Talking Website Brokerage – Interview with Justin Gilchrist [PODCAST]

by Nick · 13 comments

in Selling Websites

Talking Website Brokerage - Interview with Justin Gilchrist [PODCAST]

In the latest segment of my on-going podcast series, Talking with Industry Experts, I had the chance to catch up with Justin Gilchrist, Co-Founder of Centurica and author of Digitally Wed, a complete toolkit including everything you need to buy a profitable web business.

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As a special bonus to SEO Nick subscribers, Justin has generously offered to give away 3 copies of Digitally Wed’s 2nd-tier package which includes:

digtally-wed-coverDigitally Wed Paperback Book – Over 160 pages of guidance and advice on finding, researching and acquiring a profitable internet business.

PDF, ePub and Mobile Formats – Import the book directly to your iPad, tablet, mobile phone, Kindle, Nook or any other e-Reading device.

Website Buyer’s Report – Average prices and valuations by category from over 500 transactions in the previous year.

Extended Buyer Checklists and Profiles – Customized profiles and checklists providing specific guidance, checks and questions for seven different types of internet business.

Tools and Resources – A full list of tools and resources to assist you with everything from revenue verification through to seller due diligence.

Sample Legal Documents – A sample Purchase Agreement and Letter of Intent you can use in the event of not purchasing through a broker or agent.

Winning is easy; leave a comment on this post with your most pressing website brokerage question(s). Justin will be personally answering them, and the people with the 3 best comments win. It’s that simple.

Listen to Justin and I discuss how to identify profitable internet businesses, the most common pitfalls of buyers and sellers, proper due diligence, and valuation tips for different kinds of links and websites.

Table of Contents

Can’t Listen? Read Below

Nick: Hello, and welcome to the latest edition of the SEO Nick podcast.

Today, we’re going to be talking buying/selling websites with one of the founding partners at Centurica, Justin Gilchrist. How you doing today, Justin?

Justin: I’m really good. Thank you. Thank you for having me on.

Nick: Absolutely my pleasure.

I’ve been seeing your name pop up all over the place. I know you guys just put a book out, covering the entire process that you guys go through. I think there’s a lot of really detailed case studies in there on just all the experience that you guys have had in sort of the transaction advisory space and the due diligence process for a lot of the advisory and acquisition work that you guys are doing.

Would you mind telling us a little bit about the book?

Justin: Yeah. Absolutely.

The whole idea with the book was if you’re a buyer, and you’re sort of still quite new to the idea of buying websites or buying internet businesses, or even if you’re a buyer that’s kind of has some experience, and you’re just looking for kind of a guide just to get your best practices straight, the idea with the book is it takes you from start to finish through the entire process and just gives you all the best practice that we’ve picked up on doing deals for ourselves and analyzing deals for, I think, near to like 400 or 500 different clients now to date.

It’s really a kind of best practice guide, but it’s told in a way that’s, I hope, entertaining and just kind of makes the subjects a little bit easier to digest and easy to learn.

Nick: Tell me a little bit more about some of the data that’s in there.

If I buy the book to get started, just to get my head wrapped around sort of the steps and process I should be taking when I’m out there, evaluating potential websites or web businesses to buy, what’s the book going to give me directly, I guess, that I might not be able to find elsewhere on the internet?

Justin: Sure.

I mean, the whole idea with the book is it is taking you through the process, start to finish. One of the key things that I sort of try to stress in the book is you’ve got to know why you’re doing this, first of all, right?

You get some people who are buying a site because they are, maybe they’re tired with their day job. Maybe they just want a change. Maybe they just want to not have to turn up into the office every day, and they just want something that is theirs. They want something that is a profitable business, but something that would have the flexibility that an online business has.

For those kind of guys, we sort of talk through the strategy you need, and we give you advice on the type of sites you should be buying in order to help you sort of fulfill that goal.

Then on the other side, we have some people who are buying internet businesses as a way to supplement their existing business. You’re a huge SEO guy, I’m sure you’ll know that traffic is getting more and more expensive to purchase. One good trick is just to buy a site that already has good organic rankings, but maybe isn’t making that much money because the owner hasn’t figured out what to do with those visitors or hasn’t figured out the most effective thing to do with those visitors and use that site as part of your traffic acquisition strategy.

