But online businesses have many benefits that make them a more simple and often more lucrative investment option than many others. We have seen the limitless potential in buying online companies with 15 years of experience buying, selling, and improving sites. And the market is only growing.
Of course, investing in an online business will be more suited to some people than others. Websites come with their own set of risks and necessary skill sets to maintain and manage. Ultimately, however, they offer high levels of freedom and flexibility. There are opportunities available for everyone, regardless of their skill set.
Here are six reasons why buying online businesses is an excellent investment.
Here’s why you might consider investing in an online business.
As a rule, online businesses have much lower overheads than brick and mortar ones, and this means there is often a potential for a more significant ROI and lower risk on investment. Well-managed sites might make 30% to 40% ROI, so with minimal maintenance costs, most of that will be profit.
Online businesses help you avoid significant expenses like:
Companies that offer virtual products or services will often have highly favorable profit margins.
The overheads of online businesses vary depending on the type of model. It’s essential to find a business model that works for you.
An e-Commerce, for example, may require you to invest some ongoing capital in stocking products. However, you might outsource packing and shipping and send products directly from the manufacturer, saving you substantial warehousing costs. Many options like dropshipping, Amazon FBA, and other agreements, allow for flexible choices and cost reductions.
Non-product-based businesses, like affiliate businesses, usually involve even fewer maintenance costs. Once you have a website where you can display affiliate links, any expenses will likely be for marketing, content creation, or SEO to drive traffic to your site.
Online businesses are typically much easier and more affordable to scale than brick-and-mortar businesses.
A location-dependent physical business looking to scale would likely have to open a new business location and hire new staff. Online companies, however, give you instant access to the worldwide market. With drop shipping or e-Commerce businesses, you can work with vendors who ship worldwide. You can sell this globally at no extra cost if you provide an online software or subscription service, promote affiliate links, or sell access to a digital product like a course.
Therefore, there are opportunities to scale online businesses at a fraction of the costs of brick and mortar businesses. You can scale simply by increasing marketing efforts, re-negotiating agreements with vendors, or building an audience.
While many websites need significant ongoing maintenance, some may need as little as half an hour a month. There are many possibilities online for hands-off business opportunities, whether you’re coveting your dream lifestyle or want them alongside your 9 to 5.
If you want to reduce your own time spent on the business, you can also hire remote teams to run your websites. You might also choose to do this if you don’t personally possess the skills needed to run and grow the site.
What are some great business types to generate passive income?
Selling digital courses or products
A great plus of investing in an online business is that you can work from anywhere, whenever you like. Unlike many brick-and-mortar businesses, you do not have to be in a physical location. Instead, this allows you to work from anywhere. Say hello to spending more time at home with the family or relaxing on a beach in Thailand.
With current technology and online tools, remote working has never been easier. There are many ways to manage a business around your schedule and connect digitally with a remote team. Working from anywhere means that you can also save money on hiring an office space etc.
Investing in online business is still a relatively new occurrence, and the market is young. However, more and more people are beginning to consider it an option. As such, the marketplace is growing at a rapid rate.
Ten years ago, you were able to typically buy a site for a multiple of around 2.4x its yearly revenue. However, now you are looking more commonly at a multiple of 3x. With this strong appreciation rate, your site should increase in value with this upward trend and provide yearly revenue.
If you compare the possible returns of online businesses to other investment assets, they have the opportunity to provide up to five times more. An investment in real estate generates an average annual ROI of 6.8%, bonds around 0.57%, and acquisitions of stocks around 7%. On the other hand, a website can commonly generate between 30% to 40% ROI per year.
Finding a buyer can be hugely tricky if you decide to exit a brick-and-mortar business. The process can take years, involving physical premises, staff members, inventory, etc. With a growing marketplace for buying and selling websites, liquidity is less worrying.
There are many opportunities to sell a website, and using a good quality online business broker can reduce risk and smooth this process out for you. Should you want to, it should be relatively easy to offload your site for a cash injection. As assets are usually digital and most processes take place online, it is generally simpler to hand them over to a new buyer.
Okay, so we have gone over why investing in an online business can be a great idea. But what are some other considerations before jumping straight in?
There are various kinds of online businesses from which to choose. Here are a few options below.
E-commerce: A simple buy-sell model, this business type involves supplying and selling goods from a site, usually with a production agreement with a vendor.
Dropshipping: The dropshipping model involves promoting and selling products on behalf of a third party while they handle the fulfillment and shipping of orders.
Affiliate marketing: This model means promoting an affiliate’s third-party products on your site using affiliate links and generating revenue through commissions from any sales.
Lead-generation: This is where you generate leads for a business in a specific niche.
Advertising: Advertising businesses are usually content websites that make money through display advertising.
SaaS: A Software as a Service business often uses a subscription model to sell the use of particular software to others.
Subscription: Subscription businesses could be for a service, tool, course, or knowledge group where members pay you a recurring income each month.
If you don’t know much about the online business yet, the most simple-to-understand and repeatable business types are e-commerce sites and content sites such as display ads or affiliate businesses.
If you are ready to buy, there are a few different places you can find online businesses for sale.
Online marketplaces and auction sites: You can browse listings of different websites for sale and compare business models, prices, and other critical information. Buyers are usually vetted but be careful of spam sellers. The most popular marketplace is Flippa.
Through a business broker: Using a trusted broker is the safest way to buy an online business as they will help you do due diligence on the buyer, negotiate a good deal, and safely complete the sale. Check out Empire Flippers and FE International, which also have marketplaces.
Privately or from a portfolio: If you already have a network of contacts, you may be able to strike a private deal. Alternatively, established companies with portfolios of sites often have sites for sale, and you may be able to make a quick, low-risk purchase. For example, check out our own for sale page at Domain Magnate.
If you are looking for something that is more hands-off than actually owning and running a site yourself or that involves less risk, you might find investing in a website fund appealing. Like a typical investment fund, you will invest in a basket of diverse websites managed by third-party professionals. Usually, this will involve the fund managers buying, improving, and selling sites in a growing portfolio. Although they have higher risks, these often have significantly higher returns than traditional investments.
Not every online business is a good investment. Sites should be established and in a niche that has a stable market. Always do your due diligence with any new business you buy. Having bought and sold hundreds of businesses, here are our top recommendations for what to avoid. Especially if you are a first-time buyer:
Very new businesses that are not yet established
Companies that do not have at least six months of financial data
Niches that are trending or that are not evergreen
Businesses that do not have diverse revenue streams
If you are looking for lucrative investment opportunities, it is worth considering investing in an online business to gain:
Total location freedom
The ability to work any time
A way to generate passive income
The opportunity for a high ROI
Online companies often have low overheads and significant profit margins, making them accessible to many. If you decide to exit, selling a site is pretty straightforward. There are some risks, but we think that the pros outnumber them. Could an online business be your next investment?
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