The Website Investor

The biggest reason to invest in websites is the fantastic financial returns.

Even with all these fabulous perks to enjoy, the biggest reason I love investing in websites is the fantastic financial returns. Websites can deliver double-digit returns on investment every single month. You’ll see a case study at the end of this chapter about a healthcare website. My initial investment was only $10,000, yet I gain $600 to $700 back from that website every month. That is a 70-80% annual return on my money. It is very difficult to find that kind of return in any other kind of investment strategy. Is it risky? Of course there are risks, but that’s a different chapter.

So how much can you make with websites? Clearly, like everything else, the more you spend, the more you can make. But also, like other kinds of business investments, if you are willing to put a little bit of effort in along with your money, you can make a little more. And, if you are willing to put in a lot of effort, you can make a lot of money.

“Anyone who is not investing now is missing a tremendous opportunity.”

—Carlos Slim

Is Website Investing Truly Passive?

As I said, one reason I love website investments is because there is the potential to have a passive income stream. There are some kinds of websites, like the healthcare website I mentioned, that are content websites. You put good information on the pages, and people visit to read the information. You make money when the visitors click on ads or when the advertisers pay you.

Other websites require more activity on your part. For example, eCommerce websites require you to buy products and ship them when customers order from you. So there is a wide range of effort when it comes to the level of passivity involved in owning a website. There is also a broad spectrum of people who are interested in this exciting kind of investment. Some don’t want to spend any time at all working on their websites; others are willing to invest a little time in order to increase earnings. Still others, sensing the potential for huge returns, are willing to expend a great deal of effort to have a shot at substantial profits.

Traditional Businesses vs. Websites

Websites have greater returns than traditional businesses because they have lower overhead costs. With no buildings to buy, no fixtures or equipment to install, and no trucks to lease, the startup costs are minimal. Likewise, the ongoing costs are minimal. Because many of the products are digital or service-oriented, there is limited cost invested in goods sold.

“The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack in will.”

—Vince Lombardi

Businesses have traditionally had physical and intangible assets. Websites have a third category of assets: digital assets. They are tangible because you can actually see them. You can go to a website and download the eBook or look at the pictures and read the articles. However, they are not physical, and they do not have the same level of cost as physical assets. As a result, once a digital asset is created, it can be sold at near 100% profit on an ongoing basis. So the nature of website business assets makes it possible for websites to have a much higher return on assets and return on your investment than traditional businesses.

While this characteristic of website businesses allows for much greater rewards, it also leaves the door open for greater risk. Digital assets do not have their value in physical material or function. They cannot always be repurposed like a building, land, or a vehicle. So their value is dictated by what customers are willing pay—regardless of how much it cost to create the asset to begin with.

The life cycle of a website tends to be shorter than that of a physical-asset-based business.

As a result, the value of a website can grow very quickly—and go away just as quickly. Does this mean that website investing is inherently risky? Not necessarily. It is certainly no more risky to buy a website than to buy a traditional business, or to buy stock for that matter. However, the life cycle of a website tends to be shorter than that of a physical-asset-based business.

Case Study: Healthy Business

Some would call my wish list for the perfect website purchase a pipe dream. I wanted a low-effort or “no-effort” site. It needed to be low risk and have better than average longevity. I was looking for something that was not dependent on whimsical changes made by Google. Preferably, it would have a payback period of twelve to fifteen months. It would also provide a useful service or quality product for its customers.

A health information website caught my eye. It was fifteen years old and still operated by the woman who had created it. She had worked as a patient educator her whole career and was ready to retire. The website was a labor of love for her. The articles on the site were a product of extensive interviews with nurses and physicians, as well as a repository of her experiences in healthcare. The owner wrote all the content herself, and she worked hard to ensure a non-academic, user friendly style that was both easy to read and thorough.

The owner was also something of a SEO (Search Engine Optimization) expert and had tweaked her titles, text, and interlinking structure to maximize keyword ranking in the search engines. Her attention to those details paid off as traffic during the month of the website auction was over 170,000 unique visitors. She had not participated in any of the “black-hat,” ill-conceived schemes for fooling search engines to send traffic to the site. Specifically, she had never purchased backlinks. As a result, each time Google tightened the standards by changing the website ranking algorithms, the site’s rankings had improved.

“Always bear in mind that your own resolution to succeed is more important than any one thing.”

—Abraham Lincoln

The risk in this investment was the lack of earnings. There was a good reason for that. She hadn’t put any energy into making a profit from the website. It was a hobby for her, and although it did earn a little bit of money, her main income was from her job.

Website buyers should be suspicious of situations like this one where the seller claims that they haven’t attempted to monetize their website. The suspicion is justified because the majority of sellers who say that are lying. They have actually tried and failed. Buyers are worried that they will fail, too, so they limit the amount they are willing to bid.

However, the more I researched the site, using the methods I outline in this book, the more I liked the website. From everything I could see, she really hadn’t attempted to milk earnings out of the site. I grew to believe that there was untapped revenue potential. The seller answered my scores of questions patiently and thoroughly. She gave me access to login and view the site’s Google Analytics statistics. She shared tons of advice about what to do and what not to do to make the website grow and protect it from future threats. As the auction progressed, we developed a good working relationship, and both of us were happy when I had the winning bid.

One of my good friends had been itching to get in on the website investing game. He had been listening to my stories about website buys for months. When this one came along, I asked if he wanted in, and he was on board immediately.

How has this buy stacked up against my perfect-website-purchase wish list?

Goal: Low effort or no effort	Result: Low effort
Mandatory, ongoing maintenance is next to nothing, giving this purchase an excellent rating. There have been a few problems and improvement projects that generated work. Website outages prompted us to move the site to a different server. We worked to clean up a lot of “not found” links that pointed to non-existent pages. We changed the theme of the website to look better on mobile devices. We experimented with different ad placements and types. We have added a bit of new content.
Goal: Low risk	Result: Some risk
There was a risk to the Adsense account when Google said they didn’t like their ads placed on pages they considered “mature.” These were pages like the one titled “Sex After Back Surgery.” We removed all of them as soon as we were warned. Despite having high quality standards for SEO, we still lost some traffic in a Google algorithm change. There is an ongoing risk from new competition from other health sites.
Goal: Long life	Result: Going strong
The website has maintained a healthy level of traffic. It has not lost value as an asset, meaning it could be sold for at least what we paid for it.
Goal: Google resistant	Result: Sensitive to Google
It has not proven to be completely immune to Google changes. It continues to receive a majority of its traffic from Google, and the traffic levels change when Google changes its algorithms.
Goal: Short payback period	Result: Acceptable
The payback period worked out to be fifteen months. Although this was higher than my target of ten months, the website is still earning a generous 6.5% monthly ROI, calculated as monthly net profit / website purchase rice. Because the website looks like it will have a long life and delivers consistent monthly cash flow, I am happy with the financial performance.
Goal: High-quality service	Result: Excellent
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