The whole idea, and what we try and teach in the book, is working out, first of all, what you want out of this and then showing you what the best route to get that is, whether that be buying something to complement what you already have or buying something which will be a business in itself to get you to your end goal.

Nick: That sounds really useful. Talking a little bit more about that actually segues really nicely into my first question, which is

In your opinion, how would you say the website acquisition landscape has changed in the past five years?

Justin: This is one of those subjects that every time I go to a conference, we end up arguing about.

I mean, it’s been crazy.

It was like the wild wild west sort of five, six years ago.

The problem is you had a lot of sites on the upper end. When I talk about the upper end, I’m generally referring to the kind of middle market for what we do, which is sites typically between 50,000 and two million. The lower end is anything kind of below 50,000, and the upper end is anything above two million.

In terms of the sort of lower and the middle market, what you had was a situation where this concept sort of, I wouldn’t say it became mainstream, but a lot of people became aware of the fact that they could buy an established website or an established Internet business, and you kind of had this fake boom that happened.

Now, consequently, you just had crazy valuations and crazy prices. You had people unfortunately buying brand new sites with little value to them, for ridiculous amounts of money. While at the same time, you had people who had established businesses with sort of great traffic profiles, they had a lot of good repeat customers, and they were selling these businesses for crazy prices and crazy valuations, simply because they just didn’t know better.

A lot of that is now stabilized, to some extent. What we’re seeing is valuations of online businesses slowly creeping up. Now your, kind of, your average, I’d say, e-commerce or content site that your going to pick up for between 50K and two million, you’re usually talking a valuation of around two to three times annual net profit, but that is increasing.

It’s increasing steadily, year on year. At this stage, we don’t really know if this is a bubble, or we don’t know if it’s going to stop at any point but right now, it looks healthy. I think that’s going to continue for probably the next two to three years, at least.

Nick: Interesting.

In your experience, e-commerce site valuation tends to come as a multiplier on the profits, not the actual operating revenues?

Justin: Always on the profits.

I mean, you could look at it as a valuation on the revenues.

Ultimately, it’s the price, but we always work the price back to a multiple of net profit.

Nick: Interesting.

Justin: It’s more important with e-commerce where, obviously with e-commerce, it’s . . . I’ll give you an example, if you’re using paid traffic, anyone can grab an e-commerce store and end up selling a $10 product for $9 and make a hell of a lot of revenue doing that, and they can spend $15 to acquire that visitor and make even more revenue doing that, but then the business is completely worthless, right?

They’re making a lot of revenue because they’re selling the product not the margin.

That’s why with e-commerce, it’s really important that it’s about profit rather than revenue, because you need to factor in how good is this site’s campaigns or how good is their paid customer acquisition or, more so, how good is the business as a whole? Is the owner buying products at the right price? Are they acquiring customers at the right price and are they ultimately selling them to make a decent profit?

Yeah, it’s always about profit.

Nick: That’s very, very interesting.

We went out and got some offers for my e-commerce company. We had an offer actually back in March from a much, much bigger safety company. I think, I’m very happy to now report that the offer that they presented to us was based on a multiplier of our top line, not the bottom line.

Justin: That’s incredible.

Nick: So, I might try to make sure that this information doesn’t get out to the general public.

Justin: Can I get super geeky for a second and just go back a little bit in time?

Nick: Absolutely.

Justin: I mean, I’m talking about the wild west days, so going back 2006, 2007.

You had a lot of, and I say websites as opposed to businesses, but you had a lot of websites being sold at multiples of revenue, simply because sites back then typically didn’t have much to them, there were really few working parts.

If you imagine, the average website being sold was usually something that was being sold on a forum. It was maybe an AdSense site. Your only expense really was like a few dollars a year on domain renewals and then maybe a few extra dollars on hosting.

Nick: Yeah.

Justin: It was nowhere near as sophisticated as now.

You’re not talking about the owner having to, we’re not accommodating for the expense of creating content, for example, or we’re not talking about paid acquisition. Pretty much, your revenue was usually around the same as your profit, and that’s where the idea originally of valuing websites on revenue came from.

I think what we have nowadays, we’ve got these really complicated beasts of websites, where you’ve got paid acquisition. You’ve got web apps that you subscribe to.

You’ve got customer support cost. You’ve got outsourced fulfillment, distribution. I think now, you sound like you’ve got an incredible deal and if you could send that buyer my way.

