website broker questions – telecommuterguide

If you are thinking of buying or selling a website, you might be wondering "What is a website broker?" A website broker helps to connect the seller (owner or webmaster) and buyer of a website. Similar to a real estate agent, a website broker is paid on commission - a percentage of the website sale price. There are many factors to consider before you hire a broker. You should learn what a broker does and how they do it, and why you might want to hire one. Luckily, you can find out more about these topics in this article, so read on! What Does a Website Broker Do? A good website broker can assist you with valuation, marketing, negotiation, and all the paperwork and technical details of selling a website. Valuation A website broker can help you to determine value of your website. Based on his knowledge of the market and the specifics of your website, a broker can come up with a price that will find a buyer in a reasonable amount of time. I will give more specific information about valuing a website later. Marketing An experienced website broker has put together deals before, so he knows what buyers want to see. This means a broker can put together marketing materials faster than you could yourself. Your marketing materials are like the prospectus for a publicly traded company. You are telling buyers what they are getting for their money, and giving them the data to support your claims. A broker will also advertise your website for sale, making sure that prospective buyers know what is available and at what price. The broker might even take buyers on a tour of the website, to show them what they are getting, and to give a sense of the quality of the content. Negotiation You might not like to negotiate directly with another party, or you might not know what your website is really worth. Luckily, your broker can help with both of these things! If the broker negotiates a higher price for your site that more than pays for his fee, then you are ahead on the deal, not to mention the work you avoided! Paperwork The paperwork includes marketing materials, as mentioned earlier. Paperwork also involves presenting offers and letters of intent from buyers, preparing responses from the seller, and preparing to transfer the money and property via escrow transfers. A good broker can also maintain your privacy as you sell your site. You don't want dozens of people sifting through your private information! What Determines the Value of a Website? A very general rule of thumb is that a website will sell for 12 to 48 times its monthly earnings (that is, 1 to 4 years of earnings). However, most sites will fall somewhere between 24 and 36 times monthly earnings (2-3 years of earnings). To get a more accurate valuation, there are four factors that will influence the value of a website: market, income, traffic, and effort. Market No website is sold in a vacuum. You need to consider what is happening in the broader market. In a global financial meltdown, money is tight, and most assets will command a lower price as money dries up. When times are booming, you can command a higher price for the same asset. Comparing your website to similar properties is one method of assigning value. This is similar to what city assessors do when valuing a home based on similar properties. If you can find a website with income and traffic similar to your own, then the price of that website is a good starting point for your site. However, the market is not the only factor to consider. Income The income (or earnings) of a website refers to the profit that the site makes. The revenue is the amount of money the site brings in from all sources (ads, e-books, etc.). The expenses are all the costs incurred to run the website (hosting, virtual assistants, etc.). The profit is revenue minus expenses. The reason profit is so important is that it takes expenses into account. If your revenue numbers are great, but the website is expensive to run, then a buyer will be wary about purchasing the site. In addition to the current revenue, expenses, and profit, buyers will want to look at historical trends. It is desirable to see steady income for one to two years. A sudden spike will make a buyer wonder where the extra money came from, and if it is going away soon. Related to trends is seasonality, or changes in income due to seasons. For instance, a Christmas themed website will do most of its business at year end, whereas an outdoor summer themed website will do best between late May and early September. All things being equal, a buyer will want to see steady income with minimal seasonality. However, it is possible to buy a few websites with different seasons to "even out" the total revenue of a portfolio of websites. In addition to the amount of income and the historical levels of income, buyers will want to see diverse sources of income. For the same reason that it is dangerous to own only one company's stock, it is dangerous for a website to have only one source of income. Instead of only selling an e-book on how to train your dog, a website could also: run ads related to dogs and other pets (via Google AdSense or another ad broker) a course on how to train your dog (goes into more depth than the e-book) add affiliate links to pet care products (on Amazon, WalMart, or other sites) sell physical products unique to your brand (dog treats for training