A couple years ago I decided that purchasing an income producing website might be a lucrative investment. After doing some reading, I liked a few things about the proposition.
- margins are great, hosting costs are really cheap
- hours are flexible
- geography is flexible
- possible to start small
- employees aren't necessary

I bought two websites in 2007 with decent traffic. ipodwizard.net in March and counter-strike-dl.com in July. Both sites were purchased from auction listings on sitepoint.com. Both earned the majority of their income from the google adsense program, had decent traffic (combined 8000-10000 uniques per day), and a decent percentage of traffic coming from search. The two sites fit relatively well onto a server that cost $220/mon. That was my only real expense.

The results:
ipodwizard.net -
owned March 2007-August 2008
paid $27500
earned $29800 during that time
sold $15100
ROI = 63% (too lazy to compute annualized)

counter-strike-dl.com-
owned July 2007- August 2008
paid $10000
earned $9600+
sold $8000
ROI = 76%

ROIs are slightly lower because I didn't include the hosting in the earnings above, but assume $110/mon for each or $220 for both.

Why did the sites sell for less than I paid?
The earnings from both sites peaked during Aug-Sept last year. Since then, my traffic has been holding up, but ad revenues are way down. In the case of the counterstrike site, my best month was $1800 or so and my worst was $500. My theory is that the broader economy is doing worse, and ad budgets have been cut. I think its worse than that though. Perhaps google and the other ad networks decided to reduce my share or got better at detecting accidental clicks, etc...

Why am I selling at all?
If these were such a good investment last year, why aren't they still? Well for one, I was getting nervous about the continuing revenue declines. Its entirely possible internet advertising has been in a bubble the last couple years with a lot of new companies experimenting with the adwords program from google. Perhaps earnings won't fully recover with a better economic outlook. Also the two sites I owned I felt had a "shelf life". In 5 years no one will be carrying an ipod. Even the simplest phones can play mp3s even now. Why carry two devices? Further, the ipod site's popularity hinged on a hacking program that was becoming largely irrelevant. The newer ipods don't work with it. I felt the time was right to get out before earnings declined further. I was earning about $1100/mon with the site at the time I sold. The counter-strike site's popularity was based on skin downloads for one of the games. I was worried a new version of counter strike would supplant the popularity of the existing one, and I am not savvy enough with graphics or the game to create new skins. I am also leaving the country for a couple months, so I wasn't going to be able to respond to problems should they arrive with the sites.

When I get back from my vacation, I plan to pursue some more of these website purchases. If this comes across as a brag post I apologize as that is not my intent. I just thought it would be of interest to the forum. I'll try to answer any questions as best I can.

What is your approach to valuing these sites?

These things usually go for about 12 - 18 months of profits depending on a number of factors.

I paid about 16-18 months profits for each of these sites based on their previous owners' earnings. In both cases I had very good reasons for thinking I would be able to immediately increase the revenues by optimizing ads, which I did. I took the ipod site from $1500 to about $2600 a month and I took the counterstrike site from $600-700 to about $1800. Fortunately I was able to earn at those increased rates for a while before the economy turned. If ad pay rates had remained stable over the last year I would have made a lot more.

Things that can increase or decrease a site's value:
-the history of earnings
-the longevity of the content (a site based on a recent movie might sell for 3-4 months earnings)
-the passivity of the income
-sites will sell for more if it is obvious that the seller isn't maximizing profits given his traffic
-the sources of traffic (google searches are generally regarded highly)

Thank you very much for this. It is motivational.

However one thing you did not take into account was your own time. Many small business owners do this when valuing their business. You have to consider how much you would have to pay somebody to do what you did, deduct that (and server costs) from your profit, to find out what your true ROI is.

can you expand?

Very good job!

How did you monetize it? Just optimizing adsense ads placements or did you use some affiliate programs aswell on some of the sites?

I'm very interested to learn more about valuing sites as well.

As far as optimizing ads - this is something I have experience with. The three main ways to o this are:

1. Change the position of the ad on the page
2. Change the size of the ad itself (120x600 skyscraper vs 300x250 box, etc)
3. The ad network itself (adsense, adbrite, other big networks

Professional sites run multivariate testing to run every possible combination of a page to see which is the most effective. Omniture's Test & Target (formerly offermatica) is an example of one of these big tools.

