A website is an excellent investment and can be as passive as you like. I’ve owned websites for the past seven years and can tell you without a doubt it has both been a fantastic investment and one of the best life decisions I have made.
Buying an income-generating website offers an excellent return on your investment. It can potentially return your initial investment within three to four years with little to no additional capital required to maintain your income.
In this post, we’ll look at the pros and cons of investing in a website compared to investing in a brick-and-mortar-type business.
Types Of Websites
Websites come in a few different flavors, and as you likely know, not all types offer the potential to be a great investment. I point this out right from the get-go to save any potential confusion. The two main types of websites include the following:
This is, as you know, a website designed to offer potential customers of a business further information about the business products and or services. It includes product specs, prices, company location contact details, etc.
This type of website is typically supplementary to the business and not the business’s main way of driving revenue. Typically this type of website doesn’t drive much traffic and therefore doesn’t normally offer any investment potential and isn’t the type of website we’ll be referring to in this article.
A blogging site is a website that offers helpful information or opinion on a particular subject or a wide variety of subjects. When you ask a search engine such as Google or DuckDuckGo a question, they return a page of web pages with answers.
A pro blogger aims to write an answer to the reader’s question that’s so complete it’s offered on the search engine’s first page and ideally in the top three positions.
Readers have all kinds of questions, many of which lead to buying intent. So that allows us further categorize a blogging website as being focused on selling the reader’s products or supplying information. What is more common is a blogging site that does both simultaneously.
This post will focus on blogging websites as they offer great investment opportunities.
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A great website offers superior returns compared to most other regular forms of investment I can think of. A great website can be purchased for three to four times income pretty dame good when compared to a stock investment where between six and the sky’s the limit, depending on stock growth expectations.
Let’s take a fast look at the options and how they might have faired over the past five years. The numbers below are as of Nov 22.
Stocks – Let’s assume you didn’t buy Facebook or Alphabet at its IPO; let’s assume you invested in a basket of stocks and therefore achieved about average returns.
The twenty-year return on S&P is 9.5% and less when inflation-adjusted at about 7%. When measured over the last ten years, the numbers look better, about 14% (inflation-adjusted), and over the past five years, 15% (inflation-adjusted).
As S&P averages go, recent years have been good, but these improved rates of return still don’t compare to a website investment.
Bonds – Average returns over the last ten years are about 6.5%, but you can knock some points off that for inflation. Returns are low but largely guaranteed.
Gold – The shiny metal is seen as a hedge against both stock prices and inflation; over the last ten years having your money in gold bullion priced in U.S. dollars would have returned about .5%, a negative number when inflation adjusted.
Property – Buying a basket of property would return about 5.5 % annually on average.
Website – A return of between 25% and 30% annually, assuming you didn’t invest further capital in expanding your business to increase revenue.
These website numbers are conservative, based on a website earning a flow of income from two forms of passive income – affiliate and advertising income. But there are much bigger website returns to be had, and we’ll touch on them below.
How does a website earn an income? A great question, after all, is how can we as investors gauge what an investment is worth if we can’t make a fair estimate of how much the business can earn over a given period and, equally importantly – how consistent that flow of income will be?
Let’s cover the main ways a blogging website makes money. A blogging website typically makes money broadly under two categories, passive income (minimal input – money while you sleep 24/7/365) and non-passive income (requires capital and a team to manage).
The distinction is important; a blogging website allows the flexibility to be whatever the website owner wants. What am I talking about?
All blogging sites have the potential to be either passive or non-passive; pretty cool when you understand what that means for your time and your income. Let’s take a fast look at what that might look like.
For an investor already busy with a day job but wants to earn a solid return on the side, a passive blogging website is the way to go. When I say you can earn money while you sleep 24/7/365, I mean no BS.
That’s precisely how many of my websites roll and have done so solidly for years. Yep, there were a few blips along the way, and I’ll cover that a little later in the risks of website ownership. And so, exactly how does a passive website make money?
The following are the two main ways to earn passive green, but there are many more; I’ll only cover these as they are the easiest to implement and most rewarding.
Advertising – Readers coming to your blog in search of perfectly crafted answers to their questions are worth money and quite a bit. Not all readers are worth the same; however, as you can imagine, a blog in the finance niche will be worth a ton more than, say, a foodie blog.