I’ve got a lot of sites I want to sell them. Yeah, I think you’d be very lucky to find someone that will pay you on top line, simply because you don’t know what’s going on below that, right?

I mean, it could be for them an acquisition, so they might just be interested in your customer base. To them, how you run the business is inconsequential because they ultimately just want the . . . You guys have built up a really strong brand online.

I think they probably want that. They want access to your customers, which is more of an asset purchase than the business purchase, whereas they need to know what your bottom line is.

Nick: Yeah.

Our scenario definitely was a little bit of a unicorn scenario because it was really, besides the customer list sort of bolting onto theirs, it was also they were very interested in a technology that we built up.

Our entire technology infrastructure is completely homegrown. Yeah, so that’s interesting to know. I just need to make sure they don’t find out about that bottom line multiplier thing.

Justin: So we just make sure this podcast never gets out.

Nick: Yeah. Yeah, we just won’t publish.

Justin: I’ll blackmail you.

Nick: So this actually dovetails perfectly into the next question;

What are some of the most common mistakes that you see sellers making, as they’re bringing their sites to market to try to get them acquired?

Justin: Sure. I mean, I think two of the most common mistakes, the first one is trusting the only broker they spoke to.

I always tell people to shop around, I mean, we’re friends with a lot of brokers and we work with a lot of brokers in Centurica. We know more than anything else that there are good brokers, and there are bad brokers.

If you’re selling a website typically under 20,000, then your only option really is a marketplace. You’re going to go somewhere where you can list it online, and you do the whole process yourself.

If you’re selling above 20,000, then you’ve probably got the option of working with a broker who will help you find a buyer, and they’ll help you kind of navigate the entire sales process relatively safely.

There are bad brokers, as well as there are good brokers.

What I advise people to do, more than anything else, is avoid the mistake of not doing their research and possibly signing up with a broker who promises them that they’ve got a buyer for their site and tells them that they just sign this 999 year exclusivity contract, that they’ll have their site sold by the morning, then this buyer strangely disappears once they’ve got them locked in.

It’s a common trick, and it’s not a very nice one, but people can always avoid that by shopping around and just seeing what all the other guys have to say or if they ever want, they can always send us an email at Centurica, and we’ll give them sort of a bit of impartial advice based on what their site is and how much they’re looking to achieve.

I think probably the other huge mistake is maybe just selling at the wrong time. A lot of sellers could probably get a much better valuation by just doing a little bit of housekeeping, a little bit of tidying up before they list the site.

A lot of these things are sort of basic things that might take them a week, as an end-to-end project. We’re talking about adding on, in some cases, maybe an extra five figures onto the final price that they get.

Nick: Wow. No kidding.

Talk us through a little bit of sort of your due diligence process or the due diligence process at Centurica.

Again, if you can, just sort of, for the ease of people listening, highlight what the common pitfalls are of people on the other end of the table.

If I’m a buyer, and I’m going through the due diligence process, are there sort of specific elements that you guys pay a lot of extra attention to?

Justin: Yeah. I mean, we’ve got the things that are always first, like the most common fails.

I always say to people, “Due diligence follows the Pareto Principle.”

There are a handful of things that you can look at, that if you had no time or no experience, and you only could learn a few things, I could show you these things to learn that would pick up 80% of the problems that you find on websites that you’re buying.

A really big one is people tend not to look at converting traffic and also where traffic is coming from.

If you take an AdSense site, for example, actually, that’s a bad example.

If you take an e-commerce site, for example, you’re going to have different streams of traffic coming in. You might have traffic from Google search, organic. You might have traffic from PPC, you might have traffic from social campaigns, organic social.

What you really need to know is which one of these traffic streams are responsible for conversions and what is the risk of one of those particular streams disappearing.

For example, organic search is usually something that converts quite well because if people are specifically searching for your product, then you know there’s a high likelihood that they’re going to want to buy.

What I advise people to do is look at the percentage of traffic that comes from organic search. Look at the percentage that converts, and then just realize that organic search traffic is really, really risky, especially if they’re buying a site, and they don’t know what the owner has been doing for the last two or three years. They could have been doing some grey hat stuff, as I’m sure you know more than anyone else.

It’s kind of like the wild west in SEO as well, where everybody has different strategies and tactics.

