Why Website Owners Sell Passive Income Websites

September 12, 2014  |   How to Buy & Sell Websites   |     |   Comments Off on Why Website Owners Sell Passive Income Websites

If a website for sale is producing income passively, why does the website’s owner want to sell it? Why doesn’t he just hold it and enjoy free cash-flow forever?

These are common questions that many website buyers ask website sellers who have listed their websites for sale as producing passive income. Let me explain this idea of passive income in website investing. Passive income, of course, implies that an asset produces income while the owner is not physically present. Websites that sell information, products, or services 24 hours a day and 7 days a week through automated systems produce passive income.

But the concept of passive income can be misleading as I explained in a previous article. Yes, the website owner is not actively working 24/7 to serve every website visitor. Yes, he’s making money while he sleeps. But he must set up and maintain the operational systems that produce this passive income. A website owner must do some active work to produce passive income.

The passive income system needs to be constantly maintained and improved upon in order for the website to stay competitive in its niche. Otherwise, its competitors will steal customers away from the website and its passive income will decline.

Therefore, no successful website is truly 100% passive.

New content must be added to a website regularly. If not, it loses its ranking with search engines, traffic decreases, and revenues decline too.

Paid and unpaid marketing campaigns must be tweaked regularly in order to stay competitive. For example, Google AdWords campaigns will not produce the exact same results forever. Competitors will improve their ads and increase their budgets regularly which will lead to fewer ad impressions and clicks for the passive website owner.

Website owners look to sell because they no longer want to make future updates to the website. They want to cash out.

$100,000 per year is different from $100,000 cash

An even bigger reason why website owners of passive income websites sell is that they want a large lump-sum of cash.

Let’s say a website owner receives $100,000 per year from his website. Let’s assume that he earns this as $8,300 per month from his website business.

He uses this monthly income to pay his bills and income taxes which could be as high as 50% in some jurisdictions. At the end of the year, if his expenses are not too high and he’s financially responsible, he may have saved about 10% of his income. So at the end of each year, he’s left with $10,000.

Notice that even though he earned $100,000 during the year, he didn’t see or “feel” $100,000. He only really saw and felt $10,000 in cash. He earned monthly income that flowed in and flowed out in smaller amounts of cash.

This website owner may look to sell because he wants to see and feel $100,000 (or more) cash in his hands, or at least in his bank account. When he sells an asset that he’s owned for over a year, and the funds go into his business account, he will pay a smaller capital gains tax than an income tax, and he can even re-invest the pre-tax cash in other projects.

Receiving a big cash lump-sum is another major reason why people sell passive income websites.

Life’s Expenses – Retirement, Housing, Education, etc.

There is life outside of running a successful website business. This life costs money.

Most website owners and website sellers are relatively young people under 60 years old. So retirement is rarely ever a reason why website owners choose to sell their websites.

However, website owners do begin to think about slowly building a nest egg in preparation for retirement. In some cases, they may be setting up a trust fund for their children’s future education or saving money to purchase a house.

Life happens. This is also why website owners need to cash out of their passive income websites today instead of holding on to them forever.

Website owners get bored

Lastly, website owners often simply get burned out. They become bored and need change from the routine of running their websites.

Each of us needs new challenges regularly in order to feel like we are growing and improving. The same applies to website owners. They want to hand over control of their website to someone else, cash out, and try new things with their cash.

This actually happens to be the most common reason why most website owners sell their websites.

Author: 

Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.

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