That said, as AI becomes smarter at profiling groups of folks, I’ll expect advertising will get better at targeting the folks they want, meaning I’ll expect advertising rates to increase further.
Affiliate income – Affiliate is, as yours, what the reader could benefit from having. If the reader buys the product or any product within a certain time frame, the blogger earns a commission. Amazon is the biggest player and, not surprisingly, one of the better converters. That said, there are a ton of other great affiliate programs out there that offer big rates.
Non-Passive means you will be working for your money, and as you’ll be dealing in volume, you’ll need a slick customer service team ready to handle issues; volume guarantees there’ll b issues.
Let’s look at the main non-passive ways of earning income. They are:
E-mail list – Collecting readers’ e-mail addresses by agreement and sending out monthly newsletters with affiliate products is a common strategy that can bring in significant income, especially in some product-heavy niches like electronics.
Subscription – So, what am I talking about? Let’s imagine for a moment you bought a blog site in the photography niche. It’s got several hundred posts answering readers’ questions about cameras, shutter speed, F-stop, etc., and you are doing OK; you have the advertising cheque and your affiliate income rolling in every month.
But you think, maybe I’m leaving money on the table. All these folks are asking photography questions; what if I offered a subscription model where visitors to my website could pay a monthly fee to access a video-recorded beginner’s guide to photography and maybe a more advanced video guide? What about a photo editing guide, etc.?
It is a hands-on operation; you’ll need a whole team to produce the videos and manage the ongoing operation.
Products – Design and build your products and or services. A real product or service or a digital product or, better, a digital service (known as SAAS). A digital product or service is the promised land -after initial design costs, software costs nothing to manufacture, no inventory to finance or warehouse no shipping cost…. beware the investor that daydreams:)
Operating a Website
One of the greatest characteristics of a website is its passive nature. A blog-style website requires minimal investment to produce and maintain its income. Exactly what every investor wants but is so hard to find.
So what does it take to operate a website, and how much are the expenses? What does it cost in ongoing investment dollars and time to maintain?
Annual Website expenses
Website ongoing costs are minuscule when compared to the potential income. Here’s the typical cost of a basic blogger site.
|Cost Type||Cost Annually $|
|Domain Name Hosting||35|
|Website File Hosting||300|
If an investor decides to run their site passively, they need not make any further investment into the content. Content will diminish over time, but generally, content can generate income for years and years without any further investment.
If an owner decides to invest in content, you can expect great content to cost anywhere from $100 to $150 dollars per post. On average, a post will take ten months to produce an initial return and then return its cost within twelve months. That same post will go on to produce an income for many years, provided the subject matter is relatively evergreen.
Where to Buy a Website?
There aren’t a ton of options when it comes to buying websites. Great websites don’t come up for sale because, well, why would an owner swap a great investment for an average one, right?
That said, folks do sell websites for other reasons, and that presents them with a problem. There aren’t a lot of choices when trying to market a website.
That’s the same for potential buyers; there isn’t a huge range of options for buying. While a few new brokers are popping up as we speak, here are the main ways to buy a website.
Buying direct from the website owner is, I believe, a great way to buy a website. It comes with a ton of advantages over buying from a broker. There are challenges, and we’ll look at some tips to overcome them.
Buying direct isn’t the best option for a first-time website owner. I’d advise buying from a broker first before attempting to buy privately.
So when looking to buy direct, how do you even find a website to buy? Running a Google search in the niche you are interested in is a viable way. Beginning your search this way is like adding a qualifying filter early in the buying process – meaning if you find it on page one of Google, then the website is doing something right.
The next step is approaching the owner; ask them straight if they’d consider selling their website. I’m not saying this is for everybody, and you’ll need to get your pitch right to even get a response. I’ll give you some tips below on this one.
Talking to the owner directly without a middleman makes for much better communication and the opportunity to build some trust with the seller. If you feel
Top soliciting tip – It is crucial to build confidence at this stage. As a website owner, I get a ton of soliciting; I don’t reply to 99.9% of them. The ones I do reply to and thank for their interest come with some sort of qualifying proof that they are a serious player.
Serious buyers won’t have an issue offering a refundable deposit in exchange for a view of website metrics. In addition, if you already own a business or a website, let them know.