Some of these owners it’s not that they’re dishonest. It’s just that what was acceptable in 2007 is kind of not acceptable now. I remember it was perfectly fine to do like blog comment “spamming” or forum profile link building.

Nick: Yep.

Justin: You know? No one would even think that was a negative thing.

Now, if you’ve got loads of forum profile links, you’re going to run the risk that maybe in two, three years, your site could drop down in the rankings, maybe even in six months. No one knows what Google and their crazy algorithm updates are going to do.

I think looking at where the converting traffic comes from and assessing what is the likelihood of that traffic disappearing is probably a really important thing.

A lot of people turn their nose up at paid traffic and think, “I’d rather go for something with a lot of organic traffic because it’s free,” but I love paid traffic.

Paid traffic is scalable, it’s reliable and you know as long as you’re paying Google, you’ve always got that relationship. You know what they’re going to do, and they know what you’re going to do, and it’s healthy. Yeah, I’d say that looking at converting traffic is probably the most important.

Nick: I think that’s a fantastic point.

That also raises another sort of interesting scenario that I ran into just a couple months ago.

Me and my partner at IFTF were looking to buy an e-commerce business. It had great rankings, great organic traffic, good revenue. Then we started going through the back link profile, and it was very authoritative, they had a lot of really strong links coming in.

Then the more we dug into it, the more we started to realize patterns between some of the anchor text variation and ended up finding that 35 or so of the linking root domains that were sending the majority of the juice were a link network, a private link network that was probably owned or operated by the owners of the site or by somebody that they were paying to place those links.

We ended up backing out of the deal because the riskiest part there is we buy the site, and there’s no guarantee that those links remain in place. Especially if those are rented links or links that are temporary. They were placed by the builder of the site, so there’s definitely some nuances.

Justin: Can I ask you a question, Nick?

Nick: Sure. Absolutely.

Justin: I mean, from your point of view, this is one that we, it’s a bit of a dilemma.

If you see a site that’s got links coming from a link network, would you still buy that site if you knew the link network, if you knew it was an independent sort of third party link network? I mean, purely knowing that links are coming from a link network, would that instantly put you off as a sort of SEO professional?

Nick: No.

Justin: Or is that something that is . . . .

Nick: I would just need to have a conversation with the owner of the link network.

I mean, as long as I could talk to that person. If it was the same person, and I was like, “Hey. You are selling me a site that is obviously being propped up by links through your link network. Are those links going to remain in effect?

I’d like to get that added into the agreement for a minimum of a 12 month term or something like that, or let’s work out an annual renewal or a monthly rental rate.”

If they’re not, and they’re through somebody else, and it’s a third party link, just talking to them and say, “Hey. Were these links paid for permanently? Are these on a monthly rental?”

I would just have my head wrapped around what at least the potential scenarios are for those links to remain intact.

Justin: Yeah, good advice.

Nick:

What’s the number one thing that you look for when buying an internet business?

Justin: I mean, I look for something where I understand the business.

There’s so many businesses that people buy, and they would not be a customer of that business. As in, they understand it makes money because they see the bottom line, and they see the figures, but there’s just something in there they really don’t understand.

I think if you don’t understand why someone would buy from that company, if you wouldn’t potentially be a customer, or you at least can’t understand why someone would be a customer, then I really advise people against even buying it in the first place.

I think if you’re looking for a more sort of harder factual thing that I look for for me, I usually look for converting paid campaigns because that’s so rare.

I mean, a lot of people will have PPC to the site, but you’ll find that most sellers don’t actually know their true numbers. They might be running PPC, and because they’re getting an overall gross profit, they think that actually they’ve got a profitable paid campaign, but what they don’t realize is actually it’s a lot of organic that’s propping that up.

Nick: Yeah. Yeah.

Justin: Maybe they’re not tracking things properly.

Maybe they think the sales are coming from PPC, but actually they’re coming from other methods, or a common one is where people type in the name of the site because they’ve seen it elsewhere, and then click on the ads that come up for it. Then they purchase.

Those people are going to make a purchase anyway, but they’re like, “Hey. Look. Our paid campaign is working.” It’s not until you split it out and you see which keywords are converting you realize that the seller has got no idea where they’re spending their money.

I look for businesses where they do have a profitable paid campaign, and that paid campaign is scalable. It is something that can grow, because then I know I can increase my return on investment from day one, just by scaling that campaign and looking for new places to run it.

