Got AWeber? Join AWtomator beta using invite: CHOW
 

How To Make Money Online with Flippa

written by Guest Blogger on April 15, 2010

Make $27,498 Per Month!

I’m sure you have all heard of Flippa. If you were selling a website 4 or 5 years ago you would write the sales pitch for your website and post the copy in the marketplace room of over a dozen or so webmaster related forums. One of the best places to do this was the SitePoint Marketplace, which was rebranded as Flippa a year or so ago.

Today Flippa is recognised as the number 1 place to buy and sell websites online (domains are sold too but domain trading is more active elsewhere). Dozens of new websites are listed for sale everyday, from small turnkey websites with duplicate content to businesses which sell products and make tens of thousands a month.

Unfortunately, there are a lot of sellers on Flippa who will do anything to increase the value of their site for sale, ranging from those who bend the truth a little to scammers who will lie about their sites income and traffic. Though if you do your research and get proof of traffic and income you’ll be OK.

Unrealistic Website Valuations

FlippaFlippa is fast becoming a great place to sell a website but a terrible place to purchase one, largely part to it’s own popularity (a victim of it’s own success if you will). It really is hard to find a good website at a realistic price on there now and the few websites that are priced well are snapped up very quickly.

The main problem is valuation. Many sellers become too attached to their websites and therefore have unrealistic valuations of them. Unfortunately, this tends to happen with medium to large sized sites as sellers at the lower end of the market are usually happy to take anything they’re offered. This can be very frustrating as a buyer, particularly when a site comes along that’s perfect for your portfolio.

I had a discussion about this subject two months ago with Chris Beasley, a webmaster I admired greatly 10 years ago when he was an active moderator at SitePoint. Chris was selling one of his coupon websites on Flippa in February. Years ago this site was making over $1,000 a day, however competition and lack of updates over the years had dropped the income to around $200 a month, which was generated through the sites 120 unique visitors per day.

This kind of thing is common on the web i.e. the income for some websites are really high at the start because they were the first to enter the niche however competition from other sites (and changes in the way people browse and shop the web etc) starts to reduce income over time, particularly if the site isn’t maintained. Though you can’t let the fact a site used to make money skew your valuation of the site or you’ll never sell it (I once sold a discussion forum for $40,000, even though a few years earlier it was making $20,000 a month).

Which is why I was really shocked and surprised to hear that Chris wanted at least $50,000 for the site. Chris isn’t a fool. He has made good money on the web for over 10 years, but clearly he has an attachment to the site if he thinks a site making $200 a month is worth over $50k.

When talking about another site he owned he stated:

I would sell it for 25x yearly revenue, (the multiple AOL paid for WebLogs Inc, which didnÕt have much more traffic), but not 25x monthly revenue.

I don’t believe that there is an exact way to value a website. It depends on lots of factors such as the domain name, age of domain, search engine traffic, brand name, current income, past income, operating costs, future growth potential, time needed to run the site and much more.

Which is why I don’t agree with the consensus that every website should be priced at between 8 to 24 months income. Generally speaking, the more stable a sites income and the less time I need to spend updating the site, the more I would pay for it. However, 300 times monthly income is insane. It would be safer and more prudent to simply place $60,000 in a bank account and scrape off the interest, or even just set up an annuity.

Again, I remind you that Chris is an experienced webmaster and not some new kid to the block. And he is not alone in his thinking. Many webmasters who sell sites which they have owned for more than 5 years are pricing themselves out of a sale.

What do websites sell for on Flippa?

The price of a website is somewhat subjective. What’s worthless to you might be perfect for me, which is why you see some websites sell for more than what you think they are worth. Whilst we won’t all agree on what sites should sell for, we can look at at what websites are actually selling for on Flippa.

And that’s exactly what Kevin Eklund did this week in his article ‘How Much Is Your WordPress Blog Worth, Really?‘. Kevin looked at a number of auctions on Flippa and noted what they sold for. He also looked at the PR of the site, it’s traffic, and it’s monthly income.

He found that the average site sold for around 13 times the monthly income however a site sold for as low as 2.27 times monthly income and another sold for 63.06 times. Clearly these figures tell you nothing without seeing the site in question, though the average sale price does suggest that most sites sell for around a years income. It would be interesting to see what the average sale price was for sites under $1,000, sites under $10,000 and sites over $10,000.

Regardless of the average sales prices, it’s important to remember that every website is different, which is why some sites sell for just a few times the monthly income whilst others sell for over 50 times the monthly income.

The Opportunity Cost of Buying a Website on Flippa

It’s easy to get into a bidding war when you find your ideal website on Flippa. However, you should really set a cut off point for how much you are going to spend. Do some research and look into how much time and how much money it would cost to develop a similar site yourself (if it’s even possible to do so).

This is very simple to do with cheaper websites as they take the seller so little time to build. I stay away from most of these sites as I could build them myself and fill them with good content within 4 or 5 hours. They usually sell for a few hundred dollars and their monthly income is low so it takes a long time to get your investment back too. More importantly, the seller values on the site on 1 or 2 months income, which isn’t long enough to indicate whether this was a fluke or a sign of things to come.

It’s harder to do this with established sites as it takes a lot longer to develop them plus there are other factors you need to consider.

Here are some things which you should look into before buying a site:

  • Could you build the site yourself?: Do you have the skills/knowledge to build such a site. Could you hire someone to design such a site and/or write the content? If not, you may be willing to pay a little more for the site.
  • Time: How much time would it take to develop a site to the same level of income? Do you need this site now or would you be happy to wait and develop one yourself?
  • Traffic: Has the sites traffic been increasing or decreasing? You may be willing to pay a little more if traffic is increasing steadily every month whereas a site with decreasing traffic suggests you may need to spend some time updating it, therefore your valuation of the site should be less.
  • Income: How long would it take you to develop a site with the same level of income? Does their income come from many sources or from one particularly source (e.g. only advertising or only product sales). Could you purchase the site and diversify income?
  • Search Engine Presence: Are the sites incoming links organic or do they come from other sites the seller owns. If so, will these links be kept? You may have to spend a little more for a website which has thousands of organic links, though it could be worth it.
  • Domain Name: Does the site have a great domain name? Has the domain been registered for years? The site will cost more if this is the case. How much would it cost you to purchase a domain name of a similar quality?
  • Brand Name: It’s difficult to put an exact value on the brand name of any business, but you cannot disregard it. Established sites within a niche will be successful for years to come. This is why many established sites sell for a premium.

Put simply, is the website for sale worth the sales price or would you better developing a site of your own from scratch or even investing the money into a website you already own.

Overview

I am not trying to discourage anyone from buying a website on Flippa. It’s a great place to sell a website but there are still some bargains to be found for the shrewd buyer as well.

Though I do think that in many cases it’s cheaper and better to build a similar site of your own from scratch and develop it yourself, particularly when the site being sold is overvalued by the owner. My advice to you all is to take your time when placing any bid. Do your research and see if the site traffic and income is real, determine whether the price the seller wants is justified, and look at the alternative option of building a website on your own.

Remember, it’s a buyers market. So don’t rush into anything you will regret or let anyone pull the wool over your eyes.

Good luck,
Kevin

Kevin Muldoon is a webmaster and blogger who lives in Central Scotland. His latest project is WordPress Mods; a blog which focuses on WordPress Themes, Plugins, Tutorials, News and Modifications.

Did you enjoy this post? Get John Chow Dot Com updates via email...

Stay up to date with all of John Chow’s tips for making money online and blog posts by subscribing via email. Your email will be kept private and never shared with anyone.