Saturday, 6 October 2012

Why Websites are the Best Investment in Today's Market

If you have a lump sum and you want to invest for growth, then how this is done has suddenly become a big problem in today's market. With interest rates falling globally, and stock markets suffering almost daily jitters, is there anywhere you can invest your money to get a decent rate of return?

Let's say you have $10 000 to invest. Even if you found a very generous interest rate of 5%, and you invested your money in a savings account. After a year you would have $10 500 only. In fact, because of taxes you would have less than that and inflation would also diminish the value of your earnings and your capital. Of course, your initial lump sum is safe — but your earnings are pitiful.

What about the stock market? If you are good at your research then you might make a 30% return on your investment, if you are good. But if you invest in stocks yourself, you are just as likely to make a loss. It might be safer to put your money in a fund that will manage the buying and selling for you. But, still, it's a long-term investment and the stocks purchased by a fund may not increase that much. But say, on average, you make 20% then you would have $12 000 at the end of the year. Of course, you would have to pay taxes and brokerage fees, so you would have less than this. Also your capital and earnings are tied-up in stocks which you would have to liquidate to access your earnings.

Need an Investment, Think Websites

Websites? I hear you ask. Well, let's take a look at how you would invest in a website and what earnings you could make. I will take you through a site that I invested in last year. It was a small blog earning about $40 per month from adsense. It cost me $450 and I paid another $150 to get some new articles (30 new articles). Almost all the on-page SEO, was done by myself, though I outsourced link-building for $100. Let's say that total SEO costs were $300.

I also added Amazon ads on the site. I made a total investment of $900 in this website, increased its traffic and its earnings to $60 per month. The site is making me $720 a year. Hold, on, you're thinking to yourself, isn't that a loss? Actually, no, I still have the website itself as my initial investment. Even being conservative and saying that the website is worth 10 months' income, that's $600, so my total for the website is $1320. I paid $900 in all, so that's $420 profit — 47% increase on my initial stake. I've tried to be very conservative here. I kept adding content and by the end of the first year the website actually made $90 per month. I kept it for two years and sold it on in the third year. During the first year it earned me $2050 in income. Because the site had matured and I could show steady and increasing income for over a year I sold it for the value of 18 months' average income, so when I sold the site on I got $1600 for it. So, in two years the site earned me $3670. Based on the initial spend of $900 and $5 per month hosting costs, that's a total profit of $2650, or over 100% per year! 

Not all websites are like this, of course. Small site and blogs have lots of potential, but you need to know what you're doing. If you're a beginner, then you are more likely to go for a bigger site with a larger and more stable earnings potential. I have a couple of established sites that I have grown for years and I once bought a similar site just to see what I could do with it. The site cost me $20 750 and its stated earnings were an average of $2500 per month for the previous year. I outsourced a blend of lightweight on-page SEO and offsite SEO costing $200 per month. So my total investment over a year was $20 750 + $2400 = $23 150. Even if earnings drop a little to $2000 per month, my income is still $24 000. If the price of the website remains stable, my earnings are $24 000 - £2 400 = $21 600 (the SEO costs being the overhead). This is a 93% profit compared to my total outlay! Even if the site tanked and income dropped to $1000 per month, over 1 year, factoring in the decrease in the site's overall worth I would break even and after two years I would make a profit.

But it's not just monthly income that affects a website's overall worth. Websites are like fine wine, the older they are, the more they are worth. This is for three main reasons. Older websites are more trusted by the search engines, older websites tend to have more backlinks and more quality backlinks and older websites can also show consistent earnings over a long period of time. All these factor drive the selling price of the website up. Expect to pay between 12 and 18 times the average monthly income for a mature website.

The Pitfalls

Large profits can be made from websites. But you do need to know what you are doing. Websites can tank, because websites are dependent on search traffic driven by the major search engines. If there is something wrong with the website or it's contravening Google's terms of service in a way you have not seen will earn you a ban on Google. Get banned and you have no traffic and no income.

There are black sheep amongst sellers. One of the classic tricks is to have a small site with only few visitors. The owner then drives lots of traffic to the site for 2 months and there is a spike in income. The webmaster then tries to sell the site, but only shows income data for 1 or 2 months. If you buy a site like this, the traffic dries up to nothing, there is no income and you are stuck with a lemon.

Buying a website is like buying a property. You need to nose around the site, look at the code and see what the webmaster was doing. Look at the backlinks coming to the site and look at Google and Alexa rankings. See what the average income was for at least 6 months and make sure that this was steady and that there are no strange spikes. I actually think a site with traffic that's falling slightly towards sale time is much better than one with a huge spike just before it's sold.


Like all investments, websites are not the best opportunity for everyone. You definitely need some knowledge in the field and you need to know what to pick and what to avoid. Of course, content and SEO can be outsourced, so improving the site once you've bought it is not such a big problem.

Typically I move the sites I buy to hosting that I know is reliable and does not have traffic caps. I always do this kind of thing myself (but, of course you can outsource this kind of work — but it will cost you money). 

To get you going, here are a couple of resources: The site is one of the best known marketplaces that sells web properties and you get the whole range of sites here. The Digital Point Forum is also a good place to find web properties. You do get fewer stats and information about sites (but the prices are lower). eBay and Sedo also sell sites, but these tend to be good sites with lots of traffic that sell for high ticket prices.

Of course, you always need to do your due diligence and most websites are a long-term investment. However, it is possible to buy a site cheap on Digital Point, perform intensive improvements and SEO on it for 1 month, then sell it more expensively on Flippa. This is called 'website flipping'.

If you know what you are doing, then there is real money to be made in website investments.

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