Justin Cooke

May 12, 2014

Most who have followed our journey in recent months (or years) understand that we’re not in the business of stealing deposits from buyers, but our recent marketing campaigns have put us in front of a host of new potential buyers—many who are amazed that we hide critical details behind a deposit.

We usually hide the URL and specific details on the websites when we list a new site. To get that information, as a buyer, we require a (refundable) deposit – typically 5% of the purchase price.

The biggest marketplace in the buying/selling space doesn’t do this, so why should we get away with it?

The biggest marketplace in the buying/selling space doesn’t do this, so why should we get away with it? Doesn’t this make us less trustworthy than our competitors if we’re requiring cash up-front, before you’re even able to perform any due diligence?

This post is an attempt to answer that question and explain to those new to Empire Flippers who we’re really protecting when we require deposits on sites. I’ll cover a few different points and criticisms we’ve received later to better explain how this process protects our buyers, not the sellers.

1. Hiding the URL Protects Against Dozens of Copycats and Competitors

When we were just starting out, we were completely transparent about the sites we were selling. We’d list the URL, keywords they ranked for, specific analytics and monetization proof, etc. Eventually, previous and prospective buyers started reaching out to us and asking if there was any way we could sell them sites without publicly sharing this information.

These buyers realized that by publicly sharing the URL and all the ranking/traffic details for everyone to see, we were inviting a ton of copycats to simply recreate the success of the sites by targeting the same keywords. Even worse, some of these unscrupulous builders would use negative SEO tactics to harm the new buyer and give themselves a chance to outrank the original site.

This wasn’t good. By sharing too much information publicly, we were putting our end-buyers at risk and giving them a ton of competition they wouldn’t have had. That’s when we created the marketplace and limited the more critical pieces of information to those few who were willing to pay a deposit to see that information.

“But doesn’t a (refundable) deposit still give copycats a way to go after the site?”

Yes, it does. They can simply pay the deposit, review the information we send over, and then take steps to copy the success of that site. The difference is:

A) Typically, the type of person that does this isn’t willing to put their money at risk with a deposit. While it’s refundable, they worry that others (like us) would do anything they can to keep/steal their money.

B) We have control over who’s paying the deposit and reviewing the detailed information. Buyers who are looking to copy and not purchase may only get to look at one or two sites before we cut them off.

C) We’ll usually have two to six depositors on a site before it’s purchased. Odds are, you won’t have a copycat at all or, worst case, maybe one or two that go after the niche.

2. Hiding the URL Allows the New Buyer to Protect Against Business Competitors Before Going Primetime

This usually comes up when prospective buyers say something like, “Doesn’t the fact that sites can be copied show they’re not very defensible (and not very valuable because of that?)”

The more defensible the website or business, the more valuable it is, yes. In most cases, a $200K website with multiple monetization sources, an established and well-known brand, and a great reputation in the niche is significantly more valuable than a $3K AdSense site. But that value has already been baked into the price for obvious reasons. Let’s look at this another way.

Defensability Spectrum

Consider the businesses we sell as fitting in somewhere along a wide-ranging spectrum. A five-year-old eCommerce business that has a uniquely-designed product sourced from China, has a well-known brand, and is years ahead of their competition is much more established and harder to replicate than a one-year-old Amazon site that gets the majority of its traffic from five to ten keywords. But many of the businesses we sell fall somewhere between those two extremes.

A two-year-old dropshipping site with a new but emerging brand and a non-exclusive arrangement with their supplier(s) can be valuable, but also vulnerable. They may be on a trajectory that will give them a defensible position and a “moat” around their castle eventually, but the new buyer may need or benefit from another one to three years of privacy before going public.

Keeping the specifics private to everyone but qualified depositors gives end-buyers the time they need to further establish and build out both the value created and the defensibility of the business through better industry relationships, established brand image, diversified traffic sources, and more.

3. We Put Our Seller Through a Rigorous Vetting Process – We Need a Sniff Test for Buyers as Well

Before listing their websites on our marketplace, our team has had a chance to dig through both the seller and the site that we’ll be listing to look for inconsistencies and to disqualify sites that don’t meet our criteria.

close to 40% of sellers who have paid to be listed with us are denied or disqualified.

We use a funnel system that’s meant to disqualify the sites and sellers – close to 40% of sellers who have paid to be listed with us are denied or disqualified.

We may spend anywhere from 1-2 hours (for sites we can easily disqualify) up to 20+ hours reviewing things like:

Seller – Is he/she a real person? Do they have an established presence online? Have they been inconsistent in their claims?
Monetization – Can we independently verify the earnings via 3rd party? Are the earnings consistent with their traffic? Do they pass any of the dozens of scams or sketchy tricks we’ve seen other sellers use?
Traffic – Is the traffic verifiable via 3rd party? Does any of the traffic match that from less-than-reputable traffic brokers or sources?

We put our sellers through so much up-front (See more on our due diligence process here) that it only makes sense we require a commitment from potential buyers. Sellers are MUCH happier working with potential buyers when they know they’re serious – a deposit allows us to take questions to the seller from a much better position and usually elicits much more detailed answers from the seller.

4. Listings That are Fully Public Can Get as Much as 50% More Views and Interest

Some sellers are confused about this as well. They come to us relieved that their niche and URL are protected. I think they’re worried about copycats themselves, just in case their website doesn’t actually sell and they end up keeping the site. (Even though, to date, we’ve sold 95%+ of the websites and businesses we’ve listed on the marketplace)

When it comes to whether the listing is public or not, we don’t allow the seller to choose. While fully public listings would likely bring in a larger audience and, with it, a bunch of new potential buyers, it’s important to us that our end-buyers know the websites they’ve purchased have been protected.