Even from simple A/B split testing, I've seen sites jump from .4% CTR to 1%+ CTR

(CTR = click-through-rate, which is # of clicks / # of impressions)

Great thread, thanks for sharing!

For the counterstrike site, after I spent 10-20 hours getting it transferred and optimized the advertising, I never touched the site. It truly was passive after that initial setup.

The ipod site required more time. It was primarily a message board and the users expected me to participate. Some months I didn't spend any time, but some months I had to put in a few hours.

I tried to pick sites that would require little work.

For both sites I basically just increased the size of the ad units being used. I added a network to the ipod site which brought 400 or so a month. The counterstrike site was only running adsense and I knew from previous experience if I added display ads (like banners) I could double the income.

My ideal site to buy is one that has just small adsense ads on it. You know you'll be able to double or triple the ad income on a site like that. Of course so do the people you're bidding against, so you'll pay a higher multiple, but not as high as if it was completely whored out.

I usually run a combination of google adsense and Tribalfusion display ads. affiliate programs can work very well if marketted right. I don't have much experience with this. I did get some working on another site, but not on these two. The main problem with affiliates and these sites is the demographic. You need the user to actually pay for something before earning with CPA. The ipod site and the counter strike user bases were comprised mainly of kids 16-22. They don't have a lot of money to order stuff off the internet. I just didn't find the right program I guess.

How do you verify earnings? What are the reasons that owners sold to you? Finally, how knowledgeable are the people you are bidding against? Say for a 10k site, is it mostly sharks who know the market and customer base really well? Good thread!

From what I've heard from other website owners, it seems like Adsense is now considered one of the worst ways to monetize a website (whereas in its infancy it was one of the best). Do you agree with their assessment? Did you ever think about different ways to monetize your sites once your ad revenue started declining?

Max and I have chatted on AIM a few times, and he inspired me to purchase a site myself. I bought a site producing 2k-3k/mo in affiliate revenue for $30,000. Considering I should get my investment back within a year and still have ongoing monthly income plus resale equity in the site if I should want to sell it at some point, I feel it was a great investment.

The one thing I should mention is, as Max said, look for more passive investment sites that don't require a lot of your time. As someone mentioned your time cuts into profit, and for me I spent almost two weeks away from the tables enhancing the site, which I figure cost me about $20,000 in lost playing revenue.

Overall though, I still think I'll make out on this deal quite well... thanks Max!

I made a bunch of screen shots for the sale like the ones in this link. Most sellers will do something similar.
http://www.counter-strike-dl.com/sale/

In the case of the ipod site, the owner had bought it from the founder just a few months earlier. I speculate he got a very good deal and made somewhere between 10-20k by selling it to me in only a few months. His motivation was probably just to take profits now and let someone else worry about running the show.
For the counterstrike site, I bought it from the founder. His motivation was that he outgrew the subject. He had created the site as a fan of the game, and I guess he wanted out to pursue other interests. As a founder he probably couldn't take the hands off approach like I did and just let the site earn.

There seem to be three types of people involved. Fans of the subject matter, web-savvy guys, and business savvy guys. I think the business savvy guys are the smallest group. However, you aren't likely to get a killer deal by just participating in the auction. In both my purchases I negotiated a buy it now deal within one or two days of the auction listing. Its a pain selling these things through sitepoint, because there are 100 tire kickers who aren't serious at all about purchasing. Many of these people are younger and don't actually have the cash. Because of this a seller is motivated sometimes to just end the auction early at what he thinks is a fair price. I probably saved a couple grand by doing this with each of my purchases. Now after going through the sell side, I see how easy it is to make a mistake. I think I got a fair price for the counterstrike site, but I could have made at least $2000 more on the ipod site. I got nervous at the end of an auction and accepted a BIN offer 25% higher than the high bid. Over the next couple days I received a couple higher offers privately should the deal fall through. I thought it would be poor form to accept one of those after already having closed the auction.
Another thing that happend to me was accepting a BIN offer and then that person (the potential buyer) decided to go through a whole bunch of due-diligence. That pissed me off, but I bet his strategy is successful with other sellers.
Sitepoint's auction system is kind of a pain, but its really the best marketplace out there.