EFP 146: How We’re Spending $800K Buying Online Businesses

Justin Cooke Justin Cooke September 26, 2015

What if you had nearly $800K and had to build out a website portfolio that was both diversified and primed for growth?

That’s the exact scenario we’ve found ourselves in and we’re letting it all hang out in our latest podcast episode.

From $800k to a Full Fledged Online Investment Portfolio

We dig into the specific criteria we’re using to build out this portfolio and also cover a few different scenarios that will and won’t work.

The goal of this episode is two-fold:

  1. To share with buyers our specific criteria in building out a strong, diversified portfolio
  2. To drum up some additional sellers/sites for our investor program and marketplace

Note: Our requirements for this portfolio are pretty specific and may not represent all buyer. Still, we think there’s a ton of value to be had in this episode for both buyers and prospective sellers.

Check Out This Week’s Episode:

Direct Download – Right Click, Save As

Topics Discussed This Week:

Part 1: Our Buying Criteria For An $800K Portfolio

  1. Price Range
  2. Multiple (Important, but not the MOST important piece)
  3. Conservative Approach > Aggressive Approach
  4. Age of site
  5. No eCommerce Sites?
  6. Sites we’re “proud” of

Part 2: Websites Scenarios We’re Looking To Purchase

Part 3: Websites Scenarios That Wouldn’t Be A Good Fit

Mentions:


Looking to Buy? Click to View the Marketplace


Spread the Love:

“Having too many sites in your portfolio can spread out the work too much.” – Joe – Tweet This!

Are you looking to build out your own portfolio? What similarities/differences do you have in your criteria? Did we miss anything? Let us know in the comments!

 

Justin:                                   We just recently raised $800,000 from a group of investors, and we’re looking to spend their money. In today’s episode, we’ll look at the specific requirements we have for our selection criteria, cover the types of sites we’re looking to purchase and dig into our reasoning behind those decisions. You can find the show notes and all links discussed in this episode at empireflippers.com/800k. Alright, let’s do this.

Speaker 2:                           Sick of listening to entrepreneurial advise from guys with day jobs? Want to hear about the real successes and failures that come with building an online empire? You are not alone. From San Diego to Tokyo, New York to Bangkok, join thousands of entrepreneurs and investors who are prioritizing wealth and personal freedom over the oppression of an office cubical. Check out the Empire podcast. And now, your hosts, Justin and Joe.

Justin:                                   As I mentioned at the top of the show, we have $800,000, and it is burning a hole in Joe hot money Magnotti’s pocket. He’s looking to spend it.

Joe Magnotti:                    Well that sounds like something what my dad would say when I get my money from my allowance when I was a kid he’d go, “Is that money burning a hole in your pocket”?

Justin:                                   It is man, it is. You’re looking for sites, we’re looking for sites and we have some criteria that we wanted to cover. The real purpose of the show is, we wanted to share that criteria with our listeners, and some of the reasoning for this portfolio site; what we’re looking for, why we’re looking for it. We wanted to give sellers a behind the scenes look at a buyers perspective, right? So for sellers, they get an idea of at least what our criteria is and what other buyers may be thinking as well. The third thing is, we’re looking to drum up more deals for us to purchase. Either we want to purchase them directly for the investor program, or at least get them listed on the Empire Flippers marketplace for other buyers to potentially take a look at as well.

                                                I think it’s important to note here that this criteria that we’re using is for us alone in this particular portfolio. It’s not a guide across the board – these are the only sites that are good, these are sites that are bad, that kind of thing. And it’s not indicative of whether a site is necessarily good for you. A site may be great for you, bad for this portfolio or good for this portfolio, bad for you – that kind of thing.

Joe Magnotti:                    Yeah, completely agree there, definitely. Sites are going to be extremely individual in terms of what value they provide to each buyer.

Justin:                                   Also, buyers are going to have different skill sets, right? So if you’re an AdWords expert, finding sites that are reliant on AdWords, or aren’t doing as well as they could be doing with AdWords may be a better pick up for you, and it’s not necessarily for us. Just to be clear about this too, is that any sites that we’re listing hit the marketplace first. So, it’s not like we cherry pick for the investor program. The investors are made aware of this as well, we’re not going to be cherry picking deals that we do outside of the marketplace. So any deal that’s brought to us, we actually list on the marketplace so that everyone has a fair shot at getting the deal. We do not do private deals on seller submissions that don’t get listed publicly for any and all to purchase. I think that’s a really important point, I know that’s not a standard in the brokering industry, but it is for us.

Joe Magnotti:                    Yeah, and I’d also say that we don’t try to under price or anything like that if it’s a target that we’re looking for the investor program. We use our valuation tool to come up with a multiple, we work on the profit and loss and the net profit and use that to come up with a listing price. But, the ideal that we would price things lower if it’s a target, a possible candidate for the investor program or overprice it if it’s going to be just straight up on the marketplace, that’s just not something we do.

Justin:                                   Alright man, before we get into this weeks episode, let’s do our featured listing of the week. Whatcha got for us man?

Joe Magnotti:                    This week we’re talking about listing number 40311. This is an AdSense site in the culinary niche. This site focuses on different menus and prices for certain restaurants. It’s pretty straight forward and hands off. There is large amount of content that needs to be added, but that’s factored into the costs. There are also some SEO services that need to be done which are also factored into the costs. It’s basically just a content site, earning just over $7,000 net per month. We have it priced at just under $225,000.