Buy from Empire Flippers
Empire Flippers are the best broker in the business, and with few other competitors in the industry, they charge accordingly. Not too bad if you are a buyer, as the buyer isn’t charged, but not so good if you are employing EF as your seller; they charge a whoping15%, which is a huge number.
To be fair, EF does a lot of due diligence; they will request the seller’s Google Analytics (GA) to gain access to confirm traffic numbers. They will also require proof of income and proof of running costs etc.
I believe they do a pretty good job on the due diligence. And although expensive for the seller, it’s likely where I’d send a friend to buy their first website.
Buy from Flippa
I’m technically wrong to say buy from Flippa because Flippa is not a broker; they market themselves as a marketplace. Flippa authenticates the seller, makes sure they are a real person, and they provide the platform to auction the website.
Flippa provides the platform, and after that, you are on your own. Due diligence is down to you, the buyer.
That said, Flippa offers due diligence on your potential purchase as an add-on service. They offer three different pricing models, and to my mind, if you are not familiar with website metrics, it likely makes good sense to have a professional take a look at your chosen investment before committing.
Flippa is great for sellers and buyers, but I wouldn’t send a friend to buy their first website from Flippa. The reason is simple, I look at a ton of web data and have built over a dozen websites from the ground up I know what a normal website growth path looks like.
I see a fair amount of what I’d call mine salting on Flippa. There’s real gold on Flippa too, but you’ve got to know what real gold looks like, and that only comes with a little experience.
Buy from Motion Invest
Motion Invest is a new player on the scene, and I don’t have any experience or know too much about them. Their websites seem reasonably priced, but as with Flippa, I wouldn’t send a friend to Motion Invest to buy their first website.
You’ll need to gain some experience before entering these arenas.
How to Buy a Website?
While I agreed to buy a website last year, sadly, the buyer failed to complete it (He made the smart choice). So, full disclosure, I haven’t bought a website. I am, however, familiar with the process.
It broadly works like this:
Register – When buying from a website broker, they will require you to sign up to their platform so they can confirm your identity.
Metrics– While the websites for sale on the broker’s platform offer broad details, they don’t openly give website names or detailed metrics such as URL traffic, not even to registered users.
Verified – When a buyer finds a site they like the look of, they’ll need to become verified to unlock the metrics. To become verified, a buyer must show they have the funds available and ready to go.
Verification will allow the buyers to open websites within their available fund’s price range, but it’s not unlimited. After X unlocks, the buyer must show additional funds to unlock further websites. This helps reduce the likelihood of fake buyers registering to steal valuable URL data.
Deal – Assuming the buyer finds something they like, it’s offer time. The buyer may make a lower offer than the asking price. Some buyers may accept part cash now and the balance only after certain performance metrics are met. If not met, the pre-agreed tier two balance is paid, and so on.
Deposit – Deal done; it’s deposit time. 10% is normal.
Migration – The broker handles migration (handover) as part of the service. You will need a name and web host account set up to receive your website name and keep the site live (it can be the same host).
If your new website receives advertising revenue, you’ll also need a Google ad manager account (simple application). If your new website receives Amazon or any other affiliate income, you’ll need those accounts open before the changeover occurs.
Your money is deposited in an Escrow account, and the broker will arrange the transfer of money and all website login details, passwords, etc.
That’s it; it is pretty straightforward.
Risks of Website Ownership
All investments come with risks; that’s the nature of investments. As investors, it’s our job to buy assets with the maximum upside potential but minimal downside; easier said than done.
Websites are no different; there are ups and downs in the life of a website. Websites rely on one thing to earn an income from visitors, and Google is a great giver of visitors.
Fall out of favor with the kingmaker, and you’ll find web income and its corresponding value diminish instantly. While there are other search engines worldwide, most folks don’t know about them, so we, as bloggers, can’t survive without the kingmaker.
Google has four major algo shake-ups every year, which can have a devastating effect on some websites, and there is little the website owner can do. However, this does present a buying opportunity for the savvy investor.
Perfectly good sites often get hurt in the melee but often recover after a few months of their own accord. Of course, the first-time web builder doesn’t know this and often dumbs the site at a knockdown price, fearing further destruction. After algo updates, some site values are on sale at 50% off.. but don’t tell everyone.
A website makes a super investment when compared to all other investments. A good website can produce solid returns for several years with minimal further investment. Typically a website can return initial investment within three to four years.
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