that you bake yourself) There are other sources of revenue, but the point is that a buyer would like to see a diversified income for the website. If Amazon cuts their affiliate commission rate, the buyer wants to know that ads, e-books, course, and physical products can pick up the slack. Traffic The traffic of a site refers to the number of people that visit the website to view one or more pages. The term page views refers to the total number of times that a page has been viewed by all visitors. (For instance: if you go to amazon.com and look at three different pages, then that counts as three page views). The term unique visitors refers to the number of unique users who went to the website. (For instance: if you go to amazon.com twice in one day, you only count as one unique visitor). If the number of unique visitors is close to the page views, then most people are only visiting one page on the site. If the number of unique visitors is much lower than the page views, then a few people are visiting many pages on the site (indicating high engagement). Both of these may be desirable in certain situations. The bounce rate is the percentage of visitors who leave your site after viewing only one page. If your bounce rate is extremely high, a buyer will want to know why, and how your site can succeed in spite of this. A high bounce rate might be acceptable in certain situations. For example, you might attract a visitor to a single page via Google search, and then immediately send that user offsite to Amazon to buy a product, thus earning an affiliate commission. A conversion rate is the percentage of visitors who complete a desired action on your site. This could mean opting in to an email list, buying an e-book, or enrolling in a subscription membership service. A high conversion rate can mean a highly qualified audience of visitors to the website, effective marketing copy on the website, or a combination of both. As with income, seasonality of traffic will be an important metric for a potential website buyer. For instance, some sites see most of their traffic coming in during the holiday season. A buyer will not want to purchase your site in June, only to find out six months later that the site is dead due to a Google algorithm update. Finally, your sources of traffic will be important to a buyer. These are: referrals - another website (a fellow blogger, etc.) refers a visitor to your site via a link organic - your site appears in Google (or Bing, or Yahoo) search results, and a visitor clicks on a link to visit your site paid - you pay for an ad (on Facebook, another blog, etc.), and users click on the ad to visit your site direct - a visitor types your domain name into the search bar, or uses a bookmark, to visit your site. Obviously, direct traffic is highly desirable, but will only occur once your website is well-established. Referrals and organic traffic will come in time as your website earns authority with thorough, accurate, and helpful content. Paid traffic may be desirable if you can earn more per visitor than it costs to bring him to the site. These are all things a buyer will want to know! Effort Finally, a buyer will want to know how much effort it takes to maintain the website. This is subjective, since something you have been doing for years might take you ten hours per week, while it might take a new owner twenty hours per week. The point is, a buyer does not want to fork over lots of money to buy a minimum wage job. There are a few things to consider regarding the effort to maintain the website. First, consider the quality and quantity of website content. All else being equal, more and better articles means more security of income. If a competitor sees a website with 100 well-written articles, he is more likely to say "Why bother?" and move on to build a website in a less competitive niche. So-called "evergreen" content will be worth sharing and reading for years to come. This means the new owner will not need to be rewrite articles. As an example of "non-evergreen", most technology websites need to constantly rewrite their content to keep up with changing technology. A buyer also considers systems in place for the website. The more you have automated what was previously manual, the more attractive your website will be. For instance, instead of manually emailing a PDF file to everyone who buys your e-book, you have a system set up that does it for you. This saves a massive amount of time as the sales ramp up! In addition, if you need to hire and train help to run the website, chances are that the new owner will need to do this as well. A system for finding and testing potential employees will make your site more attractive. Hiring virtual assistants (VAs) is a common task for those who own online businesses. If you aren't sure where to start, check out my article on how to hire a virtual assistant. Training videos for new employees on how to run your website will also help to make the sale. To learn more, check out my article on how to train remote employees. Finally, a buyer will think long and hard about the website's dependence on the owner. If the domain name is "johnsmithconsulting", then it is questionable whether the site can survive without John Smith on board. On the other hand, if your articles and products are fairly generic, then visitors to your site might not even notice a transition. A low dependence on the