Justin:                                   Yeah, so we’ve got the revenue, it’s a little over $7,500, we’re saying $500 a month in expenses and that’s mostly due to the content requirements. I like this site too, I like the fact that it’s a content based site, it’s an AdSense with some affiliates in there as well. I like the fact that the content, it’s relatively easy to manage in terms of ordering the content and getting it published. There is a bit of work there though. But yeah, I think specifically because it focuses on restaurants and menus and prices, it’s something that really anyone can step in and take over. The site’s built on WordPress as well, I think which is a really important selling point, it’s a really easy platform for people to use. The multiple’s higher on this one, but I think it’s a really quality site so I’m sure it’s going to go to a good buyer. It’s priced at $224,900, and I think we’ll get this one – I think this one will go relatively quickly.

Joe Magnotti:                    Yeah, I do too. If you’re looking for an AdSense site and something that can absolutely make a livable wage anywhere in the world, $7,000 a month is going to get you there. And this wouldn’t require much. It would require a network of writers to help you write the articles and some key word research, but the seller has that all in place. And like I said, the SEO services are also set up as well. He’s paying $20 an article, so I think that’s very average for what’s out there, that’s not low quality content by any means.

Justin:                                   Alright man. Enough about the featured listing of the week, lets get into the heart of this week’s episode.

Speaker 2:                           Now for the heart of this weeks episode.

Justin:                                   Alright. We’re gonna cover this episode in three parts. The first part being our buying criteria. The ways that we’re looking to spend the $800,000. Part two, we’re gonna go over some website scenarios that we are definitely looking to purchase, these are winners for us in this portfolio. And then, part three we’re gonna talk about some websites that wouldn’t be a good fit and talk a little bit about why that is.

                                                Alright man, so let’s talk about buying criteria first up. Number one – price range. So we’re looking for sites that are in the $30,000 to $200,000 price range.

Joe Magnotti:                    Yeah, I mean I think that smaller than this and it gets really tough for it to be worth it. Even if they’re completely hands off, just the danger of not updating the content or a plug in, taking over the site, anything like that kind of deludes the portfolio risk. We don’t want to have a hundred sites of $200,000 each. You want to have between five and 10, more like six to eight sites that are significant.

Justin:                                   Yeah, the other thing is too, is that when you’re doing due diligence, if we’re doing due diligence on a – let’s say $8,000 site, for this portfolio it’s just not worth it. The amount of work we’d have to go through to get the hundred sites at $8,000 would be extraordinary. And so I think this is important for buyers to remember in general, that you can’t discount your due diligence time. You’re gonna end up checking out quite a few different sites, you’re gonna want to make sure that if and when you get that site that it was worth all the work. Not just for the due diligence on that site, but all of your due diligence on the sites that you didn’t actually purchase. You have to account for that time, you can’t put it in the drawer and forget about it.

Joe Magnotti:                    Yeah, and a lot of the successful portfolio buyers that I see that come and buy from us, they try to keep their portfolio under 10 sites, so if they want to buy more sites, then they sell some of the low end under performers or one that they’ve taken as far as they can take it. They don’t just keep building and building and building their portfolio. Now, there are guys out there that have very large portfolios and don’t do it that way, but the majority of people try to keep the number of business they have within a suitable range.

Justin:                                   The other thing is, we don’t want to look at larger than $200,000 for this portfolio, and the reason for that is it just becomes too big of a chunk of the entire portfolio. So, if we have a $400,000 site on this one, that’s taking up half the portfolio size. I would say though overall, that we are a bit more flexible on the upper end than we are on the lower. So we might go for a $250,000 site, where we wouldn’t go for a $20,000 site most likely. So, we’re definitely a bit more flexible on the upper range. It also matters too how diversified that business is. So if it’s kind of a one-trick pony, lets say it’s a just straight up content site and it’s only monetized [inaudible 00:08:30] AdSense and it’s $250,000 -that’s kind of a scarier look for the portfolio than one that has, let’s say Amazon affiliate, plus some AdSense, plus something else, and it gets half of its traffic from organic and 20 percent from paid, 30 percent from social – that’s a better bet.

Joe Magnotti:                    Yeah. And I think there are some exceptions to these rules overall. We did go buy some small Amazon sites just because the number of products that they were selling was so great that it helped us hit our extra tiers in Amazon, and our larger Amazon sites were therefore getting an increase percentage payout. So with those sites, we don’t really care so much how well they perform or how much we paid for them and how small they are. It’s just the number of products that they’re selling in Amazon.

Justin:                                   Amazon’s actually an interesting point. This isn’t one that I usually want to bring up but, might as well mention it. We’re like eight and a quarter, eight and a half with Amazon earnings right now. So if we see a site that’s a nice quality site, fits kind of the range what we’re looking for and it’s a six and a half, that’s a pretty good bet for us. Because, we’re gonna get an immediate bump on that in the early months of picking up that site. So we’re gonna get a bump just on having a higher percentage, it’s probably a good pick up if everything else matches.

