Why Buying a Website Can be a Good Investment
One of the best ways to take charge of your finances is to earn more, and one of the best ways to earn more is by investing in assets that’ll keep appreciating with time.
It’s common to invest in property, stocks and other common form of investments but another highly profitable form of investment that most people overlook is websites; the internet is seeing widespread growth all over the world and businesses of all sizes are benefiting. Have you considered growing your income by buying websites as a form of investment?
Websites, like other businesses, are investments that can be bought for the purpose of generating income for the investor. Have you looked around the web and seen people talk about buying and selling websites? If you have, than you might have just discovered a piece of booming business.
Of course, website businesses have been around for ages – 1995 is a long time ago – but the practice of buying websites has only just caught pace in the last 4 years or so. More and more people are discovering that websites can be good investments, so why should you be left out?
Should You Buy a Website?
Let’s start with a bit of some pessimism here: investing in a web business isn’t for the faint of heart. But that still goes for other businesses, don’t you think? Anyway, the point I’m making here is that if you’re not familiar with the workings of the World Wide Web, then it may not be a brilliant idea to invest in a web business. Just like if you weren’t into the food business, you’d probably not buy a restaurant.
But there’s hope, and in abundance – getting up to speed with how websites are operated, and even more importantly, MONETIZED, is no rocket science. You can go from zero to guru in just a few days or up to several weeks. That means we should now move on to focus on the reasons why buying a website can turn out to be a great investment.
A look at Investment ROIs
The main reason you might want to invest in an online business is the better ROI. Isn’t that what most business buyers always look at first? Let’s briefly compare the average returns for different investment channels:
- Real estate – 3-6%
- Stocks – 10%
- Small and medium businesses – 33%
- Cash – 4%
We expect these rates to vary widely, all depending on the market and your specialized knowledge in those channels.
For real estate, you’ll recoup your money in 20 to 30 years, though the investment still looks much safer. For small or medium businesses, you’d be lucky to get 50% ROI, as that would mean you bought the business for a 2 times multiple of its revenue. Stocks and other investments of the kind can be profitable only if you understand what you’re doing and if the market forces play well in your favor.
Return on Investment for Websites
It’s not uncommon to hear about a website selling for only a 1x multiple of its yearly earnings. Many website owners even let their babies go for a 6 months multiple of the monthly earnings. That’s because web business may take much less effort to turn profitable, or simply because they are deemed riskier business. Either way, it means that you can buy a website for much less than its equivalent (in terms of profit) brick and mortar business.
If you are buying a website at a 1x multiple, say $24,000 for a site that makes on average $2,000 a month, then at the end of just one year, you’ll have recovered all your money. Even if you bought it for $48,000, you’d still get your investment back in 2 years, which represents a 50% ROI. Bigger website properties may be sold for a 3x multiple, and the ROI would then be 33%.
What to Look for in a Website
As we’ve seen, websites are generally riskier businesses than traditional establishments – or so some want to believe. Personally, I’d like to think that the risk varies with the kind of web business you’re buying into. If the website has a strong revenue model with solid earnings over time, then the risk is very little.
Look at these other points that lower the risk:
- A positive growth trend
- Multiple income streams
- Defensible traffic (multiple traffic sources)
- A recognizable brand
- A unique selling proposition
- Automated processes/systems in place
- Few or no legal liabilities
If you find a website that ticks all of the above boxes, then you’ve found a worthy investment. The whole process of acquiring a website is obviously a whole different story – you must tread carefully and involve experts if you can to avoid being scammed.
At the end of it all, the beauty of buying a website is the amazing growth potential involved. That’s especially so if you are targeting a global audience in whatever niche you’re in. With the right strategies, your web business can scale to unimaginable levels and bring in returns you would never have dreamed of.
Joseph writes for www.valuator.com.au– they can help you value your new web investment before buying.
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Category: Business