Nick: So when you are out, sort of, surveying the market for new businesses to acquire, can you give us any tips or any sort of, I don’t expect you to reveal any secrets, but where do you find sort of the gems that are for sale?

I mean, the one thing that I know we do when we do, we’ve been doing a lot of acquisitions for traffic like purely traffic. We just want to find sites that are old, aged, not updated, but they’ve got a base of organic traffic, whether it’s 10,000 visits a month, 50,000 visits a month, whatever.

We want to find something where all the organic is stable, and we want to go and approach the site that’s not for sale, try to acquire it, and get the site and all the content so we can absorb the traffic and the rankings.

That obviously is very tedious, and there’s also, our conversion rate is very low because we’re approaching a lot of people whose sites are not for sale and asking them to sell their sites. You know? There’s got to be a better way to be doing that.

Justin: I do a presentation on this.

I did a really interesting experiment, where I have a small call center here which I use for something else, but I actually took one person from that and tried to set this up as a system.

The whole idea is we were kind of going out and sending out emails, calls. I won’t use the spam word, but technically we were sending enough emails out in order to test the numbers.

Then when responses came back in, we tried different strategies. We tried different approaches with our outbound emails but also, when we got responses coming back in, we tried different approaches to sort of see what would work.

One of the most effective things I found was just getting on the phone with a potential seller because that usually separates the men from the boys, so to speak. You know who’s serious if they’re willing to get on the phone. The people who are just too phone-shy will never go through with a purchase, nine times out of 10.

Nick: Interesting.

Justin: But I was finding that you get a conversion rate, the best result we ever had was a less than 1% chance of getting a deal at fair price.

When I say fair price, I mean a price that you could probably just go to a broker and find something listed at because the minute we found something that was below value I can guarantee you when they think that there’s like some like, “Honey, I’ve got some British guy on the phone, and he’s told me that my website is worth some money,” the first thing they’re going to do is shop around.

As soon as they shop around, they’ll find someone willing to buy it for a lot more, whether that be a broker, or they’ll go onto a marketplace.

You always end up just losing those deals that are at the best prices. The ones at fair price are the ones that you end up buying, but the difference is you have to do a shit load of work. Sorry for saying the S word.

Nick: Don’t worry, man. I swear all the time. Thanks for the phone tip, that’s huge. That’s very valuable.

Justin: I think outside of sort of cold-calling and sort of cold-recruiting, I mean, we have something called market watch on Centurica.

The idea with that is we just aggregate listings from all of the brokers, clean them up a little bit, and just put them in one place. So you click through. You go directly through to the broker.

It’s similar to FlipFilter, but it’s just the more kind of grown up site, and then obviously FlipFilter for marketplace sites, which are usually younger, sort of, smaller opportunities.

Nick: I went to, those were all sort of the questions that I had put together.

Those were the ones that were pressing in my mind, but I went to Twitter just this morning and just asked my followers, “Hey. I’m hopping on with a very smart website broker. Does anybody have any questions?”

I actually got some really good questions, so I’m going to run through these if that’s okay.

Justin: Sure. Absolutely.

Nick: I got four of them, but they’re all pretty smart questions. Hopefully you’ll appreciate these.

Tom Roberts asked, “Other than Quantcast, Alexa, and SEMRush, is there any other software I should be using to look at potential traffic volumes and sources?”

Justin: I would say no, and I would also say to take a lot of concern and caution looking at, I’m assuming he’s doing this for prospecting as in, he hasn’t already spoke to the owner, and he hasn’t got access to analytics.

The difficulty with things like SEMRush is it can be useful, but as I’m sure you probably know, it’s often inaccurate. It causes you to miss a lot of the bigger opportunities, and it causes you to think a lot of smaller opportunities are bigger than they should be.

The same for Quantcast or Alexa.

I mean, you’ve got Compete, which is trying to be more accurate than any of those, but still fails when you’ve got sites that are on like HTTPS or sites that have a sort of login. It’s a really tricky one.

I wish I had a better answer than that, but I just think it’s really difficult to accurately get a sort of idea of what traffic sites are receiving without speaking to the owner first.

Nick: How do you feel about SimilarWeb? That’s what I’ve been using recently. Somebody on Twitter actually helped me out with it because I was just trying to get a dial-in.