                                                So the other thing I wanna talk about is multiple. So, we’re looking at multiples for the portfolio anywhere between 15x and 30x. What’s interesting about this is that multiple is just less important for this particular portfolio, and here’s kind of our reasoning. A 30x multiple still provides an excellent return for our investors, whereas 15x is obviously fantastic, it’s even better. Less important I think than making sure the portfolio is diversified, making sure some of the other criteria we’re gonna talk about in a minute.

Joe Magnotti:                    Yeah, agreed. I think multiple in this particular instance is definitely less important.

Justin:                                   What we won’t do though, is we won’t even bother looking for sites that are under a 15x multiple. What we don’t want to do is we don’t want to go unicorn hunting, right? I don’t want to take the next six months looking for that amazing deal and spend all that time, effort and energy and end up with nothing, have that cash just sitting around. You’ll see this sometimes where you’re like, I’m only gonna buy a site at 10x or 12x. Either you’re gonna buy something that probably isn’t what it should be, right? So if someone’s selling at eight x or 10x or something like that, they’re not sharing all of the information with you, Or you’re gonna take so long to find that deal that when or if you actually do, you wasted all that time trying to find it. So we’re not gonna bother. Over 30x we’d look at but that starts to get a little too conservative and we need higher growth, higher returns for the portfolio overall. We might buy one over 30x, but only if it was balanced out with other sites that are at 18, 20, that kind of thing.

Joe Magnotti:                    Yeah, agreed. And also I think the seller has to be willing to really work with us on such a high multiple.

Justin:                                   The other thing, the third point is that we’re taking a more conservative approach with this investor portfolio. We think that’s more important than the aggressive approach for this particular portfolio, and here’s our reason for this is that with this portfolio, this is our first one for our investors. We want to make sure that we get something out of it and that our investors get something out of it. So a single or double would work for us, we’re not necessarily looking for a home run for our baseball reference.

                                                We really see the investor program as a long term play for Empire Flippers. We see this being a major part of our business in the next couple years. And so we want to set this off on the best foot possible. If we can get even a smaller return, let’s say we were getting our investors – by smaller this sounds ridiculous. But let’s say 20, 30, 40 percent return annually with no growth and let’s say the sites stay the same. That would be a lot better than us trying to look for one individual site that we could double or triple in six 12 months, because that risk reward scenario is just a little too risky.

Joe Magnotti:                    Absolutely, yeah. We have to find a model for success here that we can reproduce and create other investor pools so we can reference back to this as something we can use in material and that kind of thing, to show future investors that we’ve had success in the past.

Justin:                                   The other thing in terms of age is our fourth point, is we’re looking for sites that are between one to maybe five years old or older, and in general older is better for us. Now, we might take a site that’s say, 12 to 18 months old or nine to 12 months old if we think we could aggressively grow that site. But, we would limit this, the total number of those sites, definitely limit it to less than 50 percent of the portfolio and an individual site would probably be small so, we might pick up a $30,000 to $40,000 site if we thought we could aggressively grow it, even if it was new because the returns that would provide for the portfolio overall.

                                                The other thing with age, is that younger sites are generally more prone, or more likely to be a pump and dump, they’re more likely to have inflated numbers, and there’s a bunch of different reasons for this. So, eCommerce site you’re selling, let’s say it’s less than a year old and you’re selling for 20 to 30 times multiple, not to say that they would but they could have just been pumping money back into it with having their sister and friends and family buy a bunch of eCommerce products from them. I’m not saying that’s the case, but that’s something that you could do. The younger the site is, the more that could be a possibility and so that’s a risk we like to avoid.

                                                Also, with all the Google algorithm changes and everything we’d like to have a site that’s kid of weathered that a bit. So at a minimum, one years, but we might take a smaller site that’s nine to 12 months, but we’re looking one to five plus years, and older is definitely better.

Joe Magnotti:                    Yeah, that’s definitely the one thing that I would say is if it’s been around more than a year, more than two years, its definitely weathered at least an algorithm update or two so that gives us more benefit from an expectation standpoint on the organic traffic. Now that said, if it results in a paid traffic play, something like that, then we’re willing to look at exceptions to these kind of rules.

Justin:                                   Our fifth point is that we’re not taking any eCommerce sites that require holding physical inventory for this particular round. And the reason for that is, any sites that require physical inventory add a layer of complexity in terms of getting the inventory, having it shipped to the warehouse, having the warehouse ship out for you. And we don’t think it would be as easy to handle in this go round. We’re hiring staff, we’re putting processes in place to help manage these sites and we just don’t think that that would be a good add for this round. I think in future portfolios we will look to that, because it’s a great diversification role and just personally, I like eCommerce sites. I think they’re interesting businesses, but we’re not gonna be taking that for this portfolio.

Joe Magnotti:                    Yeah, drop ship might work if it’s a completely 100 percent drop ship, and it’s absolutely no physical products need to be held in a warehouse or anything like that. But even if the warehouse is automatic, even if it comes with employees, we’re just not interested in that time because the idea of having to fly onsite to fix something if a process gets broken or someone quits is just outside the scope of this portfolio.

Justin:                                   Yeah, drop shipping is a go, we’re definitely interested in drop shipping sites. I think we’re giving bonus points to sites that we feel that we can grow via content marketing and that’s something a specialty we have. We’ve done quite a bit of content. We can build teams and process around that and we have plenty of experience at that, so that’s kind of a strong suit for us. So those types of sites are a particularly good fit. Again, we want to have all the sites that way because of diversification issues, but that’s definitely I think a strong suit we can lean on.

