The demand for profitable internet businesses has never been higher and is likely to only grow. Buying an online business can be a powerful way to establish an online presence or grow what presence you already have.
Performing proper due diligence and finding the right deal flow for your specific needs is crucial. Many new buyers don’t understand how website valuation works, the importance of understanding specific monetization models, or even what type of internet business is best for their specific goals.
The following is a guide to look at the ins and outs of buying an internet business and provides at least a good starting framework for new buyers.
5 Types Of Internet Business To Buy
There are many different types of internet businesses out there, but most fall into one of five main categories.
1. Content Websites
A content based business is the niche website or authority website model that focuses on publishing a large amount of informational content in a niche. Common monetization methods are primarily display ads and affiliate offers.
Once enough organic traffic gets to the site there are other ways to monetize a content website model in the form of lead generation, informational products, and more.
Content based websites can make large amounts of money, and I’ve personally seen this both in the form of monthly passive income and from improving and flipping the website for a major profit.
Content based online businesses’ main valuation comes from a multiple of average monthly earnings.
2. Software-as-a-Service (SaaS)
Software as a Service (SaaS) application based businesses focus on the development of an app, a plug-in, or other bit of software that provides value to the user.
An application based business can be extremely focused on one very specific niche, or it can be broad, aiming for a wider audience.
Salesforce, Dropbox, and Shopify are all examples of large companies built around the SaaS model.
3. Subscription Based
The subscription based model is just that: charging a monthly, quarterly, or yearly subscription charge in return for access to a particular service.
This can be an incredibly profitable business model because of the built-in recurring payments from satisfied customers.
The subscription based model comes in many forms. Netflix, Medium.com, Dollar Shave Club, and Blue Apron are all examples of a subscription based business at work.
Even online commerce giant Amazon has a subscription-based business with Amazon Prime and Twitch TV.
4. Digital Product Based
An internet business focusing on digital products might sell online courses, eBooks, pre-done guides or research, or even photography or music.
Instead of having a product shipped to the customer, they receive a digital copy that can be accessed or saved on their computer or other digital device.
Digital products take some serious upfront effort but can also have serious profit potential.
The eCommerce business model is one of the most well-known models. You sell items online and then deliver those purchased items, keeping the profit.
Any business selling directly online is using eCommerce, and Amazon FBA businesses or drop shipping businesses both fall under this category.
What Type Of An Internet Business Should You Buy?
Understanding the common internet business types is just step one. This knowledge is only the start to figuring out which style of business is the best fit for your budget, skill set, and online goals.
Keep in mind that each of these businesses requires a different skillset. A software based SaaS business is going to require programming expertise, or the ability to hire individuals who have those skills.
Content based online businesses are the easiest in many ways, but they still require maintenance and investing in at least some content to stay fresh in the eyes of Google and other search engines.
This doesn’t mean a person can’t invest in a business they don’t have individual skills for, as long as you can afford to hire competent and reliable people who can step in to fill those gaps.
Having interest in the business model is also very important. Making an online business takes an enormous amount of work.
If you don’t care about the business, it’s going to be extremely difficult to efficiently do all the needed work.
Certain online businesses require much more on-going investment than others. The monthly expenses for maintenance on a content site are going to be far less than the expenses for an active drop shipping or SaaS business.
If budget is a major issue, that might limit which internet business types make sense to purchase.
Pros Of Buying An Existing Internet Business
There are many advantages to buying an existing internet business versus starting from scratch.
Built Out Foundation
When I buy a business I get to skip the long, tedious, and sometimes uncertain process of building the foundation out myself. Since the only businesses I look at are already established, I don’t have to worry about things like indexing, getting early traffic, or other similar concerns.
There’s already a base foundation setup to enjoy, improve, and build off of. This not only provides early rankings, presence, and even income to reinvest but also provides data so funds can be spent directly on easy wins and things that I know will move the needle.
When a purchased business is making income, that money can instantly be reinvested into growing the online business.
This provides some measure of a safety net while also acting as a powerful tool for growth.
Easier Access To Funding
Acquiring funding is much easier for an existing business asset than trying to pitch a project from scratch. With an existing business there is concrete data to base projections and valuations off of.
