The Data Driven Guide to Website Flipping
I have just completed the most comprehensive study of the website flipping industry ever.
I studied 6,500+ sales over several months on the largest website sales marketplace; Flippa.
For each sale I gathered 52 data points from revenue and profit to the number of links pointing to the site.
The goal of the study was to figure out what impacts the value of a website and thus how you can game the system to maximise your flipping profits.
Summary of findings
Here’s the major findings from the study:
- Buying upgrades is likely to provide a several thousand percent return on investment.
- Listing length or type doesn’t make a significant difference to sale price.
- A handful of core factors like revenue, profit, traffic, etc. are the major influencers of a website’s sale price.
- The value of the domain itself does matter, buyers are interested in the underlying domain value and not just the amount of money it’s making, thus taking a .net to a .com will likely increase the website’s sale price by between $1,000 and $3,500.
- For every $1 in monthly costs you cut without impacting service e.g. by renegotiating service agreements you add $3.50 to the website’s value.
- The typical Flippa listing will fetch 17 times it’s starting price.
- And much more…
The below graph shows a list of the most important statistically significant influencers of the sale price of a website on Flippa out of the 52 factors I studied.
Note that the influence metric accounts for both the amount a one unit increase will cause the sale price to rise by and the range of values possible for that metric.
For example many Flippa upgrades cause a pretty large increase in sale price, but mostly people only buy one of them thus their impact on sale price per unit increase might be quite large but the data only shows that metric as having a range of did or didn’t buy.
Whereas while a one dollar increase in monthly profit might not have a massive increase in the sale price, you can have pretty much infinite levels of profit, thus profit’s influence is very large.
Please note that while this graph is nice for a graphical review of what’s important and what’s not, understanding the study as a whole as described below will lead to much better learnings.
18% of the listings on Flippa are domains without a website of which 13.34% sell.
The other 82% of listings are of course websites for sale. 27.53% of listings were pure auctions with no buy it now price, 71.66% were auctions with a buy it now price and less than 1% were offer only listings.
48.46% of all website listings sell.
From here on out when I refer to a listing I mean exclusively website listings, there are no domain listings included in the below data.
The average starting price of a listing is $2,223.16 but this is affected by some big outliers so the median value is really a much better measure of the “typical” listing’s starting price, which is $20 with 31% of listings starting at just $1.
The average selling price for a website was $656 but the “typical” website sale as measured by the median was $115.
I can’t see you making a lot of money selling websites for $115, between hosting fees, development costs, Flippa listing and success fees and your time there can’t be much left over.
In fact assuming it was a new website; after Flippa fees the seller of the typical website would only receive $88.75 and that doesn’t account for any costs associated with listings that fail to sell.
But never fear, later in this article I’ll show you have to increase the sale price of your next listing.
Throughout this article I will make assertions that certain variables impact the price of a website by certain amounts.
These assertions are formed through a statistical analysis of Flippa sales data using a procedure called regression analysis.
Essentially regression analysis is used to create models (algorithms) based on data to predict usually one dependent variable, in this case the sales price.
Regressions are widely considered the optimal analysis tool for this kind of study as they look at the the relationships between certain factors and thus determine the impact of an increase of one variable if all other variables remained constant.
For example if all other 51 variables I thought might impact the price of a website stayed the same and I increased the monthly profit of the website by $1 I can tell you how much, on average that will increase the sale price.
I created such an algorithm/model to predict the selling price of a website.
You can think of this model as a website valuation formula.
My formula predicts 68% of the variance in website sales prices, which is an excellent model, that I would venture to say is probably the best out there – although Appraiso looks pretty neat.
It turns out that only 18 of the 52 variables I thought might impact the selling price of a domain are statistically significant influencers.
The big 3
Revenue, profit and traffic are by far and away the most important factors influencing the sale price.
Often you will find pundits suggesting revenue/profit multipliers to form a fair market value of a website.
But valuing a website takes so much more data than this, how sustainable is the revenue, are there underlying assets that could be better exploited for future growth, etc.
Simplistic multipliers are much better for established sites with a long track record but with the typical website listed on Flippa being just a year and a half old this is rarely the case.
While there are variations between different models the most reliable numbers I have come up with suggest that holding everything else constant each dollar increase in monthly revenue and profit will yield a $2 and $3.50 increase in the site’s value respectively.
It is important to remember here that often changes in other metrics such as traffic or the amount of content indexed on the site will lead to revenue and profit increases so you can have co-occurring actions that can have a double impact not included in the above multipliers.
Here’s the way I like to think about it is this:
Imagine you have just taken over a website and everything is running exactly as it was before you took over.
You review the (accounting) books and see that the business is paying the sticker price for a number of services like email marketing software, hosting, etc.
So you call up each of the service providers and using your incredible negotiating skills manage to talk them into a combined monthly saving of $100.
You still have the same services and thus the same website for the visitor but your monthly costs have fallen by $100 and profits have increased by $100.
You can expect that if you now go and sell that website on Flippa it should be worth $350 more than when you took over.
Flippa now allow sellers to directly link their Google Analytics account with their listing and directly report their traffic.
Verifying your traffic is a statistically significant price influencer, presumably due to the buyer having more confidence in the validity of your traffic and thus other figures.
Based on my model you would expect to see a $630 increase in sale price by linking to Google Analytics.
Yet only 9% of sellers take advantage of this option.
Interestingly having a Google Analytics attachment is not a statistically significant price influencer showing a buyer preference for directly validated traffic.