                                                Number six – the sites must be something we’d be proud to own. And, I understand this is pretty subjective, right? What site should you be proud to own? Which ones would you not? Well, we’re not looking for just the perfect fit, but it has to be something about the site, or there has to be something about it that we’d be interested in, that we like. It could be awesome useful content, it could have just a great design, it could have really interesting and great user engagement, something like that. But there has to be something about the site that we say, hey, this is something we like, we’d be proud to show off.

Joe Magnotti:                    Yeah, agreed there and I think, you know, some of the more risque categories that we’ve gotten involved with before, something like mens health – let’s just leave it at that – we probably wouldn’t buy for this portfolio.

Justin:                                   Yeah, we’ll also avoid niches that we personally don’t like. So, because we’re gonna be working on these sites directly and our team is gonna be working on these sites, we’re gonna avoid sites that we just don’t want to be involved in. That may include gambling sites, that will definitely include porn sites and those aren’t sites we broker anyway, but even things like I know that you’re not a big gun fan, we probably wouldn’t do gun site for this portfolio because that’s something you’d have to deal with on a more direct basis. Brokering it’s different than actually running it, right?

Joe Magnotti:                    Yeah, I think that’s very true although we have a site that’s guns accessories so, again [crosstalk 00:17:24] on those sort of topics. I don’t know if I would personally get on there and want to be commenting or writing blogs, but it earns well, it has good brand for the limited scope that it’s in, and it’s not too big of a portion of our portfolio so I’m fine with it.

Justin:                                   Oh, so only the bigger portfolio – dude, you’re such a sell out, you’re such a sell out business guy, man. Principles but..no, say not to the gun sites. No, just teasing you man. I’m cool with that, there are sites that I’m not interested in as well, but I’m not gonna be writing the content for it so it’s not as big of a deal.

                                                Alright man, let’s move into part two. Let’s look at some website scenarios that we would definitely be looking to purchase. We’ve got three scenarios kind of lined up here. We’re gonna talk about why we like the site, we’re gonna talk about some of our concerns and give kind of a final verdict. So, here’s the first scenario, let me play this out I don’t know how well this is gonna translate to audio.

                                                Let’s say we’ve got a two to three year old Amazon affiliate site. So it’s let’s say 30 months old, and it’s selling small $100 items, it’s making about $3,500 a month and it’s got stable or slightly declining income, right? Relatively steady $3,500 a month selling a bunch of $100 items. The site requires four articles per month. It has a limited PBN usage, maybe some purchase links or something but it was pretty limited. It’s been somewhat neglected by the seller. It’s got 80 percent organic traffic. The content is good and the design is not so good. Let’s talk a little bit about why we like this site, Joe.

Joe Magnotti:                    Yeah, I mean I think definitely for me the fact that it makes a good amount of stable money, or maybe slightly declining, and all we’re really gonna have to do is pump it with content, most likely that’s why the old seller was neglecting it. Maybe he failed to that in a few months in a row and Google felt it was a little stale and so some of the rankings declined, but you can get those rankings right back by adding fresh content. So I think it’s fairly easy to run this site, our staff is pretty experienced with running these types of sites. It’s right in the right earnings range, so yeah. This is a good site for that [inaudible 00:19:31] stuff.

Justin:                                   I particularly like it if it’s like six and a half or even seven percent on Amazon earnings, that would be an even bigger win for us. I like the fact that it sells $100 items, which means it’s gonna sell more items if it’s bringing in $3,500 a month. To make $3,500 a month, that means it’s selling a ton of those $100 items so that’s really good I think for our Amazon account overall. And again, if it’s making $3,500 a month at 20x it would be a $70,000 site. 30x that would be slightly over $100,000 site so that would be right in the range of what we’re looking for.

                                                Now some concerns that we might have with this site. We’d look at how critical the PBN links are to the organic traffic. Are the PBN links the only links that are kind of bumping the site up? Does it have a more diversified link profile? What’s that look like? And then, we would look to discuss how we could diversify that back link profile, so how can we get even further away from that PBN if there were any issues with it, how can we add links and diversify the back link profile. And then we’d also look at how many main keywords is this site ranking for? What are their rankings? If it’s getting, let’s say more than half of it’s traffic from one, two or three main keywords that are on the first page, right, and those keywords shifted in rankings, that would be problematic. Whereas if it had 15, 20, 30 keywords it was ranking well for and getting traffic for I’d say that’d be a safer bet.

Joe Magnotti:                    Yeah, I completely agree there. And if the PBN was included in the sale by any chance I think that would make it a no brainer because we’d be able to manage those links ourself, and ensure that those sites are kept up to top quality.

Justin:                                   Yeah man. So, final verdict on this one, we would definitely look to purchase this Amazon site somewhere between $70,000 and $100,000 depending on what we could get it for. We would look over those concerns, but this is likely a go for us.

                                                Alright man, let’s get into scenario two. Here is the situation. We’ve got an 18 month old lead generation site in the medical education space, so it could be around dentists, it could be around x-ray techs, it could be something like that.

