Most of us know someone or know of someone who refers to themselves as a “house flipper.” These individuals purchase old, rundown homes, fix them up and then resell them for a profit. This practice can be risky, but if you know what you are doing, it can be extremely profitable. However, it requires you to have quite a bit of cash on hand and liquidity to be able to finance the renovations, something few college students have.
But “flipping” is becoming common practice in other places. As the world moves online, the practice of buying and selling websites for profit is becoming more common, and with the digital world’s arrow pointing up, there is a lot of money to be made (more than some of the other jobs college kids do). Doing it right can help earn you a solid income, and you don’t necessarily need to be crazy rich already to do it.
Getting a Good Deal
The key to being able to purchase a website and sell it for a profit is getting a good deal. If you overpay for your website, there is a decent chance you will not be able to recoup the money you spent to buy it, or if you do, your profit margins will be much smaller.
A lot goes into determining the value of a business, so take some time to do your homework and figure out what the site you are looking to buy is worth. A general rule of thumb is that a business is worth 2.5 times its yearly revenue. So keep this in mind as you go after sites. If a website is bringing in several hundreds of thousands a year, it may be a bit out of your price range.
But this is also important for the second half of the process. Think about how much you can get the site to earn in a year, and then use this as an estimate of what you think you can sell the business for. In this part of the process, you need to identify areas of growth. How are you going to make more money using this site? Let’s take a look at the different approaches you could use.
Much like buying rundown houses to flip them for a profit, this strategy has you looking for bargains. You want to find a site that either has a decent following but that has maybe been neglected, or one that is just starting out and that has potential the current owners aren’t exploiting.
Sometimes, the simplest thing, such as a quality, high-value domain name, is enough to make the site attractive. No matter what, though, the thing to focus on is what you are going to do. How are you going to turn this otherwise failing website into something profitable and valuable that someone will want to buy for more than what you paid?
Maybe you are just going to revamp the content, or perhaps venture into eCommerce. This will ultimately depend on your skill set and what you are prepared to do. You can find some really good deals out there if you pay attention, which means a big payday sometime in the future.
These are websites that are already running efficiently and profitably, and buying one of these sites wouldn’t require the type of makeover that you would have to do with a “fixer-upper.” The goal here would be to buy the site, do what you can to help it grow and maximize profits, and then pass it on to a new owner who will presumably do the same.
However, there are two things to look out for when buying this type of site. First, functional sites that are making money will probably be more expensive. The 2.5x rule we mentioned above will apply, so try to look for a site that is making money and running well, but that isn’t some lucrative enterprise. That might fit better into the budget of a college student.
The second thing to be careful of is buying a site that is close to its ceiling. People only buy a company or a website when they think its arrow is pointing up. So if your plan is to buy a site and then sell it again, you need to think out how you will grow it so that you can make a profit, and also how you will position it so that the next owner can do the same. This requires quite a bit of forward thinking, but if you put in the time and energy, it is more than possible.
The Mitt Romney
The last strategy is a reference to what made former Massachusetts Governor and presidential candidate Mitt Romney famous in the business world. He was well-known for using his venture capital firm, BAIN, to purchase businesses that were struggling. Then, they would essentially “gut” the business and restructure it so that it was more profitable.
You could do something like this with a website. It would fall somewhere in between of the other two strategies discussed, as you don’t want either a “broken down” website or a “well-oiled machine.” By shooting for something in the middle, you might be able to find a deal. Then, as the owner, you could come in and make big changes that would allow the website to run more efficiently, making it an attractive option to investors in the future. Be careful with this strategy, though, as it requires a good amount of business acumen and understanding of how online businesses work.
Finding ways to make money in college is not only necessary, but it is also a great way to get some hands-on experience. As our lives become more and more digital, the buying and selling of websites will become a major industry. Get involved now and get a piece of the profits.
About the Author: Jock Purtle is an entrepreneur and founder of an online business brokerage which buys and sells websites and eCommerce stores.