this search string. Let’s break this down
1 – Asset Type: Website – Established Site
This means that the site is making money rather than a starter site that is yet to generate revenue.
2 – Website Type: Content – Blog / Review
I define what we mean by content sites on the publication. For us, content sites are either product review sites or blogs; they are not directory / lead generation sites.
3 – Includes only: Verified Traffic
The Flippa integration with Google Analytics (GA) is great as it means that you don’t have to rely on what a seller reports. I only look at sites where the seller has verified their traffic. However, if interested, you also have to get access to GA to select the organic traffic segment. Content sites are valuable because they rank in Google and bring in organic traffic, often considered to have the highest buying intent. A site that has 10K page views a month sounds good, unless you find out that organic search traffic is only 100 visits a month from that.
4 – Monthly Profit: > $500
This is the level that we class as an established site, and is the minimum level that other platforms such as Investors Club and Empire Flippers will typically accept.
Site age is something to consider, however I’m more interested in the organic search trend than the amount of time the site has been around, especially if you can buy at a good price.
What is Good Value?
There is an interesting post by Ophelie Lechat on Flippa on 5 popular methods for valuing a website where #2 revenue multiple is the traditional way of valuing a revenue generating site. The #4 way ‘reverse engineering cost’ should be used to value a starter site. And there is a good video by Ahrefs on how to buy an undervalued website on Flippa, in terms of its link profile, technical SEO issues, under optimized anchors and competing domains:
For me, good value means picking up websites for under 24x average monthly revenue. You may be thinking, this is insanely low, but this is where multiples were at when I first started selling sites – in fact my first exit back in 2016 got me a 23x multiple.
Indeed, on the Invest Like A Boss podcast, Blake Huthinson, the CEO of Flippa, stated that the average multiple on Flippa is indeed 23x.
What Influences Valuation?
For me, the search traffic trend is the primary factor for whether you’re prepared to pay more or less for a site. If the search traffic is trending up, you should be happy to pay more. On the flip side, if traffic is trending down, you should be able to negotiate a much lower multiple by being happy to walk away.
Similarly, if a site is dependent on a few pages for the majority of its search traffic, then this is more risk and less valuable than a site with good traffic distribution.
A site that has diverse income sources should be valued more highly, with recurring revenue (such as with software review affiliate sites) being the best situation. With MRR income, even if you lose all traffic, you will keep being paid out for months or even years to come for low churn services such as web hosting.
And finally, the quality of the backlink profile should influence valuation – if a site is being propped up primarily from homepage PBN links then this should be considered less valuable than a site that has only done ‘whitehat outreach’.
Once you look at enough listings, and look up enough sites in Ahrefs, you will be able to quickly come understand what a fair market value is, and whether the asking price is under or over that amount. First time sellers often do now know how much their site is actually worth and can leave money on the table by accepting lower offers from the allure of up front cold hard cash.