                                                The site’s making $6,000 a month and it’s got a relatively steep increase six to eight months ago in terms of earnings. The content is geo-targeted and requires about eight articles a month. It’s got a mostly natural back link profile. It’s got good design with just medium quality articles.

                                                Alright man, what do you think?

Joe Magnotti:                    Yeah, I mean I think this year, because we know that these kind of lead gen sites do very well, especially the ones that are geo-targeted. Again, our staff is very familiar with running these types of sites so I think that’s good. And I just wonder how much more content can we add? How many geographical locations is he targeting? Is he targeting all of them? Or are we gonna be able to keep adding more? Are we going to be able to keep new long tail keywords coming in. There’s always that possibility, but with very large sites sometimes mostly the major metropolitan areas and even all the 300,000 people cities and up are covered. So, something to think about in these kind of sites.

Justin:                                   I like the site. It’s making $6,000 a month, it had a steep increase six to eight months ago but it’s been holding that for a bit. It’s been doing I think really well. I love geo-targeted content, even though it requires eight articles per month which is a bit, I have no problem with that. These types of sites I know exactly where they’re coming from, I know how they work. The fact that the medium quality articles there but it’s got relatively good design means it’s something I think we can really build out I think over time. It is a little new at 18 months, but because I understand the space a bit and we’ve – I’m more familiar with it, I think this one looks pretty good.

                                                My only concerns here are the fact that the earnings and the site are relatively new, and you mentioned the fact that we don’t know how many cities are still available to add content to, so are most of the major cities taken up? Are there any other cities we can add? One of the ways I’d like to do it, is rather than just doing it horizontally in terms of adding additional cities, I like to do it vertically. So like, is there anything that person missed with the content in the cities that are already covered? Can I cover some additional keywords and content in each city? So let’s say it’s already covering a hundred cities, can I add three articles to each, which would give me an additional 300 articles, and would that be valuable? I think that would be a way to do it as well instead of just looking for new cities, look to add new content in the cities that are already covered.

                                                Alright man, final verdict on this one, what do you think?

Joe Magnotti:                    Yeah, most likely a yes. I think we need to improve the quality to the articles and maybe the branding, but we know that there are very good affiliate programs out there like QuinStreet so if they’re not using that, if they’re using something like AdSense and we know we can change it over to something like QuinStreet and use that affiliate program for an automatic bump, this makes it a no brainer.

Justin:                                   Alright brother. Let’s do scenario three. For this one we’ve got a two year old drop shipping site selling $200 to $400 items so all of the items that are selling are basically $200, $250, $300, $350 or $400, right? It’s got five suppliers, so there are five different suppliers that are allowing them to drop ship. It’s got 400 skews, and 80 percent of the sales are coming from 10 of those skews, so even though it’s got 400 the majority of sales are coming from 10 skews. The site makes $10,000 per month in net and is slightly growing. It’s built on Shopify, has a good design but just okay content, and let’s say that 50 percent of the traffic is from paid traffic. And then, the site has 25 percent margin so it’s doing $40,000 a month in sales.

                                                Here are some of the reasons I dig this site. The fact that it’s a drop shipping site is a go. If it was inventory holding, I wouldn’t like that so much. I like the fact that there are five suppliers. I think if you only have one supplier in a drop shipping relationship that’s concerning, right? Because if that drop shipper stops allowing you to drop ship, or if you’re purchasing the site and they change the deal on you – they bump up their costs or something like that can be a real problem. Especially if they’re the cheapest or the best or whatever, you’re stuck looking around. The fact that they are five suppliers here is helpful. I think we can run with the brand and work on some content marketing, it’s only got okay content. I think that’s something we can help with, and I like the fact that 50 percent of the traffic is paid traffic. It seems like the traffic is relatively diversified which is helpful for us.

Joe Magnotti:                    Yeah, the mixed traffic area is a great one, so I really like that. And of course the platform being a Shopify platform, that’s very easy to [inaudible 00:26:01] again our staff is very familiar with running this kind of sites, handling customer service. If it’s an automated connection to the suppliers, it makes the connection very easy because the orders simply get set over directly to the drop shipper. If it’s not, again we have staff in place to handle that and our staff is familiar with the platforms.

Justin:                                   Alright man. Here’s some concerns I have. Now, I mentioned the number of skews was 400, that’s a little high, right? So, that adds complexity to it. One of the things I’d want to know too are most of the sales coming from one supplier? So, even though it has five suppliers, are 89, 90 percent of the sales coming from one supplier? Because, then you’re stuck in the same boat. I’d like to make sure that the actual products that are selling are diversified in terms of the suppliers, and if not, the other suppliers have very similar products for similar pricing.

                                                So, the number of skews, that’s actually something you could cut back on if we ended up purchasing this site we could cut back on the skews, especially the ones that just don’t seem to be taking off. The seller might have gotten lazy and just left some of them up there, like oh, it doesn’t hurt me to leave them up there, but we might want to just scale that back down and really focus on the ones that are working.

                                                One of the other things I’d look at pretty closely is I’d want to know what the relationship is between the site, the seller that’s selling this, and the actual supplier, the drop shipping supplier. Sometimes you find out that’s the sellers sister or it’s the seller themselves, and as soon as you buy the site then they can increase pricing and squeeze your margin.

