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ROI of Website Ownership – Part 1 – Online vs. Offline Biz
By Max | April 4, 2007
For me, the nice thing about running an online business is that I can keep it humming along from any place with internet access. I am not confined to a specific time or geography. If you like to travel or stay home with the kids, this can be the most rewarding benefit to running an online business. However, there is another benefit to website ownership.
Many nice websites can be purchased for about a year’s worth of profits. Thats a 100% ROI. Try finding that in the stock market. While its like comparing apples to oranges, you should compare this to purchasing a typical small business in the brick and mortar world. A nice offline business will cost you 2-3 times profits to purchase. That’s a liberal estimate. Many sell for higher multiples. So right away your ROI is reduced to about 30%. Couple this with the fact that everyone I know who runs a small business works hard at it. Even when the business supposedly runs itself, there are still a lot of duties of the owner. Compare this to the online world, where I could easily manage to run 10 large websites as a full time job.
So why would this be the case? It seems that with all the benefits of owning a website, people should pay more than for an offline business. I don’t exactly know the answer, but I have some theories.
1. Most websites do not have much earnings history. You need to be very careful when you purchase a website that you are getting something that looks sustainable. I am constantly seeing sites for sale with anywhere from a few days to a couple months of earnings history. One reason is that google adsense, the program that started a whole wave of internet publishing is still very young in the grand scheme of things.
2. The internet moves at hyperspeed. This increases risk. Sites come and go. Search engines increase and decrease rankings. Everything just moves faster. If your site is getting a lot of search engine traffic, you really can’t count on it still being there in a year without some work. Comparing this to the offline world… If your business is located on a busy street, the chances of that street becoming less busy in less than a year are almost zero.
3. There are a lot of trash sites out there. It can sometimes be difficult to separate the trash from the sites with genuine staying power and this could factor into the price of all sites. Sites that hang around on the auction block for too long typically have something wrong with them. Be careful.
Overall, the ROI for owning websites looks very good. Netting 100% in a year with just a bit of work should be your goal. I think it is attainable, and to me its certainly more attractive than the stock market.
Topics: Article | 2 Comments »
April 11th, 2007 at 9:49 am
[...] A few days ago, I discussed how a website can be a great investment earning a 50% or more return for you. There is another way to earn even larger returns. You can buy and sell websites in the same way that people flip real estate. Buy a site thats not earning to its potential, fix it up and then sell it for huge profit. The value in this strategy is a combination of how much you initially pay and how much you can increase the earnings. [...]
August 18th, 2008 at 3:18 am
I don’t understand this unless the site requires major work to run it. You just created a site that you can sell for a year’s profits – you know it’s legit – so why sell it if you can just sit back and earn 100% on your money every year? When I buy a site about 90% of the work is in fixing it so it earns a decent return on the traffic.
If you need the money to flip another site, you can borrow it much cheaper than 100%/year.