Flippa offer a whole host of upgrades that allow you to increase your listing’s exposure on the site.
From the data I see a lot of users using a variety of the cheap upgrades in what looks like hit and hope tactics.
6.4% of sellers opt to bold their listing at $5 a pop.
5.4% highlight their listing for $10.
6.3% pay $20 for a screenshot.
0.5% go for the $250 premium listing.
But what’s most interesting is the impact of these upgrades on the sale price.
My model predicts increased sales prices of in excess of $500 for all each of bold, highlighted and screenshot listings.
Remember that this is after controlling for other variables, so the likelihood that owner of a high revenue website would be willing to buy an upgrade vs. an owner expecting to sell the website for $100 is accounted for.
That means that if you list the same website once with these upgrades and once without you would expect significantly different selling prices.
Even with a large margin of error it is safe to assume that every upgrade you buy will on average be an exceptionally good investment.
While the level of data available for the premium listing upgrade was sub-optimal and I suspect that some of it’s effectiveness can be explained by unaccounted for variables, my model suggests that opting for a premium listing is likely to increase the sale price of a website by between $6,500 and $10,000.
Again even discarding much of this effect to unaccounted for variables, the chances are that opting for this upgrade in the case of a mid to high range listing is an excellent choice and within the time frame of your listing would offer a several hundred percent return on investment.
Based on the data it is my assertion that buying upgrades on Flippa is perhaps one of the best investments you will ever make.
This seems like a reasonable, logical conclusion too; there are so many listings at any one time that “pure” website value in terms of revenue and profit may not be enough to catch the eye of a buyer faced with thousands of listings to choose from.
The average listing lasts 10 days but listings tend to group around a couple of lengths.
11.63% of listings are set to last 30 days.
2.7% 10 days.
8.6% for one week.
17.8% just five days.
And a whopping 31.5% for 3 days.
Interestingly the relationship between a longer listing and a higher sale price is not statistically significant, so really it’s up to you as a seller to determine what the optimal listing length for you is in terms of experience and liquidity because the data shows no significant preference.
If your at a total loss and literately flipping a coin over the decision the data mildly favours longer listings.
Similar to the length of a listing, the data shows no preference as to whether you opt for an auction only, auction and buy it now or offer only listing, although there wasn’t much data for offer listings.
Again I can recommend choosing what you prefer.
Additionally how much you write for your website description or title has no bearing on how much a site sells for, so again write what you think a buyer would find useful and don’t write words for the sake of filling space.
7% of websites sold are relisted.
Mostly because of buyers falling through or by mutual agreement.
But most interestingly, despite some outliers the median increase in sale price for the website second time round is only 0.6%.
This shows that the value of websites is pretty much constant and that we are dealing with a fairly efficient market in Flippa.
One of the main assets a website has is it’s domain.
It seems natural that the value of this asset should influence the value of the website as a whole.
I have studied the domain market and that is what this blog is primarily about.
I have developed domain valuation models so I used some the main predictors in these models in the Flippa study.
The domain’s value turns out to be a very important influencer of a website’s value.
One of the best metric to figure out how valuable a domain is, is to see how many other TLDs of the same domain are registered.
So “seo” will be registered in .com, .net, etc. whereas “LongMeaninglessDomain” will likely not be registered in any other TLDs.
This domain value metric is a statistically significant predictor in my Flippa study, indicating that the underlying asset is important.
Additionally I studied the value of different TLDs.
About 71% of websites sold on Flippa are .coms with .orgs being the next popular @ 12% and .nets in third place with 10%.
All things being equal moving from a .net or .org to a .com should see your sale price increase by between $1,000 and $3,500.
This is based on the assumption that such a move wouldn’t dilute search engine rankings or brand recognition.
This is an incredibly valuable learning, as if you are flipping websites on a regular basis you now know how much the .com version of the website you are flipping is likely to increase your sale price on Flippa and thus how much you can buy it for.
I would recommend that if you are flipping a non .com website on a decent domain setting aside $1,500 to attempt to procure the .com version of your website.
Similarly if you are starting a website for the purpose of resale, even discounting the other benefits of owning a .com, you now know what the .com version of your new site is worth to when you put the website on the market at a later date.
Where does the money come from
There’s a misconception that buyers are really worried about affiliate sites, or don’t quite fancy advertising funded businesses, but this is simply not true.
The data shows no statistically significant relationship between how a site makes it’s money either through affiliate sales, product sales or advertising revenue and it’s value.
Buyers are more interested in how much revenue and profit a site brings in rather than where it comes from.
Just out of interest 43% of websites sold make their money through advertising, 36% through product sales and 38% via affiliate commissions (a website can have multiple revenue streams).
If I was buying and selling websites as a business I would look for undervalued websites based on the profit, revenue and traffic they earn with a strong underlying asset base that’s not being monetized well.
I would then take this website and exploit any assets such as a mailing list for once off income, perhaps a promotional email or product launch.
I would install Google Analytics and spend my time working on increasing revenue and profits through paid marketing campaigns, conversion rate optimization and more aggressive monetization strategies.
Long-term strategies such as SEO or content marketing are useful if your getting involved for the long-term but as a flipper you want to increase the important metrics straight away, essentially you want easy wins.
After several months I would re-list the site on Flippa utilising all of Flippa’s upgrades and expect a handsome return on my investment.
By the way I’m not in the flipping because right now I’m busy building awesome expiring domains software and launching this blog.