                                                I’d also want to make sure that relationship is transferrable, right? That they understand that someone else is buying the site and that they’re willing to continue at whatever deal they have with the site. So those would be some of my concerns in purchasing this.

Joe Magnotti:                    Yeah, and I’d also be concerned at how easily it is to find these drop shippers and get a kind of wholesale account with them. Because if it’s mostly relying on paid advertising, and it’s the kind of drop shipper where anyone can get an account, that’s a pretty easy business to recreate and it might be a little risky for us.

Justin:                                   Alright man. So, the final verdict on this one, I’d say it’s a large purchase. We’re probably looking at $200,000 to $250,000 here. But the traffic diversity makes this a likely yes, the fact that some of the traffic is paid, some of it is organic I think is fantastic. I like the earnings, it is a larger site it’s making $10,000 a month at 25 percent margins for drop shipping is good. Yeah, I think this one would be a go.

Joe Magnotti:                    Yeah I agree. We definitely have to investigate the relationships very thoroughly before moving forward but, I do like it.

Justin:                                   Yeah, so again this isn’t a go, we’re not necessarily gonna buy this one, this isn’t an actual site but to give you an idea on just that information kind of where we’re at.

                                                Alright man, let’s get into part three. Let’s look at websites that wouldn’t be a good fit and we’ll kind of lay out two scenarios here on sites that I just don’t think would work and we’ll get into why that would be.

                                                Alright man, so scenario four. We’ve got a three to four year old Amazon affiliate site. It’s selling larger items, so $1,000 plus items. The site is making $15,000 a month and the income is growing. So it’s a large Amazon site selling larger items and it’s making $15,000 a month in earnings to the owner, in profit to the owner. The site requires six to eight articles per month. It looks like earnings spiked about six months ago. It’s got a seller owned PBN use here. And 90 percent of the traffic is organic. The design is bad, but the content is just okay.

                                                Alright. Some of the reasons we like this one; it has great age, right? It’s three to four years old, it’s an Amazon site. We like the fact that there’s a content strategy in place we think that’s something obviously with our team and process we can head into. And then, we like the earnings, it’s making $15,000 a month, that’s obviously great and would be a nice pick up for the portfolio. What do you like about this site, Joe?

Joe Magnotti:                    Yeah, well I like that it’s an Amazon site and Amazon just – they’re very good about moving from one account to another. So yeah, like you said if they’re anywhere under eight percent right now in their account, moving over to us gets an automatic boost.

Justin:                                   So here’s some of the things we don’t like about the site, or some of the things that concern us. It had earnings spike about six months ago, and it’s also using a seller owned PBN. So one of my questions about this one is, is it necessarily stable, right? And as we mentioned before, we’re really looking for sites in the $30,000 to $200,000 range. This one would be much more likely, it’d be much closer to $300,000 for this one so, it might be a little too large, or a little too risky for the portfolio.

                                                The fact that the design is bad and the content is just okay has some concerns for me. We mentioned our last point being something we’d like to own, be proud to own – we might want to do a revamp of the design and content. And my concern there if we were gonna do this, we were gonna buy this site and start revamping the design and content is how badly would that hurt earnings, right? And so, it’s one of those things where if we took over the site, we basically have to leave it the way it is. It’s got bad design, it’s got okay content. Our only goal is to continue with the content marketing strategy on a site we don’t particularly love and it’s probably a little too large the portfolio.

Joe Magnotti:                    Yeah, I think that the little too large thing is just really gonna hurt us here in this particular portfolio. And then like you said, any changes that could make a huge impact there, those two hand in hand make this a no.

Justin:                                   Yeah, it’s interesting. I think you could go in there and make some changes, but it’s just too large for us to start making the content and design revamps that we’d need to do. So this is a most likely no for us I think.

                                                Alright man, let’s get into the fifth and final scenario. We’ve got a four year old drop shipping site selling $50 to $100 items so relatively small items. The drop shipping site has 20 suppliers, it’s got 2,000 skews and it’s got diversified sales across all of those different products, right? So it’s not like a couple of products are driving most the sales, it’s pretty diversified across the 2,000 skews and the 20 suppliers. The site makes about $2,000 per month in net profit and it’s got like a slight, or even like a moderate growth curve going on. It’s on Shopify platform, it’s got good design, it’s got good content, and it’s got 10 percent margins.

                                                Alright Joe, what do you like about this site, what sounds good to you?

Joe Magnotti:                    I love the age, I love the diversity of suppliers and probably the content and the platform, the design – those all look strong to me. But, there are definitely some huge minuses.

Justin:                                   Yeah, I love the fact that it has a good design and good content sounds nice. I like the diversity of suppliers too. I like that it’s a four year old drop shipping site, that’s kind of interesting. But my concerns are major here, the first one is that they’re smaller sales. So it’s selling $50 to $100 items, and it’s selling a ton of them. What I think of when I hear these smaller sales and there are a lot of sales, especially in a drop shipping scenario – not an Amazon scenario, but a drop shipping scenario – is there’s gonna be some serious customer service issues, right? So they’re gonna have a lot of questions, they’re gonna have emails, they’re gonna want chat or phone support. There’s gonna be a whole lot of customer service on a site like this. I don’t like the fact that it has so may skews, 2,000 skews and a lot of those skews are selling products. That’s a whole lot of management going on there too.

