Never Buy a Website to Maintain Its Cash-flow…. Grow Cash-flow

August 18, 2014  |   How to Buy & Sell Websites   |     |   Comments Off on Never Buy a Website to Maintain Its Cash-flow…. Grow Cash-flow

A website’s passive income is never really entirely “passive.” Dividends from stocks and interest income from bonds are passive. Once you invest in these assets, you do nothing else but collect any cash-flow that they earn for you. On the other hand, websites must be updated with new content or advertising campaigns must be constantly improved in order to maintain, and more importantly, grow passive income.

Of course, website cash-flow is passive in the sense that the website owner can make money while he sleeps. As a website owner, you’re not pushing a giant boulder up a steep hill everyday in return for cash at the top of the hill. I’d definitely call that “active income.” You give buckets of sweat in exchange for that money. In website businesses, you’re doing some form of direct or indirect work to, at the very least, maintain the income levels. Either you do this work yourself or you hire and manage employees or contractors to do it for you.

Some website buyers believe that website cash-flow is like dividends from a stock portfolio that should produce steady, predictable passive income. So they try to, and expect to, maintain the same levels of cash-flow that the previous website owner attained. This is a huge mistake. NEVER buy a website with the objective that you’ll try to maintain its cash-flow. Never. Your objective must be to do better than the previous owner.

Other people manage the underlying businesses in your stock portfolio for you. You don’t have to do anything but stay abreast of the public statements made by the managers of the business. You manage and control your website business. This is why your website’s returns are much higher than your stock portfolio’s returns. You build real financial wealth by managing your own business.

A website is a living organism interacting with the world 24/7. What doesn’t grow, dies. Your website must grow. It needs food to stay alive and grow. Its food is your focus and attention.

There are billions of websites online. Your website has tons of competitors. These competitors don’t stay the same. They evolve, improve, and grow. Some competitors disappear and are replaced by others.

Your website must grow as well. Otherwise, it will fall in ranking, lose traffic, and wither away. If you buy a website and don’t have the time or expertise to manage and grow it yourself, hire someone else who does.

When you buy a website, you primarily buy its cash-flow

When you buy a website, you commit to actively manage the website and generate more cash-flow from the website than the previous owner. This must be your mindset.

The most important asset you acquire when you buy a website is the website’s cash-flow. It doesn’t matter how many backlinks, indexed pages, subscribers, etc. the website has. If these assets don’t produce cash-flow, the website is not worth very much money.

So many website buyers study a website’s annual profits and ROI and expect their future returns to be exactly the same as these historical numbers. Even assets such as rental income in real estate do not produce the same ROI every single year. The asset owner must do some work and make some changes to improve the annual cash-flow. The same applies to websites.

The term “passive income” in websites can be confusing to some website buyers.

Many buyers look to buy a website, sit back, do nothing, and receive exactly the same levels of cash-flow as the previous owner did. If the website seller sat back and did nothing, he’d never have attained the cash-flow levels he did in the first place. He actively managed the website in order to get to levels of passive income that he is selling to the buyer.

If the website buyer is lucky, he could do absolutely nothing and maintain the same cash-flow levels for a while. If the website’s niche is not very competitive, this could last for maybe a few months or even a year. But the marketplace is changing everyday. Things will change. Competitors that are actively managing their websites everyday will do better than the website buyer and his new website’s rankings, traffic, and cash-flow will suffer. It’s inevitable.

Again, as a website buyer, your objective is to do better than the previous website owner.

1. Learn everything the previous website owner did to grow the website

One of the most important aspects of buying a website is the training period. This is a certain period of time agreed to by the buyer and seller in which the seller will train the buyer on how to effectively manage the website.

The exact time-frame depends on the complexity of the website’s operations or the buyer’s experience in running that specific type of website. The more complex it is, the more time is needed to train the new owner. A training period can be up to 90 days or more. Some sellers receive a consulting fee to provide ongoing training or advisory services to the buyer after the initial free training period has ended.

For a buyer to be able to improve a website, he must start by understanding everything that the previous owner did. Only after the buyer completely understands this, has successfully executed the same tasks, and produced similar results, can he look to improve upon these results.

