Case Study: 420 Beginner – How We Generated $200K in 5 Months by Helping People Grow Weed at Home – Domain Magnate

Case Study: 420 Beginner – How We Generated $200K in 5 Months by Helping People Grow Weed at Home

 

At Domain Magnate buy, manage, and sell content and SaaS businesses, we currently average 1-2 acquisitions per month in 5-6 figure ranges and have completed hundreds of deals. All the deals are private, often with business owners who come to us for a quick deal. The existing NDAs prevent us from sharing details about most, but some are available publicly, so we can show the full details here.

Brief: Bought a site that helps grow weed at home for under $50K, sold 5 months later for $165k.

First Approach

The first contact was made in mid-February 2017, when the owner contacted us looking to sell his affiliate site 420beginner.com. The site had articles and reviews of products one would need to buy in order to grow weed at home. The legal landscape in this industry is complicated, so the site was only selling specialized growing lights, and other similar more mainstream products, via the Amazon Affiliate Program.  The site was around for 2 years, but he didn’t have proper data and details:

  • Google analytics only contained partial data from some previous months and some more recent details from past few weeks. However, he explained that he did a theme redesign recently, and forgot to put the code back on.
  • Revenue was all over the place: the lowest months being $600-$1000 in monthly revenue, and the highest was above $5K.
  • The revenue proofs were also spotty. The seller used several Amazon Affiliate accounts, and one of them got closed (he explained this was in relation to a different site, and we were able to verify that). The site also has multiple other Affiliate Programs and AdSense.
  • He was looking to sell quickly for personal reasons. 
  • The seller is Vietnamese, so there were also some challenges with communication.

All these reasons combined is more than enough to deter the vast majority of buyers. However, we were mostly focusing on the fundamentals and our own due diligence process to determine the value and future cash flow of the business.

Due Diligence

We usually do our due diligence in stages and it’s divided into 3 separate parts. Since we review hundreds of deals, at first we quickly evaluate each part and at the later stages, as the deal becomes more likely, and then closer to completion, we dig into it much more.

1. Numbers 

The first part of our diligence process consists of looking into the numbers: revenues, expenses, price and trends. Although it’s fairly self-explanatory, and a part that nearly all buyers usually do, it’s important to not just look at the numbers, but also understand them – to see the trends and reasons behind them.

After verifying the numbers, filling out, and confirming a P&L sheet, it looked quite strange. However, each part had a reasonable explanation which we were able to confirm.

Based on current numbers and our analysis, we’ve made some projections that showed that we should be able to stabilize it and increase revenue by improving conversions and placements.

2. Opportunities

Reviewing the opportunities is a crucial part of a due diligence process. It is important to get realistic projections and expectations for adapting pricing models, and further strategy for growth and resale. It’s also important to distinguish short and long term opportunities, as well as account for execution difficulty and the likelihood of success with each.

The business had clear opportunities in improving monetization, stabilizing revenue, and outsourcing operations by creating exact processes and SOPs to increase its value. There were some SEO opportunities in expanding into the niche and improving rankings. Our evaluation showed that we can aim to get to $6K-$8K in profit in the short term.

 

3. Risks

Assessing risks is the most important and the most difficult part of the due diligence process, and something that many buyers tend to do wrong. What many people often perceive as risks (lack of well-organized data and proofs, age, pbns, niche, etc.) are usually easily fixable, or can be accounted for in price, while the real risks, which can ruin the business, can be underappreciated (low-quality overall backlink profile compared to the competitors, industry trends, legal risks, short term marketing methods. etc.).

The main risks here had to do with SEO and maintaining the rankings for the top keywords, and our analysis showed that the link profile and content was good enough. Trends were also good due to the rapid growth of the industry. We’ve confirmed that the site didn’t break any Amazon associated tos. We were also able to verify or confirm the seller profiles, review his other properties, and establish the reasons for missing data.

 

Negotiation

The seller was looking to sell quickly in order to pay some debts. This, of course, raised some potential issues and red flags. However, in this case, his explanation was acceptable and it’s not uncommon among our clients, as we focus on buying quickly.

