In this blog post, we explain how to invest in online businesses, what skills are required, and the pros and cons of such investment.
Starting an online business is very time-consuming and requires a lot of effort. It can take quite a few weeks or months before any revenue is generated. A way to speed up the process is to invest in an established online business.
Why Buying an Online Business Could Be a Good Investment
Here are four reasons why purchasing an online business could be a good investment.
Passive Income and Possibly Low Effort
With the right skills, running an online business might require minimal effort. If an online business makes money with ads or affiliate links, you are making money while you are asleep. This is a great way to generate passive income.
Remember that many online businesses require substantial time to manage effectively. You’ll need to review and update your content and offerings continuously. If you treat an online business as a passive investment, you may not be able to maximize your returns.
Quick Investment Return
Some online businesses can be bought by paying 2.5 to 3 times their annual earnings. If you buy an online business that is growing, it’s likely that the earnings will increase.
But let’s see an example where we assume the earnings remain the same after you buy it:
- Monthly earnings: $2,000
- Buy the business by paying 3 times its annual earnings: $72,000 ($2,000 x 12 x 3)
Three years later, you get all your money back and then you’ll have monthly income.
Compared with rental properties, for example, this investment option may offer a quicker return on your investment.
Potential to Skyrocket the Revenue
An online business can skyrocket its revenue. An example is Blush and Bar. In 2017, it was acquired for $75,00 when it was earning $1,000 per month. In 2019, Blush and Bar reported annual revenues of $1.3m and it was sold again for $550,000, which is 7233% higher!
Another benefit of investing in online businesses is liquidity, as you can see in the example above. If you manage to make the business more successful, there is a high chance you’ll sell it for a higher price than you paid for it.
Your ability to sell a business may depend on the current economic climate, so don’t assume that you’ll be able to make a quick sale.
What Skills Are Required to Invest in an Online Business
Buying an online business implies that you’ll need to maintain it. There are several skills required to run an online business successfully. Therefore, you should either have those skills or be willing to pay someone to do the work for you.
Here are four main subsets of skills to be aware of.
Search Engine Optimization (SEO)
People should be able to find your online business in search engines. The best and most sustainable traffic is organic traffic. If you are not on the first page of results in Google, you won’t get as many visits as you could.
SEO skills will help you boost your ranking.
To achieve this goal, you should be familiar with keyword research, analytics, page authority, domain authority, responsive design, backlink building, clean code, load times and many other concepts. Tools such as Ahrefs, SEMrush, Moz and UberSuggest offer services to help with this.
Content is probably the primary driver of traffic to your online business. Most likely, you can’t just keep the content that is already there, or otherwise, users might lose interest.
You need to be ready to add more content regularly, which requires time and knowledge in the online business topic. You also have to continue updating old articles, so they remain relevant. When someone searches for something, they want to make sure the article covering the topic is recent enough.
Finally, you’ll need writing skills if the main content is text. If the main content is video, recordings, or images, ensure you are comfortable in those areas.
That said, a lot of very successful online businesses outsource content creation to professional bloggers and writers. If the financials make sense, you too should take advantage of this.
If you don’t have a passion for the online business topic you’re investing in, you’ll have a hard time maintaining it. It helps if you are passionate about the topic, which most likely means you will build expertise and the users will trust and follow you.
Remember that success demands work. True passive income generally comes after putting in the necessary work now, so we can collect the benefits in the future.
How is the online business built? Was it built with WordPress? Or was it built from scratch in Ruby On Rails? How easy is it to add and edit content? How easy is it to edit the menu or the website structure? In summary, are you able to maintain the website?
Make sure you understand both the maintenance costs of an online business, and what it takes to get assistance when things don’t work as expected.
How Can I Buy Online Businesses
If you know an online business you would be interested in buying, you can contact the owner and try to agree on a deal. This approach requires some homework to ensure the business is healthy:
- analyze online traffic by using a tool such as SEMrush;
- analyze the profile link. Ahrefs is a great tool to help you.
If buying an online business without an intermediary scares you, there are other ways. The most common way to find and invest in online businesses is by using online brokerage platforms.
Flippa is a platform where you can search and buy online businesses. They sold more websites than all of their competitors combined, with a total sales of $375m by the time this blog post is being written.
It is also the platform where more businesses can be found: 5000 new businesses and domains are listed for sale on Flippa every single day. As a consequence of such high volume, some auctions will present a host of low-quality, uninteresting sites.
Finally, Flippa provides some information to the buyers, such as verified google analytics, due diligence from Alexa, SEOMoz, etc. to save buyers time to check that data.
If you are willing to do the work of searching for deals, you can buy an online business in an auction using Flippa.
Alternatively, you can use the FlippaFinder service and Flippa will search for businesses that match your criteria.
They will also approach the business owners, assess their business against your criteria and present you new opportunities weekly.
Once you choose a business you would like to buy, Flippa will do due diligence by helping you to uncover the unique selling proposition, opportunities for growth and any operational gaps. They will also help to negotiate.
Empire Flippers is another platform where you can search and buy online businesses.
Furthermore, Empire Flippers curate their list of online businesses, so low-quality sites should not be found in there. The price is defined by the seller, but it is often negotiable.
If you find an online business you would like to buy, you can either click the “Buy Now” button or you can make an offer and the Empire Flippers team will communicate with the seller to work out a deal.
Until you decide if you want to make an offer, you can either send emails to the seller or schedule a call, but a member of the Empire Flippers will be on the call mediate and help.
If you would like to buy a Shopify store, then you can look into Shopify Exchange.
Shopify is one of the most highly recommended e-commerce platforms in the industry where merchants can list their online stores for sale, including traffic and revenue data pulled directly from Shopify. Sellers can’t edit this data, which gives confidence to the buyers that what they see is what they get.
When considering buying a Shopify store, ensure you are aware of all the required maintenance. Do you need space in a warehouse, meaning you need to manage products and stock? Or does it rely on a fulfillment center provided by a company like Amazon?
As part of the business, will you have to manage deliveries? Will you have to understand and maintain dropshipping?
Alternatively, the business could be based on affiliate links only and in that case, all the maintenance is on the website. The bottom line is, where the products are and who owns them matters.
Are There Any Concerns About Investing in an Online Business
Before buying an online business, you should ensure you tick all the boxes from this checklist:
- It is important to ensure that the data is real. Are the number of visitors and the reported revenue real or did the owner scammed the data?
- Do you have an interest in the business topic?
- Do you have the skills to maintain the online business? If not, did you check how much it will cost to have someone to do the work for you compared with the revenue you expect? If you need someone to do the work for you, will they be able to help you if there is an emergency?
- Will the business remain relevant in the future?
- Besides maintaining the website, are there any other tasks to be aware of, for example delivering products?
If you’re comfortable with the answers to the questions above, then great! You might be buying a great business that will generate passive income for you.
If you would like to go through a more detailed checklist, download these 660 due diligence questions for starting, selling or investing in a business.
Investing in online businesses can be very rewarding if you find a good opportunity and have the skills to maintain it. There are many different platforms from where you can invest, some helping you more along the process than others, including protecting you from scams.
If you liked this article and would like to read more like it you can subscribe to our newsletter.
Invest in Online Businesses is a part of our guide Alternative Investments For Beginners. Read up on other popular types of alternative investments: