Buying a Website Case Study: break-even in 3.5 months

May 6, 2013 | By | Reply More
Estimated reading time: 4 minutes, 25 seconds

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Graph ROIIn this post, I’ll analyze brag about a real case study of a successful website investment, sharing the whole experience of searching, buying, and improving a web property.

Website name and absolute numbers are confidential, but all the percentages and multiplying factors mentioned in this article are absolutely real.

The website itself is a career website (it is not cool anymore calling them job boards) operating in a Spanish-speaking country.


 

Phase One: Search

This website was previously sold on Flippa and it was a competitor of a job board already in my portfolio.
Being previously listed on a marketplace provided two great advantages:

  • A good overview of the website performances and operations published in the previous listing
  • An owner who was already familiar with the whole buying/selling concept, so he was easier to approach compared to a webmaster who has never been asked to sell theis website before

 

The industry

Any due diligence should include a research of the industry where the website is operating, so here are a few words about it.

Online recruiting is a well established multi-billion dollar industry with big players around (job boards like Monster, CareerBuilder, or job search engines like Indeed, just to name a few) and lots of small fishes operating in niches.

The industry top challengers now are the social networks, with LinkedIN promoting more recruiting services and Facebook recently launching their first job service, and the mobile platforms – great for reading the contents but not for generating application letters and updated CVs.

 

Phase Two: Negotiation

The first time I contacted the seller he replied asking an astonishing price of 70x monthly revenue. (note: 70x means 70 times the value).
The justification for that was that he wasn’t looking to sell the website (fair enough) and that the website has lots of potential (usual story – they always have!).

As I don’t buy potential, I did my due diligence, taking the opportunity to collect lots of valuable information from a competitor, and then I presented my best offer that was promptly turned down.

That was in August.

In October, the same day that Google announced the retirement of Google AdSense for Feeds, the seller wrote back offering the website for the same price he bought it on Flippa more than one year before.

That was interesting… having all the previous data I knew well that Adsense for Feeds was accounting for ~50 percent of the website revenues!
So, I could imagine the disappointment following the Google decision, and I turned down his proposal.

At the end of November the seller came back accepting my previous offer, the one back in August.

We performed a new due diligence: the website still had solid traffic (avg 270.000 pageviews/month) and revenues, so I presented again my best offer, based on the current monthly revenue minus the Adsense for Feed half, multiplied by 17.

The seller now seemed in a rush to sell, so the offer was accepted with a little more negotiation.

At the end of December, I got my hands on it, being a perfect time for a Xmas gift.

 

Phase Three: Improvement

After the transfer, the work focused in two directions: reducing operational costs and increasing revenues.

 

Reducing Operational Costs

The only recurring expense was the hosting, quickly reduced by 6x factor moving to a more efficient provider.

 

Increasing Revenues

The revenue model was based on advertising using AdSense, with ads displayed both on webpages and newsletters.

I kept the same model, but worked on optimizing the ads placement, introducing better sized Ads in the above folder areas.
I also worked on increasing the traffic, including the website in more job search engines (all free organic traffic).

The first three months the revenue increased by 3.7x – that’s a fantastic 370 percent increase!

In parallel, I looked for a replacement of the dear AdSense for Feeds, and invented the solution already described in the post Are you monetizing you Feeds?.

This provided an additional revenue stream that alone doubled the previous earnings. (additional 2x)

The third move was to launch a paid service, asking employers to pay the previously free access to the resume database.

This wasn’t the success I hoped for, but it added a nice 20 percent of the original revenues to the monthly income.

 

Phase Four: Breaking Even

The magic day arrived after 3.5 months.

The math is simple:

Original Current
Adsense for Content revenue 1x 3.7x
Feedblitz revenue - 2x
New Service revenue - 0.2x
Total 1x 5.9x

Note: all the values are based on the last three months average.

At a rate of 5.9x, the original 17x investment is recovered in…. 2.88 months.

So why did I declare I was breaking-even at 3.5 months then?

Because, we should never forget the obvious hidden costs such as time spent in the pre-buy (due diligence & negotiation) and post-buy (operating the website), but also Escrow fees paid during the acquisition and operating costs like the hosting.

If you’re a fan of ROI, here is the exercise:

Net profit / Investment × 100 = return on investment (%)

5.9 / 17 x 100 = 34%

A high yield is fundamental in website investing due to the rapidly changing nature of online businesses.

 

Phase Five: Selling?

Why should I? I see this investment as HOLD.

The break-even point has been reached, the time required to run the business is less than 30 minutes/day, and I see room for more improvements in the future – or at least I can try new things and see what’s working.

 

 

I hope you enjoyed this shared experience, please do let us know your thoughts!

Did you ever invest in a website?

 

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