The negotiation was brief, we’ve agreed on a price, exact terms, after-sale support, and what’s included. It was also revealed that he had another site in the same niche, so we insisted on including it and getting a non-competition commitment from the seller.

 

Plan

We always have a plan for each business we buy with details of what we are going to do in the first month, first 6 months, first 12 months. The plans include target resale date and price, work that needs to be performed for maintenance and operation on a weekly/daily basis, and the manager in charge of the project, as well as other people involved in the operation and further growth of the business.

Our experience shows that the main risk in operating a portfolio of businesses comes from extending holding periods of individual sites, so we usually mitigate that by reselling fast (in under 1 year) or clustering similar sites together, so we can be operated as a group to reduce individual risks.

The plan was to remove AdSense, as the AdSense revenue was much lower compared to Amazon and seemed a waste. Additionally, we planned to add 1 new post per month and work on building new high-quality links for it every month. For this one, we set a target resale time of 3-6 months.

Transaction

We usually do most transactions via escrow.com. We’ve done over 100 deals through them, and as an official partner, we also get better support and terms. A transaction typically involves a sales agreement, which describes the exact steps, process, numbers, and terms of the deal, and a short inspection period.

Here is the process in more detail:

1. The details were discussed and agreed upon and we set up an escrow transaction

2. Both parties signed

3. We sent the funds

4. Escrow.com confirmed the funds

5. The Seller was prompted to transfer everything

6. The seller pushed the domains into our account and transferred and provided logins to social and other accounts

7. We transferred the site to our hosting

8. We changed Amazon ids to ours

9. After a quick inspection period, we confirmed and approved the transaction

10. The Seller got his payment

 

After Purchase

The first few weeks after the acquisition are the most important! Buyers always underestimate the amount of work that needs to be performed at this stage, even with simple content sites. It’s important to do audits and planning, and assign responsibility, budgets, resources for the project.

In the first couple of weeks after the deal closed we:

  • Changed passwords – keeping the same passwords after the acquisition is a security risk as they are generally shared between multiple people, and transferred unencoded.
  • Did a content audit and fixed up some broken links, replaced products not in stock, updated affiliate ids for various extra programs and updated content where needed
  • Mapped out the content and link building strategy
  • Discussed with the seller at length to get precise details of his former operation, things to avoid, his suggestions on future growth and other opportunities.

 

Operation

After about 4 months of adding new articles and building some links occasionally, we were able to increase the revenue up to $8K. In order to increase revenue, we also removed the AdSense, added more affiliate links where possible and repositioned the items, and did some basic tests to increase conversions.

Preparing for Sale

In June 2017, the site was ready for sale – with 3 months of solid revenue, averaging around $8K/month. We’ve collected all the data and published a Flippa auction for the site to attract buyers. The auction was quite popular getting a lot of bids and attention, but Flippa didn’t have enough buyers who had a sizable enough budget bidding in auctions at that time, so we actually had to relist it and were able to find a buyer at the second attempt.

Sale

The site was sold via a Flippa listing for $165K, and they even did an interview and a case study of their own about it later.

 

After-Sale

We’ve helped the buyer initially over the first few months to manage it, and organize content and link building updates, as well as find extra alternative monetization methods. The buyer had little previous experience with operating similar websites, so we helped him hire and train an assistant to maintain and grow the business further. We’ve also been following up frequently to help with advice or suggestions for further growth.

 

Conclusion

This was a rather profitable and successful deal for us, generating over $200K in revenue and from the sale after about 5 months of operating the business, having spent around $50K total for purchase and growth expenses.

The buyer was enthusiastic about the niche and continued to grow and expand the business, and updating both sites. As cannabis seeds and products become more widely sold and the legal picture is changing towards full legalization, the industry has had tremendous growth in the past years.

 

 

 

 

 

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Subscribe to get the latest deals and tips for buyers
Subscribe to updates to learn about our latest opportunities for investors, buyers and sellers Subscribe