This is a summary of my usual site buying process on a concrete example of a site I was bidding on last night.
During one of my regular checkups on Flippa, a couple of weeks ago I picked up on a site that seemed quite interesting at first glance. That site was socialwax.com and the auction is here. From a quick look, it’s a social service that provides automated twitter promotion and analytics, with good revenue, established customer base, and lots of space for growth.
First Check of the Site and Seller
The first part of the process was to check some background info on the site and the seller. The seller had no previous history on Flippa, but it was easy to find out that he had an established marketing business and the site looked quite professional, there were also some positive reviews of it online, so it all looked quite legit and the starting bid was around $5k which seemed quite reasonable for a site with over $700 per month in revenue.
After checking out the stats, and doing more in-depth research I signed up for the service and used it on my twitter account. Surprisingly it actually worked – there was more engagement from my followers and a bit more visibility and new followers as well. I later checked out more competing services and of course, there were many other bigger companies providing twitter curation and analytics services, so this is definitely a big market and the had a lot of space to grow.
More in Depth Research and Due Diligence
After checking the basics and realizing that this can be a good site to buy and grow further I had several questions to answer:
- What are the actual current revenues?
- How much promotion is expected and how to do it?
- How complicated is the code and how will I handle the technical aspects?
- What’s it worth to me?
Verifying revenue is the first and most essential part of the due diligence process. Sellers almost always exaggerate their revenues or present them in a more positive light by focusing on the better months and disregarding possible negative trends or potential issues. It’s natural to try to paint a better-looking picture of something you are selling, so most people would even do it subconsciously. And that is why you should always put more faith in verifiable numbers rather than estimates and predictions when it comes to revenue!
As it frequently happens after checking out the revenue it turns out that it’s actually significantly lower now than the figures on auction. In fact, there was just $80 in rev in the first 10 days of June, however, most scheduled payments came at the end of the month, so it was fair to expect about $300-$400 in revenue for June and with no extra promotion it’s quite likely that revenue would continue to drop. The seller explained that there was no promotion done recently and that was the reason why sales dropped and also why he decided to sell the site.
After exchanging some messages with the seller (I have to point out he was quite patient and responsive with all my questions) it turned out the site was promoted through online forums, communities, twitter, and other places where people might be interested in a twitter marketing software. There was also a fair bit of customer interactions and engagement. The promotions were actually done in a fairly intelligent manner, without any spammy of questionable techniques, and likely took no more than 10 hours per month.
This seemed reasonable, I could definitely handle that and outsource some of the promotion, as well as increase the volumes to try to get more sales. Additionally, I had some extra ideas on how to grow the site further, add more features, monetize better, and promote in more effective ways.
The seller assured that he would provide some assistance with transferring, setting up the site, and with any questions about the code. The code should be fairly well written and documented, although there was quite a lot of code that made it complicated. However, I estimated that it would be possible to handle the technical parts with a reasonable investment.
Additionally, the site didn’t require too many resources (despite sending out lots of tweets and doing plenty of connections to twitter.com), so it could be hosted on my current servers without extra spending.
With such sites, it’s important not to underestimate the technical challenges, as development costs can easily pile up and projects tend to last a lot longer than anticipated.
I decided that $5-8K would be a good price and I could possibly spend up to $10k on it, but no more, as it will be hard to pay off otherwise. Some of the sites will require quite a lot of work hours, and time and money investments.
Finally, the bidding day arrived and the bidding started really slowly so I was confident that I’ll be able to buy it. However, as it went by some new bidders joined in. Those were actually completely new bidders, that had new accounts on Flippa with no previous deals or any activity. In fact, all top bidders after $7k were totally new (except myself). It’s not uncommon in Flippa but seemed strange. However the seller did a fairly good job of promoting the sale and replying to questions, so it’s likely that were potential buyers from outside of Flippa. It’s also worthwhile to note that there is a traditionally high rate of non paying buyers on Flippa, especially among new members, so as a seller you have to be careful and at least exchange some messages with a new member before allowing him to win your auction.
I felt like I can win it at $6-7k as there were only a couple bidders at first, but it wasn’t meant to be this time! As the bidding crossed $10k I had to pull out, as it really wasn’t worth that much to me. I imagine for someone running an established social marketing agency that’s not even a serious price to consider as just one good client can pay more. However for a site investor it all ultimately comes down to profit, and at a certain price, even the best asset stops being profitable.
Well, it was disappointing, but looking on the bright side the site would’ve required quite a lot of effort and time to bring to good revenue and will likely need frequent technical updates and lots of further development to compete with a fast-changing market of social marketing apps.
So long, till the next auction!
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Nice writeup Michael! This is the type of training and experience that buyers need. Hope you will continue to post your experiences about buying on Flippa.
I might even borrow the idea, if you don’t mind, and do a few Flippa reviews on my site as well.
Helpful information. Fortunate me I found your website by chance, and I
am surprised why this accident did not happened in advance!
I bookmarked it.