                                                Also, and I mentioned the 10 percent margins, I think low margins means less scalability value, so if we really grew it up, we’d have to grow some of the costs that come with this. I don’t like the margins, I don’t think that leaves us a whole lot of room to really make improvements to it. I think the biggest one Joe, is the fact that it’s making $2,000 a month in net profit means it’s gonna be about a $40,000 site. That’s only about five percent of the total portfolio, so with the work required on this one, even if we did really, really well with the site and really grew it- it’s not gonna move the needle that much in the portfolio overall, and I see a ton of work going into this one, even with a win it’s not gonna move the needle all that much, so I don’t know man. What do you think, what are your concerns on this?

Joe Magnotti:                    Yeah, I mean the biggest concerns for me are definitely customer service and returns. So, even if the drop shipper is handling the returns, you’re still just gonna have customer service people that tell people where to send the returns, making sure the returns get done, refunding people, that sort of thing. And like you said, the sheer number of sales there make that a large commitment of time from someone even if it’s a low level agent. That means to me that this kind of site is better suited towards either an eCommerce expert that thinks he can take it to the next level by maybe taking it out of the drop ship space and sourcing the product himself. Or, someone who – lifestyle Larry kind of guy, thinks he can run it all himself on 20 hours a month and take his $2,000 to the bank.

Justin:                                   The lifestyle Larry guy, have this be one of his three or four sites that he runs, right? And he’s good with it, he’s got a bunch of sites making $1,500 to $3,000 a month each, he’s got three or four of those and he’s doing well and likes that. But yeah, for this portfolio, it’s a little too small too, right? I mean it’s just not big enough. I think it would be different with a couple of tweaks. If this were a – instead of $40,000 site it was a $200,000 site with better margins and higher dollar item products and less skews, I think this would be a win.

Joe Magnotti:                    Yeah, agreed.

Justin:                                   Alright man. So final verdict on this one – no. Not big enough to matter, worry about that customer service and the low margins mean scaling is a bit of a hassle.

                                                Alright man, so that’s it. We’ve covered kind of our reasonings in terms of our criteria for spending this $800,000 in the portfolio. We’ve looked at the website scenarios that are in a situation where we are most likely looking to purchase, and we’ve covered the websites that, at least for this portfolio, wouldn’t be a good fit.

                                                I’d love to hear what you think about this episode. Make sure to leave a comment over at empireflippers.com and let us know which of those scenarios you liked, which ones you didn’t. I’d be interested to hear.

                                                Alright man, let’s get into news and updates.

Speaker 2:                           You’ve been listening to the empire podcast. Now some news and updates.

Justin:                                   Alright man, first bit of news. Both you and I are in Manila, and we’ve got a guest visiting us. We’ve got a friend of the show, a previous guest. He was on the show twice and he’s now my co-host over at the web equity show, Ace Chapman is over here hanging out with us in Manila for a couple of weeks so we’ve been having some fun with him – dinner and drinks and that kind of thing, been talking shop talking about the industry a little bit.

                                                Really interesting guy, he acts as a buyers agent, so we represent the sellers generally, he represents the buyer. So we’ve done quite a bit of business with him, and he’s a really good guy in the space and someone you should definitely know if you’re interested in that kind of thing and looking for a buyers agent, he’s a great dude.

Joe Magnotti:                    Yeah, we’ve definitely had quite a bit of business with him so congratulations to Ace on that, and nice to have him here.

Justin:                                   It is man. Second thing I wanted to mention, is we’re still on track to hit our goals. We started a goal beginning of the year. We wanted to do four million in sales. We’re definitely on track for that. We had a strong August, and it looks like we’re having a strong September – little less strong with a deal dropping out on us, that was really painful. I’m sure we’ll talk about that in a future show, but it’s still looking good. So we’re gonna hit our, both our quarterly goal for Q three, and we’re still on track to hit our annual goal. So I’m really excited about that. We did set an aggressive goal and it looks like we’re hopefully gonna hit it this year, we’re on track.

Joe Magnotti:                    Yeah, we’re on track. We’re gonna have to push hard in Q four but I am very hopeful that we’ll hit it.

Justin:                                   Yeah, we’ve got a lot more listings, we’ve got, I think, a bunch of good websites and quality businesses for sale and buyers are responding to that. So they’re definitely making deposits, they’re definitely purchasing these businesses and if that can keep up I think we’re gonna end the year pretty strong.

                                                Third point I wanna talk about, this is actually yours a bit, Joe. We’re reworking our legal entities for Empire Flippers. Now, we’ll talk about this a bit, but right now we have a California S corp. And so, we’re looking to switch that around a little bit and move our state and then also set up some other LLC’s potentially.

Joe Magnotti:                    Yeah, we’re having the lawyer and our accountant look into this. Hey, I’m the guy who always says, don’t focus on the paperwork, focus on the business. But, unfortunately we are at a point now where we do have to get the paperwork in line. We have time, I think it’s gonna be something we do in the first month of 2016, and we’re gonna have the professionals take care of it and make sure to use their advice to the fullest.

