If traffic is the life blood of your Web site, then revenue is the nourishment to sustain it. The total revenue available from purchasing a Web site needs to be broken down in order to determine how much is actually being made. This break-down also provides a visual of where changes can be made to strengthen the revenue. If you are serious about Virtual Real Estate, the following considerations are a must. Remember, profit is made during the purchase, not the sale!
Check the claims being made by the seller
It’s a sad truth that sometimes sellers inflate the worth of their product to both makes it more appealing to the buyer and entices the buyer with visions of grandeur. Forming a contract between buyer and seller is one way to make sure that the claims made by the seller are truthful. If a seller has to sign something stating that particular statements are true, the seller will be less inclined to exaggerate.
Time estimate for investment return
Knowing how long it will take to recover your initial investment before the site is purchased is hard to determine. If an approximate timeframe is able to be figured, then this is better than simply sitting and waiting it out. A good starting point would be to take the total purchase price and divide it by the monthly Net Profit, or Gross Profit less expenses, for an estimated breakeven analysis.
Yearly projected earnings for the Web site
Trying to calculate the yearly projected earnings depends on the growth of the revenue – weather it’s declining, growing quickly, or maintaining a steady rate. The best way to estimate this would be to ask the seller for evidence of at least the past three months of revenue and then multiply it by a factor of four for the year.
Note: Do not forget to ask the seller about, and factor in, any seasonal variances – especially for Web sites related to holidays, vacations, and the like.
Earnings that are consistent
A consistent revenue stream is desired by many Web site owners. A sudden surge from time to time is also good, but no one wants to see their revenue suddenly plummet. Knowing how long the site has been making the amount of money coming in at the current moment will be helpful in figuring out the consistency of earnings. A mistake commonly made when buying a site is to purchase it when it is suddenly doing well. This will often provide false hope and will be a huge disappointment if revenue declines.
Note: It’s also wise to ask the Web site owner why the site is being sold. Some owners get too many Web sites going and need to be free of a few, for their own sanity. Others are merely trying to make money.
Gross revenue vs. net revenue
Many sellers will provide a gross revenue, drastically inflated, to make the site look like it is doing extraordinarily well. The gross revenue can look impressive, but the amount that is spent on advertising or site operation can bring the net way down. For example, gross could be 15,000 but the advertising and operating costs might be up to 12,000. Subtracting these two provides a net revenue of only 3,000 dollars. Going into a purchase with the thought of earning a fist full of dollars on a regular basis from the Web site isn’t always a good idea. Check the net revenue for a more accurate total.
Room for creativity
Bringing in additional help might be feasible, but it depends on the budget. Determining what can actually be done to bring in more revenue in a creative manner is always something to think about. Maybe more of the income can be put towards additional advertising. Another possibility might be to actually hire the current seller to help keep the site up and running, but to still make money at the same time.
Are there any areas with untapped revenue?
There might be ways to integrate links into a blog or monetize the traffic generated by a newsletter. Sometimes there are loads of free content that can actually be sold for a profit. There are often plenty of areas with untapped revenue waiting to be developed without spending more money on advertising.
Note: For more on this, refer to my previous article “Cash in the Virtual Attic”.
In summary, evaluate your own expectations and needs from this business. People have high expectations and end up going broke or in debt to purchase the Web site of their dreams. It’s not good to spend everything with hopes of living off the site and borrowing money to get the monthly payment made for the site doesn’t make it worth while either.
Did you this article and when it caught your lens? If you it, then read the preceding articles in this series at :
Virtual Real Estate Bootcamp – Bootcamp
Virtual Real Estate Bootcamp – Part 1: The Seller
Virtual Real Estate Bootcamp – Part 2: Domain
Virtual Real Estate Bootcamp – Part 3: Content
Virtual Real Estate Bootcamp – Part 4: Traffic