What I did is I used a handful of my own sites that I have Google Analytics data on and SimilarWeb was the only one that I found that would estimate traffic, at least most of the time, within a 10% swing.

Justin: I mean, I’ve looked at SimilarWeb in the past, but I’ve had the opposite. I

‘ve had about 90% of things I looked at were radically out, and about 10% were quite accurate. I think sites in certain IP ranges and sites in certain kinds of industries, where they follow a conventional pattern, especially sites that rely on content, they work well with things like SimilarWeb.

I think SimilarWeb is definitely one of the better tools, but it really does depend on the site that you’re looking at.

What I tend to do, I’m assuming that the gentleman who asked the question is looking at this from a prospecting point of view.

I tend to use tools like WhoIsHostingThis and BuiltWith, who collate a lot of information about the site itself, about the technology that’s being used.

For example, I will try and find e-commerce sites because I know e-commerce sites are pretty easy ones to negotiate on because there’s usually very little moving parts, other than net profit. You’ve usually not got anything by the way of IP.

You know that they’re not doing anything particularly complex. It’s going to be built on a common platform.

With e-commerce site owners, what I’ll usually do is I’ll send them an email.

I’ll say to them, “Hey. I buy e-commerce sites in the flowers niche, for example. We pay a multiple between two and three times, depending on your business. If you’re interested, let me know.” It’s just so straightforward.

You just get the best response rates from that.

Nick: Thank you for that.

The next question comes from the very tall Rob Toledo.

He asks, “I hear valuations thrown around between as little as 12 months, up to 36 months of revenue. What’s your take on it?”

Justin: It depends on which bracket you’re looking in.

That sort of separation I made earlier on, you could probably go a little bit further down, and you could say it’s kind of the sub 20K and the above 20K. He’s generally around the mark, but I would say valuations go far higher than 36 months, I’m assuming he means months.

On the sort of lower end, you’re talking about something that’s not very established, something that’s maybe less than a year old, something where you’ve got a lot more risk and a lot less predictability. Then it’s not uncommon to have a valuation around 12 to 15 months.

People give sites, like Flippa, a really hard time.

They sort of claim that a lot of sites on there are probably not the quality they’d want to buy, which to some extent I agree, but I think that one good thing that Flippa does is it usually has fair valuations.

You notice that most of the sites on Flippa are valued at around kind of 10 to 15 months. In some respects, that’s what they’re worth.

They’re not the kind of developed opportunity that you’re typically buying from a broker but then from a broker, you’re typically paying between maybe two years and three years. I think in the website buyers report that we published, the outreach was about 2.8 or 2.7 times net.

Nick: Interesting. Then John Doherty actually responded to that question and asked about

How is goodwill taken into consideration?

Justin: Goodwill in terms of like a customer base or a customer list, for example?

Nick: I believe so. Yes.

Justin: Again, it’s a difficult one.

This is why valuations in this industry, there’s very little formality. Outside of this industry, when you’re talking about offline businesses, we’ve got far more sophisticated ways of coming to a valuation.

We can use things like discounted cash flows, we can understand what the risk is, and we’ve got a lot of comparables to base data on. With the web, the reason why I call it the wild wild west sometimes is because this is still relatively new.

When it comes to valuing goodwill, some people have a kind of pluck-it-out-the-air figure. They’ll pay 10 cents per email address. Personally, I don’t think that’s a very good idea. I think starting with the multiples method is your best bet.

You look at, if you get the Website Buyers Report, you’ve got your different categories in business and it will show you what your average sort of transaction valuations went for.

I’d start with that as a guide, and then look at what the assets are and what the positive points of that business are to kind of adjust your valuation up or down.

Just know that no matter how scientific you think you’re being, there’s never going to be a really rigorously scientific way of doing this with a web business because there’s just a lot of variables that don’t make sense in the conventional way.

Nick: Got it.

Martin Harris asks, “What about buying up non-trade market brand domains and approaching the brand for sale?”

Justin: Personally, it’s not a strategy I like.

About five or six years ago, keyword domains were really important.

Google valued exact match domains but now, if you’re buying sort of Bestonlineflowers.com, and you’re trying to sell it to Interflora or another flower company, my guess is they probably would have had their strategy by way of domains down. Otherwise, that domain is not going to be that important to them.