There is one very powerful way to improve a website’s results which is often overlooked by website buyers. This is improving the Conversion Rate.

2. Improve the Conversion Rates

A website’s conversion rate refers to the rate at which visitors are converted to any measurable result defined by the website owner. It is stated as a percentage. For example, it could be the percentage of visitors that are converted to email subscribers. Or the percentage of visitors that are converted to customers who purchase a product on the website.

So if 2 visitors out of 100 website visitors purchase a product, the conversion rate is 2%.

Every website can be improved upon. Improving the conversion rate is powerful because it doesn’t require the new owner to bring in additional traffic. It involves getting more results out of the traffic that the website already receives.

Getting more out of what you already have is the cheapest way to improve a website’s performance. As such, it can often deliver a very high return on investment. In many cases, it doesn’t involve spending any money at all. It only involves some knowledge and creativity.

Of course, in order to improve conversion rates, as a new website owner, you have to know what the current conversion rates are for the website operations. You must measure these first. Then, you can test new methods to improve them.

Some common methods to increase conversion rates include:

a) Add a sticky header or notification bar to your website

A sticky header or notification bar adds a horizontal bar of text to the top of all your website’s pages. You can add a highly-visible call-to-action to the top of the website.

Internet users visit websites to acquire information or purchase a product. They are notorious for spending very little time on a new website. They visit a new website, scan the web page, and decide in seconds whether to keep browsing or exit the website. If they can’t quickly find the answer to their question, they exit. If they don’t notice your product or call-to-action, they exit.

Human eyeballs scan pages from top to bottom and left to right. A prominent message across the top of the web page means visitors will never miss your call-to-action. This can increase your conversion rate.

b) Offer a freebie to email subscribers

Sometimes you need to create and nurture an ongoing email relationship with potential customers before they decide to buy your product. You need them to give their email addresses to you on the website. But, unconsciously, a visitor wants something valuable in return for providing his email address to a stranger. Giving a visitor a freebie is a proven way to collect email addresses.

A freebie could be anything as long as it’s something that the visitor finds useful. It could be an e-book or a free trial of your product. The right freebies will depend on the type of product or service you offer on the website. Offer a freebie that the specific type of visitors that visit the website will find valuable.

c) Move sales copy above the fold

This is similar to using a header or notification bar but these two have limited space for a full-blown sales pitch. You may need space to describe your product and its benefits. You don’t want the text to be hidden away where no-one can see it.

If your product requires a lengthy explanation, research has proven that people prefer videos over reading a lot of text. Use a short video of less than 2 mins long to describe the product and its benefits. Videos can be made using simple software tools available for free online. Again, make sure that the video is clearly visible above the fold of the web page.

3. Test conversions using ad campaigns

You have to send visitors to the updated web page to test the changes and calculate the new conversion rates. Cheap ad campaigns are the best way to test conversions. This is because people who visit websites through ads tend to decide faster and spend less time on a website than visitors who come to a website through unpaid organic traffic.

Unpaid traffic is great because you don’t pay for it. But for the purpose of measuring conversion rates, you get quicker results from paid traffic than unpaid traffic. You can use an ad to direct visitors to a specific web page and study their actions on that page.

It’s just a test so you don’t need a big ad budget. A small temporary daily budget is sufficient to test how a small sample of traffic behaves when they visit your newly-optimized web page.

Services such as Google AdWords have features that automatically measure conversion rates. You simply add their code to the web page that users visit after they are converted. AdWords will then be able to tell you the keywords the visitors searched for, how much you paid per click, how many of these visitors were converted, and calculate your conversion rate. You’ll also see other stats like cost-per-conversion and much more.

4. Keep tweaking

Keep tweaking to constantly improve your conversion rates over time with one over-arching goal in mind: to improve the website’s cash-flow.

When you buy a website, you buy cash-flow. But this cash-flow must be nurtured and improved upon. This is the responsibility that you accept when you buy a website. It’s called passive income but an active manager is needed to generate passive income.

Never buy a website to maintain its cash-flow. Grow your new website’s cash-flow constantly.


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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