Justin:                                   Yeah, it’s interesting. So we’re looking at obviously Delaware LLC’s. One of the things that our attorney mentioned was Puerto Rico, I think an LLC or a Corp and so we’re looking at that. One of your concerns was, if we have a corporation or LLC out of Puerto Rico would investors or buyers be a little sketched out about sending the money to that company because it is technically, and I’m doing air quotes here, but off shore, right? Rather than having a straight up US corp. So, I don’t know. That’s something to take a look at I think.

Joe Magnotti:                    Yeah, I mean considering Puerto Rico defaulted on their debt, yeah. I would say that if I was an investor, I would be worried about sending money to them, or to a bank account that was domiciled in Puerto Rico. But, we can definitely look into that and like I said, I’m gonna leave it up to the experts. This is not gonna be a legal zoom thing where I go in there and, for a couple hundred bucks do my own LLC’s. This is gonna be something we get the right people to make the decisions for us.

Justin:                                   We’re splitting it up too, so we’ll have Empire Flippers, which is the brokerage. We’ll have kind of our investment holdings company that will get the earnings from the portfolios, and then we’re setting up individual companies for the portfolios.

                                                So this first portfolio, we’re gonna go and fix it after the fact, but basically get all the investors to sign up and own a percentage of that corporation and we’ll be setting it up that way. For any future portfolios, it’ll be set beforehand. So I think this is interesting, we’re doing this for a couple reasons. I think liability concerns, also to make sure that all the funds are separate, and then salability. In the future if we wanted to sell off a piece of the company, we wouldn’t have to sell off the entire thing, and so we’ll be talking more about that as we actually lay it out. Just wanted to give you an update that that’s something that we’re working on and once we get it kind of figured out, we’ll probably have our accountant and attorney on the show so we can discuss kind of how they set it up for us and why they did it that way.

Joe Magnotti:                    Yeah, that plan you laid out sounds right, but you know the best laid plans of mice and men.

Justin:                                   Yeah buddy. You’re just waiting to use that reference. That’s [inaudible 00:40:18] you’ve had in a pocket for a while man, you’re just pulling it out.

Joe Magnotti:                    I did.

Justin:                                   Alright buddy, let’s do some listener shouts, also known as the indulgent, ego boosting, social proof segment. On Twitter, we had Steven reach out to us, “Hey, did you guys ever get the property management idea off the ground that you mentioned in the Mad Fientist podcast”? That was an interview I did over at the Mad Fientist show, it was really cool.

                                                Yes, Steve, we did actually and that’s what we spent most of this podcast talking about so, hopefully you got a chance to listen to this. I’ll shoot you a tweet and you can check it out and hear kind of what we’re up to.

                                                We also had a guy, left a video review for us. Was talking about, remember there was a question, a guy was asking whether he should set up – he was looking for a career change. Should he get into development or should he get into marketing. And, the guy that tweeted us and mentioned says, “Trying to sell marketing services sucks, but web development is much, much better”. So what he’s saying is – I think I got this right, is that he should definitely get into development and then learn the marketing skill. It’s a lot easier to market your development work than it is to try and market marketing services, which sounds kind of vague and not as clearly defined. That was his point, get in development and then after the fact, learn how to market those services. I thought that was kind of interesting.

Joe Magnotti:                    Yeah, I don’t think that’s how I was taking it. I was looking at more like, which skill is more valuable, and unfortunately to an entrepreneur I do think that marketing is more valuable than being a programmer or a web developer. And the only reason for that reason is, is that you can market your way out of almost anything, and it’s hard to develop your way out of a problem.

Justin:                                   I agree, but it’s rarely like, it’s this or that, right? You’re gonna have some skills in both. I think that’s what the guy was trying to mention and I think he brought up, I think it was a pretty good point actually.

                                                Alright man, we got a nice mention over at bitscan.com about buying websites and businesses with bitcoin. You got a nice little hot money reference over there. I was talking [inaudible 00:42:14] had some questions about what the deal is and how we accept bitcoin and how we work with bitcoin to buy and sell businesses so, that was a fun reference, we’ll put a link to that in the show notes if anyone wants to check it out.

                                                That’s it for episode 146 of the Empire Podcast. Thanks for sticking with us. We’ll be back next week with another show. You can find the show notes for this episode and more at empireflippers.com/800k. And make sure to follow us on Twitter @empireflippers. See you next week.

Joe Magnotti:                    Bye-bye everybody.

Discussion
Leave a comment
  1. Leo says:

    I listened to this episode on iPhone a while back, but wanted to listen to it again… playback / download on your site is extremely slow … took 20 min to download 6/58mb … probably time to change your podcast host

  2. Will says:

    Thanks Justin & Joe.

    Great podcast, out of curiosity I have an Amazon associates related website currently hitting 7% – 7.5% in commission and I am looking to sell in the next couple of months.

    Would you guys be interested in having a look over it? It’s definitely the type of website you would be proud of, beautiful design and fantastic content, oh and significantly well-established, huge variety of keywords both highly competitive and long-tail, no PBN links just pure and simple branding.

    • Hey Will,

      Sounds like a nice site! Shoot me an email – info@empireflippers.com – and we can have a look.

      Quick note: We do not do cherry picking for the investor program. If it looks good, we’d have you list on our marketplace the regular way and we’d have to compete with our regular buyers on the deal. That would ensure you get the best opportunity to sell and we’re mitigating an inherent conflict of interest.

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