#320 – The Website Market Just Flipped

Increasing inflation, potential recessions and the worsening of the overall global economy – is this affecting the website market? In this week’s episode, Mark sits down with Justin Cooke from Empire Flippers to discuss exactly how the website market has changed and what that means for you.

A special thanks to our sponsors for this episode, Digital PR Agency Search Intelligence.

Current State of the Website Market

Changes in the global economy have meant that the landscape for buying and selling websites has shifted in recent years. The beginning of 2022 marked a significant change as financing dried up due to global market trends: the cost of capital increased and there was less appetite for risk. So the resultant decline in valuations over 2022 and into 2023 has meant that the market has shifted from a seller’s market to a buyer’s market.

Content sites specifically experienced a 2-3x decline in monthly multiples from around 36x in the second half of 2022 to around 34x in 2023. However, we’re still seeing high-quality, growing – or at least stable – content sites attract multiple offers and substantial interest.

The sites that are still selling well typically have a few key characteristics:

• Stability or growth
• High-quality content
• Reliable Analytics data. Google Analytics is still the standard for tracking website traffic and verifying site performance, even with the transition to GA4.
• Honest earnings (ie. businesses that accurately report their earnings and avoid fraudulent activities)

It’s the ‘middling’ businesses and smaller, niche sites that are struggling to sell, especially as buyers have become more selective as there are so many options available to them.

As the market continues to evolve, so are the types of buyers who are interested in purchasing websites. Large equity firms, once the main buyers in the e-com and FBA business space, have taken a step back, allowing more independent buyers and investor-operator partnerships to dominate.

Many of these individual buyers are seeking opportunities to replace their traditional 9-5 jobs while maintaining the freedom to work remotely.

How Do You Value A Site in 2023?

Empire Flippers has a great valuation tool that can give you a really good – rough – estimate on what your business is worth. It takes a whole bunch of things into account, primarily your site’s monthly earnings, but also things like how long your site has been around, your expenses, your add backs, etc.

AI, SEO & Diversified Monetization

At the moment, there’s buyer reluctance for businesses that can easily be replaced by AI. So businesses that are moving away from being simple content sites and more towards diversification in terms of monetization tend to sell a lot better and attract more interest.

So creating quality sites, building a community, adding physical products, or getting into the digital space is a smart move. Plus, the revenue per customer is significantly higher for businesses that have their own products and email lists.

While adding new monetization methods may initially result in some failures and lower conversions, it’s important for long-term business growth, and can make your business more attractive and profitable.

If you’re in the physical product space, a good way to start is by selling other people’s physical products as a way to test the market. This allows you to understand your target audience and their buying behavior without the need to invest in manufacturing or building your own products.

Once you have a better understanding of your audience, you can transition into creating your own branded products to build brand loyalty.

A Gamble for Sellers

As a seller, you may shut down as many expenses as you can and try to time the market perfectly for your sale. But if you don’t sell quickly enough, you’ll end up with a decline in earnings and a struggling business. While you might make a slightly higher profit, it’s a real gamble, and not one worth taking with high value assets.

You might not even be able to sell your business at that point because of the decline in traffic and earnings that have resulted from cutting costs.

Instead, focus on optimizing your spending. Drop any exploratory SEO and exploratory marketing, figure out what’s providing the most amount of value in terms of traffic and earnings, and stick with those.

Views on Team Size

Having a bigger team doesn’t automatically mean that your business is more successful. Focus instead on maximizing your profit per employee.

Justin says that one of their biggest setbacks at Empire Flippers was not hiring people early enough or fast enough, which was slowing down their growth. Aim to shorten the time gap between onboarding new employees and getting value from them, from 12 months to around 3-6 months instead.

Prepping & Getting The Best Price For The Seller

It’s important to try to understand the buyer’s motivations when selling your site. A buyer looking to quit their 9-5 and run your site as their job going forward is entirely different from someone who has a portfolio of businesses and is looking to buy your site as strategic move.

You should change the way you position your business accordingly.

Site sales are often not as aligned with the seller’s interest as you might want them to be. Brokers might push a business through at 10% less rather than go through the extra effort it takes to sell your site for a slightly higher price.

You might end up in a situation where you’ll pay more commission if your site gets sold at a higher price, to incentivise the broker and justify the additional work for them.

Empire Flippers has found that the best way to help the seller is to have a large pool of buyers, which Justin says they’ve grown by having some of the highest quality listings.

Main Negotiation Points Between Buyers and Sellers

Typically businesses are sold on a multiple of monthly net profit. So buyers and sellers need to determine where the expenses are – which ultimately determines the site’s profit – and what time frame is used.

When a site has been declining, the seller might want to use a longer time period – or a shorter time period if their site is growing – to determine net profit. So it’s up to the broker to help negotiate and justify the time frame that is used – 6 months, 9 months, 12 months, etc.

Getting Your Site Ready To Sell

Depending on the size of your business, you’ll need to spend more time getting your site ready to sell – reviewing your site, building SOPs, cutting exploratory SEO and marketing, etc.

If you’re dealing with a sale under $500,000, you’ll probably want to give yourself at least 6 months to prepare. For a $2-3 million sale or more, that time period will grow to 12-18 months.

If you really want to sell your business, but you’re losing interest or you want to move on to a new project, taking the full 12-18 months is not the best move for you – just get your site listed as soon as possible. You’ll potentially make slightly less money, but the impact of that money, and of freeing up your time and energy, might mean more to you now than if you waited for 18 months.

Picking The Right Time To Sell

Rather than timing the market for maximum value, Justin suggests timing the market for personal value.

What will that financial windfall do for you as the seller? What’s your next move? Where are you going to put that money, what are you going to do with it? How is it going to materially impact your life, and is that something you want to do right now?

According to Justin, that’s more important to think about in terms of planning than trying to time the market.

You never really know what’s going to happen with the market or your site after you sell it.