Is this small business worth a punt?
July 28, 2008 4:25 AM   Subscribe

I have the opportunity to buy a niche website. Is it worth it?

Negotiations have got the price to $750. It's a niche site offering an offline service, not directly the same as but at least related to some of the work I do, so in theory it might offer a way to look for new clients. The owner has about 100 or so past clients in his database. The site gets only about 65 unique visitors a month, from which about 2 give business, making about $300 or so monthly. Those uniques generally come from search engines, in which the site is well indexed and even appears at the No 1 slot for some keywords which it's not implausible some customers might enter.

So, I wasn't planning to spend $750 on anything beforehand, and at the moment have declined ($500 would be much more tempting, but it's very unlikely he'd go that low). But could this be worth a punt in order to rope in extra business, and make some small money on its own accord (with fairly low effort)? Or would $750 be much better spent on advertising, for example? (Or not spent at all?) What would you do?
posted by hatmandu to Work & Money (8 answers total)
Best answer: Ok, there are lots of factors to consider when valuing a business, but based on the information you've provided, payback is about three months. In other words, you'll recover your capital in well under a year.

Next you'd want to look at opportunity cost; you mention "fairly low effort". You've got to quantify the amount of time needed to run the site against other, revenue producing activities you might engage in.

Next up, is there a way you can monetise the existing search traffic, or otherwise increase the revenue this site generates each month?

What are the risks, the downsides to running this site? And this segues nicely into the next point, why is the owner selling?. Seems like a nice, passive income stream. And from what price did you negotiate down to $750 from? I do a lot of negotiation professionally, going from $1K to $750, ok, but going from $10K to $750 would raise a big red flag (unless you're a far better negotiator that the existing owner).

What paperwork have you seen about not only this traffic, but especially the revenue generated? Is this the owners word, perhaps site logs, or have you seen some books and records that the owner, as part of this overall business, has to file with the appropriate regulatory authorities?

Finally, if you do go ahead I'd suggest getting an agreement in place whereby you can recover some - or perhaps all - of your capital should business conditions materially change in the next six months or so. No sense spending that money just to find out the existing owner has a bigger and better idea that's gonna take all your current customers away.

Just a few thoughts to get you started.
posted by Mutant at 4:56 AM on July 28, 2008 [3 favorites]

Response by poster: Thanks once again for excellent thoughts Mutant. This is just the sort of analysis I was interested in hearing. (Also lurking in my query is the question 'Is advertising worth it?' really - buying this site would be a form of advertising, and I'm trying to work out whether the potential leads are worth the cost and effort, ie 'Would buying this be a worthwhile form of advertising?')

In answer to some of your rhetorical questions, the owner says he's selling to concentrate on a big and demanding new client for his main business, which seems to check out (plus he's selling off other smaller things like this). Original asking price was $2000K, and in discussions it's come down via $1400 to the present price - I might be able to shave a little bit, but I doubt it would be much, as his other option is to keep running it rather than give it away. I've seen paperwork about the traffic, but not revenue (which isn't exactly huge anyway, of course).

I suppose it seems to me that it's a way of buying say 100 vaguely targeted leads (maybe more), so roughly $7.50 a lead.
posted by hatmandu at 5:19 AM on July 28, 2008

You have the chance to buy a business that makes $300/mo for $750?

It depends what effort is required to run it, but if it's near zero...and if the $300 is true and verifiable... um: YES.
posted by rokusan at 7:02 AM on July 28, 2008

Response by poster: Thanks rokusan - just to clarify, it has made $300/mo, but it's not certain it would continue to; the 'very little effort' I guess would be a couple of hours or so.
posted by hatmandu at 7:16 AM on July 28, 2008

Best answer: Payback time is excellent, traffic is really low (meaning it can't be that much maintenance to keep going), and it probably has a fair amount of openings for enhanced marketing/conversions.

2/70 conversion ratio is 2.8%. If you double that to 5%, you'll get $600/month. And that's without any traffic boosting efforts.

I'm thinking that you should go for it, and schedule 10 hours a week for a few months to go after all the optimization you can. Setup analytics correctly to give you conversion goals, figure out where user sticking points are, and fix them. Get more eyeballs on your page (paid ads with low bids? targeting different keywords?).

I bet that you could double or triple the revenue pretty easily if you put in a bit of work. Seems to me that there are very few markets that have only $300/month in potential, and nothing more.

Go for it!
posted by cschneid at 7:24 AM on July 28, 2008 [1 favorite]

Like rokusan I'd say if it's mimimal effort and you will be getting $300 a month, it's well worth it.

buying this site would be a form of advertising
Unless it's highly targetted and those 65 people who visit are visiting exactly the type of site they are seeking then I'd say not to look at it as a form of advertising.

Does he have stats, if so try get a look at them and if it's google analytics have a look at what terms people are actually using to find the site.

Seems like a bargain to me though if you are getting a fully functional e-business (even if it is a small return)!
posted by twistedonion at 7:53 AM on July 28, 2008

Best answer: To give you a comparison on what you might expect from spending that money on advertising, consider the return on direct mailing.

Direct mailing campaigns will usually have a sales rate of 1%-3% of the number of pieces mailed. Assuming that the mail shop charges you roughly $400 for fees and services, you'd be left with $350 for postage. The absolute best rate you could get would be $0.18 per piece, for a total of 1944 pieces of mail. So, you would expect anywhere from 19 to 54 customers to respond. However, this is under absolutely the best conditions.

A more likely, but still optimistic, scenario (targeted list, widely spread out addresses) would get you between 10-30 customers. On the low end you would get the same benefit in just 4 months from the website, and the website is not a one time only advertisement.

This is all without considering printers fees for the mailer and assuming that you have a database of roughly 2000 targets already available. Printing costs might be pretty cheap, say $100 but that would reduce your results to something like 7-20 responses. (And that's assuming you go to a copy center and design the thing yourself.) Lists of targets can be expensive. So if you don't have one already it's not likely to worthwhile to get one.

Finally consider that direct mailing is generally thought of as one of the cheapest (if not most effective) forms of advertisement.
posted by oddman at 9:45 AM on July 28, 2008 [1 favorite]

Ask the seller why they are selling the site. Their answer will tell you whether it's worth it.
posted by gjc at 6:25 PM on July 28, 2008

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