site owner makes it easy for a buyer to transition into owning your site. It also makes the site easier to sell in the future, when the buyer wants to make an exit. Examples of Website Valuations Here are a couple of examples to give you an idea of how you might value a website. Example You are considering a website in the pets niche. Sites with similar traffic and income have sold for 20 to 30 times monthly income. You start off in the middle, with a factor of 25x (25 times monthly earnings), and decide to modify from there, based on what you learn in your due diligence. You see that average monthly revenue is $800, expenses are $750, and profit is $50. This is concerning, since a 10% increase in expenses would mean a monthly loss of $25. You find out that most of the expenses are for content creation. If you cut those costs, you would need to do the work of creating content yourself. So, you downgrade the multiple from 25x to 22x. Further, the site only has one source of income: advertisements via Google AdSense. A small downward fluctuation in ad revenue could also put you into negative profit territory. Thus, you downgrade the multiple from 22x to 20x. You also find out that the bounce rate for the site is extremely high. Upon further investigation, you guess that the reason is the sheer number of ads on the website. You again downgrade the multiple from 20x to 18x. Finally, no systems are in place, and the website owner is doing everything manually. You think you can automate things, but this will take time and money. You further downgrade the multiple from 18x to 15x. You end up offering a multiple of 15 times monthly income, or 15 x $50 = $750 for the site. If the seller wants much more than this, you would need to hear a good justification for the price. Now, we will look at a site that is doing a little better. Example You are considering a different website in the outdoors niche. Sites with similar traffic and income have sold for 15 to 25 times monthly income. You start off in the middle, with a factor of 20x (20 times monthly earnings), and decide to modify from there, based on what you learn in your due diligence. You see that average monthly revenue is $2500, expenses are $500, and profit is $2000. This is great, since expenses are only a fifth of income. As a result, you upgrade the multiple from 20x to 23x. Further, the site only has multiple sources of income: -advertisements via Google AdSense ($600 per month). -affiliate links to Amazon, Cabela's, and WalMart ($1300 per month). -an e-book - a quick guide, which sells for $5 ($400 per month). -an online course - an in depth training, which sells for $50 ($200 per month) Even if you lost one of these sources of revenue entirely, you still have at least half of your income, and are making a decent profit. Thus, you upgrade the multiple from 23x to 26x. You also find out that the bounce rate for the site is moderate - neither great nor horrible. For this reason, you decide to leave the multiple unchanged at 26x. Finally, the website owner has numerous systems are in place: -the e-book and course are delivered automatically -he has a training video for new content creators (writers) -he has two existing content creators who are paid automatically each month You believe the current owner when he says that he only spends 5 hours per week on the site. You further upgrade the multiple from 26x to 28x. You end up offering a multiple of 28 times monthly income, or 28 x $2000 = $56000 for the site. You can consider many different factors, and come up with your own rationale for valuation, either as a buyer or a seller. Why Do People Buy and Sell Websites? You might be wondering why anyone dream of selling a website that is making a solid profit. You might also wonder why someone would bother buying a website when he can just create his own. There are good reasons for both buying and selling. Reasons to Sell a Website First of all, a seller may need to raise cash quickly, for any number of reasons. Maybe he needs a down payment for a house. Maybe he needs money for relocation for a new job. Maybe he needs a large chunk of money for medical expenses or college tuition payments. The seller may also be bored with the website. The excitement of starting fresh with a new site, writing content, formatting the appearance, hiring writers, and creating systems has faded. The maintenance of the site is a routine task for him now, and he would rather go and start a new site. In addition, a seller may want to sell an existing site and use the proceeds to buy another larger site, which he can then build up and flip or keep. This makes sense if he can earn a higher hourly rate working on a larger site. After all, you only have so many hours each day! Finally, a seller may wish to retire, sell his site (or sites), and invest the proceeds in real estate, stocks, bonds, or even CDs to fund his retirement. Just remember that there are plenty of legitimate reasons for selling a website. This doesn't mean that the seller will be willing to share his reasons with you! Reasons to Buy a Website Some of the reasons for buying a website are "opposite" (or maybe complementary) to the reasons for selling a website. First of all, a buyer may have plenty of cash lying around, and he wishes to earn a better return than he can in savings, CDs, or bonds. If he wants a more hands-on approach than the stock