I think now, Google has put more of an importance on the brands.

Having these sort of alternate domains or having these sub-domains is just not as important as it used to be, but I’m not a domain or an SEO expert so I think maybe other people would have a different opinion on that.

Nick: Yeah, I’ve actually had some experience with the, on the negative side of that, where we had some information about some airlines at my holdings company.

We picked up a handful of domains that were the names of two airlines, we smelled the merger coming so we bought these domains, which included both of the airlines’ trademarks in them.

Then as the merger is being finalized, it hasn’t even been announced yet.

We got a very “nasty-gram” in the mail that was like, “Hey. You need to forfeit these domains to us immediately, or we’re going to sue you for a trademark offense.” We weren’t even using them. We had just registered them.

Justin: In the UK, we are scared of the US legal system because I’ve spoke to people.

I was in Vegas a few weeks ago, and I’m talking to people who have got sued for taking out the trash the wrong way. I think you guys have got a crazy, crazy legal system over there that instills me with dread and fear.

I’m very, very nervous when it comes to doing anything like that. I don’t know if they can sue me here in the UK, they probably can, but I just play it extremely safe, which is why a lot of my advice will be the most kind of risk-obverse advice you’ll get.

But yeah, I see the dilemma.

Nick: I got one final question for you.

It comes from a fellow UK buddy of mine over there;

James Agate from Skyrocket SEO asks, “Do you think including undeveloped premium domains in the sale of a website helps or just complicates?”

Justin: No, I think it massively helps because you’ve got to remember the average person buying your website is buying it with fresh eyes.

All that kind of passion and enthusiasm that you had when you first started the project, everyone inevitably loses a little bit of, especially if they’re selling the business or the site.

That new buyer has all of that passion, and they’re looking at your site, and they’re looking for opportunities.

They’re looking for potential. I think sometimes if you’ve got premium domains in that, what you’re signaling to them is that there is just far much more potential than you’ve currently realized.

I think that’s always a positive, especially when I’ve spoken to buyers, and they’ve kind of mentioned the things they like about a purchase.

One of those is being, “Oh, by the way, it’s got all these domains,” because they’re thinking, “Worst case scenario, at least I’ve got something I can sell here.”

Absolutely I think including premium domains may increase the value in some cases, significantly more than you would get for selling those domains separately, but you probably just have to test it and see.

Nick: That makes a ton of sense.

I never thought of it that way. I’m sure he’ll be very happy to hear that.

Well, that’s all the questions I got for you, Justin. I really can’t thank you enough.

This has been tremendously helpful.

I think my readers and listeners, more so the prior than the latter, because I’ve only done like three podcasts but I think people are really going to enjoy this and get a lot out of it. Thank you again. I will talk to you soon.

Justin: I appreciate it. It’s been good speaking to you. Bye.

Don’t Forget…

Leave a comment below for your chance to be selected to win one of 3 free copies of Justin’s new book Digitally Wed, including the hard copy, digital copy, a plethora of historical site data, and sample legal documents for buying and selling websites.

About Nick
Nick is the Co-Founder of an ecommerce consultancy company and the author of this SEO Blog.

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  • Loved this interview. I’ve already got your book though – maybe you can donate a site to me instead 🙂

    I’ve been looking at ecommerce sites listed in various places and I’m close to making a purchase. Do you have any advice specific to ecommerce that could be useful?

    • Hey Jaquelin –

      Thank you for listening. I’m sure Justin would have no issues giving you a site 🙂

      I’d also be curious to see what Justin has to say, but personally I would need to know a bit more about the scenario:

      • What kinds of products are you selling?
      • Are you holding inventory or drop-shipping?
      • If holding inventory how many turns does it get annually?
      • What is the relationship with the vendors and their average lead time?
      • What’s the P&L, Net operating income, and COGS?

      Then to get really nerdy for a minute, what platform is it built on? Are there opportunities for search and automation?

      I think this all needs to factor into the multiplier you’re willing to pay, but again – I’d like to get Justin’s thoughts 🙂

  • Hi Jaquelin,

    Thanks. I’m sure I’ve got a ‘made by Geocities’ job on the HD somewhere 🙂

    As Nick says, if you’re looking at a specific site then we’ll probably need more information, but overall I’d say

    1) Stay away from Dropship like your life depended on it! There are exceptions and if you know what they look like, then feel free to ignore this point, but overall Dropship sites have the lowest margins, lowest barriers to entry and highest competition. The odds are somewhat stacked against you before you’ve even started.

