Quite possibly the easiest thing for a website seller to fudge during due diligence is how much time or effort an owner needs to put in. Since investment websites are generally run by the owner (plus some contractors), misrepresented owner involvement can mean the difference between a successful website and a failure.
But how do you determine whether the seller of a website is properly representing how much time it takes to run the site? In this article, I look at the ways I use to ensure that I am not buying a website that takes too much time or effort to run.
Table of Contents
- Introduction
- Owner involvement metrics
- Due diligence: estimating owner involvement
- Key points
Introduction
There are many components to due diligence on websites. But one component that gets overlooked is owner involvement. if you buy a website and you don’t know how much of your time or effort is required, you could be in for an unpleasant surprise. This is especially common on Flippa.
One of my first website purchases was a celebrity site that was doing very well. What I didn’t realize at the time was that whenever a D-list celebrity popped up in the news, the seller would immediately post an article about him/her (within minutes), capturing a large amount of early search traffic.
This would have been fine, except that it meant the seller was tethered to his computer 24/7 and had to constantly be looking for news headlines. For me to reproduce that, I would have had to work much harder on the site than it was worth.
I eventually ended up getting rid of the site, but not before I learned a hard lesson: it’s important to understand exactly how much work you’ll need to do before buying a website. And in this article, I’ll explain how I currently do it.
Owner involvement metrics
There are several ways to measure owner involvement, but some of them are already encompassed in other metrics. For instance, the amount the seller spends is component of owner involvement. However, it’s easily visible to website buyers on a balance sheet.
The way I measure owner involvement is a combination of things: the number of hours per week that I would need to spend on product, the percentage of time spent on urgent issues, and the administrative time required. In many cases only one of these metrics is high for a given website.
- Hours per week spent on product – This is the number of hours spent as an owner on actually writing content or developing products (such as downloads or eBooks)
- Hours per week spent on administration – This is the number of hours spent as an owner on administering the business. This includes customer service and website/server admin (if done by owner), as well as bookkeeping.
- Percentage of time spent on urgent issues – This is the percent of hours (from the former two metrics) that are spent on urgent issues. This includes handling technical emergencies (like WordPress crashes) and customer issues.
Take a look at the chart below, in which I have plotted the three metrics above for the first 10 sites that I purchased and still own.
The site on the left of the chart has info products available for sale. Because of this, I spend a significant amount of time handling customer support. And I have to check the support requests relatively often, so the percentage of urgent hours is high.
In contrast, the site on the right of the chart requires very little time and less than 2% urgent time. The site is an affiliate site, and the urgent time is just to handle the rare WordPress crash.
Due diligence: estimating owner involvement
So how do you estimate these three owner involvement metrics when you’re looking at a site?
Hours per week spent on product
To estimate the actual amount of time you’ll spend on product, you should answer these questions during your due diligence process:
What does the seller say?
Does the seller say that he/she is involved in ongoing content/product creation? In my experience, you can double the number of hours the seller claims to spend — at least when you’re getting started.
Over time you may become good at producing content for the site. Still, at least for the first several months, expect to spend double the amount of time that the seller claims.
What is the pace of content production?
Look at the site over a period of time (preferably a longer period). Count the number of posts during that period and divide by the number of content producers (including the seller, if applicable). The result can be divided by number of days in the period. This gives you a number of articles per content creator per day. Let’s call this ncd.
ncd = (# of posts over period) / (# of content producers) / (days in period)
Does the ncd seem reasonable? In my experience, a typical content creator takes 2-3 hours to do a reasonable quality long-form post (around 1,200 words).
The seller should provide you the number of hours the content creators work per day; if they don’t, you should be able to calculate it from the expense report. So you can compare ncd to the number of hours the content creators work per day.
Comparing these values gives you a sense of how many hours the content creators are spending per post. If that number is less than 2-3 for long form content, or less than 1 for short form content, there’s a good chance that the owner is producing some content and not disclosing it.
Hours per week spent on administration
Any site you purchase will require at least some administration, but some sites require more than others.
To get a sense of how much time you’ll spend on administration, answer these questions:
Is the site a high traffic site or does it run on a non-standard platform?
If the site gets a relatively large amount of traffic (more than 1,000 users per day), it will require technical administration. The site may go down more frequently, or require a more complicated technical stack than a smaller niche WordPress site.
Any site that runs on something other than a simple WordPress installation will require additional administrative time. That’s why I suggest most website investors avoid primarily ad-supported sites — they need a lot of traffic to be profitable, and a lot of traffic means a significant amount of admin time (or hiring someone to do it).
Does the site have a lot of affiliates or sell items directly?
If the site has a lot of affiliates, there may be a significant amount of work required for bookkeeping. For example, some affiliates require you to send them payment requests or invoices. And you will need to keep track of all affiliates to determine how much you are making monthly.
I own one site with well over a dozen active affiliates. Keeping track of the earnings and sending invoices as required takes several hours a month.
If you are selling downloads or running an e-commerce site, there is additional bookkeeping time required, as well as any time required for fulfillment. Additionally, these types of sites require customer support, which may take longer than you would think.
I have found that regardless of what you sell online, there will be plenty of questions and support requests. If the seller doesn’t currently have someone performing customer service, you will have to do it. In my experience, for every 100 customers I have typically gotten 1 support request per day. However, this can vary greatly, depending on the type of product sold.
Percentage of time spent on urgent issues
This is a more complicated one to estimate. The number of urgent issues is dependent not only on the site, but your own tolerance.
Years ago, I had one site that got just a few customer support requests per day. Yet I felt it necessary to handle them immediately. I would treat nearly every customer support request as urgent, and thus spent a lot of time tethered to the computer. I sold that site, and the buyer hired a support person who looked at these requests once a week, making the process much easier for them.
A similar thing can happen with site downtime. A site that’s down for a few hours may only miss one or two users, and very little money. But if you are a site owner, you may feel obliged to monitor the site and ensure it’s up at all time.
To estimate this one, consider which urgent issues may come up. Also consider how you would handle them. I spend 2% of my time on urgent technical issues for affiliate sites, and 5% on higher traffic ad sites.
Key points
When you’re doing due diligence when buying a website, consider owner involvement. This can come from product or content creation, as well as administration.
To estimate the time required, as yourself:
- What does the seller say about owner involvement in content/product?
- What is the pace of content production?
- Does the site require any special technical maintenance — a high traffic site, for instance?
- Does the site have a lot of bookkeeping required?