I know from experience that being able to pitch acquisition of an already profitable business to scale up is a much easier sell to potential lenders than trying to do the same without existing income or data.
Good due diligence means by the time I’m looking to acquire a business I know it’s profitable with potential to be even more so. Since the business is already successful, the business concept is already proven as solid.
Cons Of Buying An Existing Internet Business
While there are multiple benefits to buying an existing Internet business there are two major cons that also need to be considered.
Large Upfront Expense
A profitable Internet business is valuable. Because of that, even getting an Internet business at a good price can still make it a five or six figure (or more) expense up front.
For most people this is going to be a major expense and may even require financing to make sure you still have funds for operating expenses.
Complicated Due Diligence Process
Due diligence is crucial and when a business is active there is a lot to review. This can be a time-consuming process that requires a lot of back and forth depending on the information needed.
What To Look For When Buying An Internet Business
Everyone is going to have their own standards when it comes to what they look for in an online business purchase.
Thriving Industry Sector
I want an industry that is thriving, safe, or growing. The best business in an industry that is losing 90% a year just doesn’t have stability or upside.
If the industry is thriving not only does the business have more long-term viability, but the demand for it will also be much higher.
Acquiring a business with inconsistent profits or quarterly income reports is a risky move and not one that I personally like.
Why would a business that looks good one quarter look terrible for two more before seeming to rebound?
Some niches are seasonal, but even then the financials should be consistent during the non-busy season and still positive.
If the financials aren’t consistent that’s a big red flag.
Understanding the current systems, outsourcing, and overall operations is crucial.
Is this a one-man show involving 90+ hours a week of work from the owner, or is it a mostly hands-off system that needs just minor maintenance and upkeep?
Most will be somewhere in between those two extremes, but understanding the current operations not only tells me whether a business fits in my work flow or not but also lets me see where the systems and operations have room for improvement.
Growth Opportunities & Business Potential
Some people might be interested in pure passive income properties that just keep paying with relatively little maintenance. Personally, I like to see additional growth opportunities and business potential with a potential acquisition.
Businesses that have a much higher ceiling and show a lot of potential easy wins are going to be more attractive to me as an investor than those that aren’t.
Are there supply issues?
Do you need a tech person or a team of tech people?
How do the current business operations work and are there any contracts that you need to be aware of?
Understanding every aspect of the business operations is crucial to making sure this is a business that is viable for you to run, expand, grow, and flip once acquired.
Where to Find an Online Business for Sale
There is no shortage of marketplaces to find online businesses for sale. The best options will vary depending on your budget, experience, and the specific type of business.
The following seven are trusted, proven, and reliable marketplaces to start looking but keep in mind due diligence should always be a part of the process.
- FE International
- Quiet Light
- Digital Exits
- or use WebAcquisition’s DealFeed tool to sort through all businesses for sale
How To Price An Internet Business?
There are five main points every buyer should use to price an Internet business before making an offer.
The business model will often determine what types of valuation models and what overall price range is considered standard versus unusual.
Whether you are looking to acquire for long-term holding versus growing and flipping might also determine if one business model is more or less valuable to you than another.
Choose An Appropriate Valuation Model
The various types of online businesses have completely different valuations.
A content based site is a multiple of average monthly earnings with few outside influences on the price. SaaS companies take multiple considerations into the picture when coming up with a valuation.
Gross profits and net profits are both crucial metrics that are going to be a major part of valuation. The finances tell a lot about the business whether profits, expenses, net profits, maintenance fees, and more.
Breaking down the financials in detail tells a lot about the efficiency of the business, how much investment is needed to maintain or grow the business, and possible challenges to scaling.
Gross income and net income aren’t the same thing.
Understanding the expenses of a business model, how many are fixed, and how many will increase with scaling, all of this will go into not only determining a reasonable business value but also what price you’re able or willing to pay for an online business.
Is this a stable business that reliably keeps pouring in a steady payout, or is there still room for massive growth?
The potential ceiling of an Internet business makes a huge difference in what I’m willing to pay in an acquisition.
There are many considerations that go into buying an Internet business. This can be a powerful way to grow and support an existing business you own or to break into a new niche or vertical with an established online presence.
Use the information provided in this guide and never skip the due diligence and vetting, and you will be in the best position to make a great deal on an Internet business acquisition.