    2) Look for ecommerce sites that have an existing and profitable paid campaign. You ideally want something you can scale, because finding original content for ecommerce sites can be tough and paid traffic means relying less on organic search marketing.

    3) Do your research on the suppliers to that business. It’s not uncommon to find scam ecommerce sites where the seller is buying products from their own company at a drastically low price. These prices inevitably go up when you take the business over.

    Sorry for keeping it general, but I hope this helps.

    Justin

  • Jack Lors

    A question for either Justin or Nick. What advice do you give for valuing a site that no longer earns income because the owner has removed adverts.

    Would you value it based on its previous income?

    • Hi Jack,

      Domains with no income remain a fairly contentious point but there’s two separate issue here.

      Firstly, I would assign a crude value based on the value of the traffic. If you head over to monetizationlab.net, you’ll be able to see typical RPUs (revenue per user) for various business models and niches. For example, if you have a content site in the health and beauty niche, typical RPUS range from $0.03 to $0.24. To work out what you could typically earn, assuming the site’s traffic is genuine you would simply multiply that range by the number of monthly visits. So 1,000 visitors in this niche would gross approximately $30 – $240 per month on average. From here, it’s easier to figure out what the site is worth to you, factoring in some discount taking your uncertainty into account.

      The other issue, from a due diligence point of view, would be why the owner has removed adverts (…the real reason – not always the one they give 🙂 ).
      If the site has been banned from something like Adsense, it’s usually an indication that the seller hasn’t always been above board, and bad traffic and link profiles usually follow closely behind. It could be an innocent decision, but be careful when doing your DD.

      I hope this helps.

  • Joe

    Excellent interview, thanks for sharing guys.

    I like the idea of understanding the business you’re buying first. That’s a very wise concept, something that Warren Buffet lives by. If you don’t know the business, it will take a lot more research time and convincing yourself to love it. You also won’t notice the red flags as much.

    From what I’ve read, if you buy deleted or dropped domains, and the Whois record changes, Google will take this into account to some degree. Can you speak on this in relation to buying a websites, does it apply if the Whois records are changing or is that unrelated?

    When you redirect the old site to the new, do you try to put up some transition pages to let the visitors know the old site is migrating?

    I hope I win the book, looks fascinating!

    • Hey Joe – thanks for listening.

      As someone who buy’s dropped and expired domains all the time, I’ve personally never had an issue with new sites that I put up on these domains, or even in the instances where I scrape and resurrect the old site content (if it wasn’t trademarked/copyrighted of course).

      When I’ve done redirects from one site to another, I almost always keep all the old site’s content, and even to the greatest extent possible, try to match the slugs so the transition is as easy and straight-forward as possible.

      This is what I did with my traffic by osmosis experiment, so I don’t think there is really a need to manage the expectations for the domain change for the visitors as the content at the destination is all the same. But I can absolutely see a scenario where it makes sense to sniff for traffic coming through the re-direct, and add a alert or hello-bar type of element to let them know the site is under new ownership or has simply moved.

      Thanks for stopping by and even more for jumping into the discussion.

      Cheers,
      Nick

    • Thanks Joe.

      My strategy has been one that’s fueled by ignorance in that I’m not sure what Google is capable of, so I’m super cautious in-case.

      I always set domains to privacy the minute the escrow period starts (prior to the domain transfer) and try to keep the domains with the same registrar where possible. I’ll also leave the servers and hence nameservers alone for as long as possible, which usually means inheriting the seller’s hosting account.

  • Building and selling websites is still a profitable venture, but it’s much harder work than it used to be. thanks for all the great insights on this interview, I found plenty of value in it that I can start applying ASAP!

  • Thanks Vicki.

    It certainly has become more difficult but that’s always a good thing. The opportunists looking for a quick buck are now gone which means more listings for those who are left and serious!

  • Interesting and informative interview. Thanks for the brilliant share.

  • Interesting article I enjoyed reading it so much. Thanks for sharing.

  • Lee

    Great interview – thanks for sharing you knowledge!

    Justin: What advice would you give to someone just getting started with a limited amount of capital – say $5000? What kind(s) of site would you focus on?

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