market, then buying a website might be just the thing for him. A buyer may also be looking for the challenge of turning around a decent but under-performing website. In other words, the buyer is a professional (or novice!) who wants to try to "flip" the website by buying it, making improvements, and selling it for a higher price. In addition, the buyer may own a competing website. It might be best for him to buy the site and redirect some of the traffic to his own site, in order to consolidate his market influence. Finally, a buyer may simply wish to diversify his portfolio by adding relatively passive income to his portfolio. Again, keep in mind that although there are plenty of reasons to buy a website, the buyer may not share them with you! Do I Need a Website Broker? You do not necessarily need a website broker. However, you should think long and hard before trying to sell your site by yourself. This is especially true if there is a lot at stake, as is the case for websites with higher incomes and valuations. There are several reasons to use a website broker instead of selling your site on your own. They Pay for Themselves A good broker can help to highlight the positive aspects of your site, and explain benefits that buyers might not see otherwise. A good broker also has access to more qualified buyers than you do. Moreover, once your broker finds buyers, he can negotiate on your behalf for a higher price. Example You are thinking about selling your website yourself, and decide that you could command $20,000 for the site and sell in 6 months. Instead, you hire a website broker, who sells the site for $24,000 in 3 months. After taking a 10% commission of $2,400, you end up with $21,600. This is 8% more than you would have gotten on your own. Plus, you closed in 3 months instead of 6, and avoided unpleasant work that you didn't want to do! As you can see, hiring a broker can actually earn you more money than if you sold your site on your own. They Have Access to Buyers A good broker has built up a relationship with qualified buyers. This might mean people who have signed up for an email list on his brokerage website, expressing interest in specific web properties. It might also mean repeat customers who regularly buy websites for income. These qualified leads are already interested in buying a website - they are not "cold calls". Furthermore, repeat buyers have already been vetted, and one or more successful transactions have taken place, reducing the risk for you as the seller. They Can Speed Up the Process An experienced broker knows the ins and outs of valuation, marketing, advertising, paperwork, and transfer of property. This means that he can do this work faster than you could on your own. This also means that there is less chance of a mistake that could cost you hundreds, thousands, or your entire website! Since a broker is not starting from scratch to find interested buyers, he will likely close a deal much faster than you can on your own. Acting as the go-between for buyer and seller, he can grease the wheels of commerce and help to complete the sale quickly, brokering trust between the parties. They Can Protect You A knowledgeable broker can protect you from scams. This protection comes from technical systems, like escrow accounts and legal documents. It also comes from a broker's "gut" feeling or intuition about whether a buyer is trustworthy or not. A broker can protect you from wasting your time by listing your website at too high a price. Conversely, he can protect you from losing money by selling yourself and your website short. How does a Website Get Paid? A website broker will generally work for commission only. This can be 10% to 15% of the purchase price. You may also have to sign an exclusivity agreement, which means that he is the only broker who can list and sell your site. This restriction is in force for the duration of the contract, often 90 days. After that, you can rehire the broker or go with someone else. You are free to name your own terms, but some brokers will only work with a seller under certain conditions of their own. What are Some Examples of Website Brokers? There are many website brokers and marketplaces out there, some more reputable than others. These include: Flippa - this marketplace has some good sites, some bad sites, and some outright scams. Compare to craigslist: anyone can post a listing, and believe me, they do! Your best bet for low Empire Flippers - a reputable website brokerage that produces good blog content in case you want to learn more about buying, selling, monetizing, and improving websites. Quiet Light - a brokerage site that deals with 6 & 7 figure website deals. Digital Exits - another brokerage site offering 6 & 7 figure website deals. FE International - a brokerage site offering website deals from 5 figures and up. Remember that you can also approach a website owner via email, blog comments, or social media in order to attempt to broker a deal yourself. Conclusion There are lots of things to consider when buying or selling a website. A website broker can help you through the process, and make sure that you don't leave any research undone. A good broker can pay for himself, saving you both time and money when you sell. I hope that this article helped to shed some light on website brokers and selling websites. If you have any questions, please leave them in the comments below.