Case Study - Flipping a Site for Profit

In my last article on this subject, I outlined some basic steps you can use to assess a Website's potential, and identify ways to increase its value. By no means am I an expert, but having just bought and sold my third site for a substantial profit I feel it is time to update what I've learned as an elder tribesman might impart wisdom to a younger tribesman. So, bring me my coffee and we'll get started!

A Quick Review

As we discussed previously, the main thing you need to do after you've bought a Website is a serious evaluation of the whole concern. We invented the TERM analysis (Target audience, Effectiveness for users, Return users and Mining untapped resources) and this is still my primary evaluative tool, used both before and after I purchase a site. It allows me to clearly see the flaws of a given site.

Our New Tool

While being able to see the flaws of a site is a good thing, we need to go further than simply looking at a site's weak points. When you're in the market to buy or sell a site (as with any property or investment), you need to know the value of what you're trying to sell. Five key aspects that I evaluate (though I realize there likely more than these five), are the:

• Potential,
• existing Income,
• the value of the Software that runs the site,
• Traffic and
• What information you can gather to form a TERM analysis.

Buying the Site

I stumbled upon the site for sale in the Site Exchange section of SitePoint Forums back in May, and picked it up for a good price. RingQuest was a fairly popular Lord of the Rings Website with a rather active and devoted community.

The PISTT Analysis in Action

Before I bought the site, I went through the PISTT analysis. Here's what I came up with.

Potential

The potential of a Lord of the Rings site is actually huge. This particular site was launched after the release of the first LOTR movie. Thus, it missed the original wave of exposure that many other sites enjoyed, yet it performed better than many of these sites (mainly as a result of the community's passion for the topic).

I figured that by the time the third movie came out, this site could easily be 10,000 members strong, pulling in millions of page views per month. The potential for a solid newsletter and decent advertising revenues had remained entirely untapped.

Income

The site's current income was actually quite low. The previous owner freely admitted that generating income wasn't really his strong point -- and this was one of the reasons he'd decided to sell the site. At the time of the sale, he made a monthly loss of roughly $100, and simply couldn't afford to run the site anymore.

The reason the income was so low was that the site relied entirely upon affiliate sales through Amazon.com. While there is nothing wrong with affiliate programs providing the key source of a site's income, as Chris Beasley has explained before, the fact that the site's target audience is teenagers means they weren't likely to be buying much with mom and dad's credit cards. So the potential for revenue had been largely unexplored.

Software

One of the key values of any site is the worth of the software that makes it run. For many sites this is negligible, but this site was run using some rather pricey software modules.

These included vBulletin, an Image Gallery script, and a Knowledge Base script. Together, these inclusions totalled nearly $500 in value -- $500 that I would have needed to spend were I to start from scratch.

Traffic

Traffic was perhaps one of the site's biggest strengths. When I was looking to buy it, RingQuest attracted 300,000 page views per month -- well beyond what all my other sites were achieving combined! I figured that the site represented a good opportunity to gain considerable exposure for the rest of my network, and I was right.

TERM

A quick TERM analysis revealed the following:

• Target Audience: teenagers, a notoriously difficult market from which to make revenue.
• Effectiveness for users: very effective for users, though the lack of health and maturity of the community was definitely something that needed changing.
• Returning Users: users were returning a lot, as is the nature of a good community site.
• Mining for untapped resources: the untapped resources included community health, a sense of purpose, enough revenue to be self-supporting, and the potential for a newsletter.

Results of PISTT

The PISTT analysis showed that the site was a good buy. I was able to pick it up for more than I'd ever spent on a site, but less than I figured it was worth at the time (let alone how much it would grow if I could fix some of the problems within the community).

The site's biggest drawback wasn't that it was losing money, though this was an issue. The greatest issue was that the community was full of rot. The members had stagnated, there was no leadership, and there was little true sense of "community" (most of the active threads were related to how nice Orlando Bloom's (Legolas') rear end was). There was definitely room for improvement within the community.