Ultimately, hiding the URL is to protect YOU if you end up buying the site, not to protect the sellers.

Once we’ve determined that a listing is acceptable to be publicly listed, we take the option to the seller and allow them to make the decision whether to list the site publicly or not.

We usually advise that it is in their interest as they’re likely to get at least 50% more views on their listing, but if we feel that this would put the end buyer at risk, we keep the listing private.

5. Most of the Questions and Concerns About Deposits Come From Those Who Have Never Purchased Before and are New to Our Brand

It’s rare that any of our regular buyers or subscribers have an issue with deposits—most of these concerns come from people who have never heard of us before. The idea that we’re requiring a deposit from them before they’ve even had the opportunity to do due diligence themselves sounds awfully presumptuous on our part.

We’re not as strict with buyers, as it really just comes down to their ability and willingness to pay. Some buyers do end up asking a ton of questions about us, the seller, and the website that’s listed. We’re happy to answer any questions they have, but there is a drag on resources the deeper the questions go. To balance this out, we ask for a deposit to show that buyers are serious and coming at this with earnest.

There are two main reasons potential buyers balk at paying the deposit:

A) They don’t trust us.

B) They don’t really have the money.

If they aren’t convinced we’ll happily refund their deposit should they back out, we’ve not yet convinced them that what we’re offering is valuable to them and we probably shouldn’t do business (yet). If they don’t have the cash for this deal, it’s better we spend our efforts and resources elsewhere with potential buyers that are serious about the prospect of purchasing the site.

I haven’t verified this, but I’d be willing to bet none of our previous website buyers bought a site from us the first time they visited EF. These aren’t impulse purchases—buyers need more time figuring out who we are and what we do before plunking down significant cash to get the process started.

That may be…but once we’ve had a chance to explain how this is a move that ultimately protects them, they come around. I’m hoping this post will help explain the situation to those that have wondered about this, but never bothered reaching out to ask about why we charge deposits.

We’ve received deposits from, refunded deposits to, and sold websites to hundreds of buyers. Most of them are private, but we’ve also worked with industry experts and insiders like Ace Chapman—an experienced business hustler and guest we’ve had on our podcast recently.

If we were holding his deposit as some kind of profit scheme, that would be a pretty short-sighted strategy—and we’re in this for the long-haul.

So, do you agree that deposits benefit the end-buyers? What do you think about requiring a deposit before due diligence can be done?

Photo Credit: David Goehring – Flickr


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  1. Tung Tran says:

    I absolutely agree with you Justin! Just want to add that some people may do negative SEO to your websites as well.

    PS: I was actually temped to deposit to see the fitness affiliate site haha

    • Justin Cooke says:

      Hey Tung,

      Yeah – that’s one of the unfortunate side-effects of doing public case studies – something Spencer at Niche Pursuits got stung with. Luckily, his income wasn’t very reliant on the site and I’m sure the additional traction more than paid for itself with LTP sales! :-)

  2. Josh Escusa says:

    Couldn’t agree more on this. More eyes = more competition. Some of the people that go on flippa only go there to scope out keywords that they think they can rank for. That’s why some of the sites sold there end up with quite a bit of competition a couple months later.

    • Justin Cooke says:

      Totally right, Josh. In fact, there are multiple infoproducts that explain, step-by-step, exactly how to do just that! We know because we were featured/highlighted in one of them as a Flippa user to target back in the day, heh.

    • Tung Tran says:

      Actually I followed a list of sellers on Flippa just to find new niche ideas haha…nothing wrong with that :P

  3. flipfilter says:

    Hey Justin,

    I think the point about deposits is an interesting one.

    If I had to guess at the stats I’d say the reason for not wanting to place deposits is more

    5% don’t know / trust you

    50% don’t have the cash

    45% ‘other’

    From my perspective as a buyer (with a corporate account), I’m going to incur fees when transferring / receiving money and then there is also the headache of having to explain to finance how to account for an amount that leaves the account and may or may not come back in. It’s just messy to handle.

    Factor in any exchange rate fluctuations and it’s made even more complicated. I appreciate the average solopreneur wouldn’t have this problem but it’s certainly one for myself and a few people I know who buy on a regular basis.

    Personally I think the best solution would be an interim measure where potential buyers are vetted in some way, but not necessarily made to pay upfront.

    • Justin Cooke says:

      Hey Justin,

      You bring up an interesting point regarding fees + exchange rates, but my guess is this is a problem for a very low percentage of our audience. You’re the first person to bring it to my attention as an issue. (That doesn’t mean others haven’t considered it, of course, but it’s definitely not an outspoken issue from our readers/buyers)

      I’m a little confused, though – our deposits are sent via Paypal. Any refunds include refunding fees and (I thought) they were refunded at exactly the same exchange rate they were sent over with. Is that not the case? Our Paypal account is held in US dollars, but my understanding was that fees + exchange were not a problem in the case of refunds – is that wrong?

      • flipfilter says:

        I’d need to check to be sure, but I have a few PP accounts – personal and company ones.

        Regardless of whether the main currency is £ or $, paypal will always take money from your bank account at exchange rate 1 to fund your PP account.

        A month or so later, if you receive a refund, that will go into your PP account in the currency that it was refunded from ($). For me to withdraw into my bank account, PP then converts it back to £ but at the current exchange rate (2). If exchange rate 2 is worse than 1, I’ll lose out.

        I appreciate this isn’t likely to affect many of your readers though as most are based in the US.

  4. David Gass says:

    Justin – Well said. It makes plenty of sense to ask for the deposit. I’d rather have less buyers knocking on the door and potentially miss out on a serious buyer, just to get rid of the copycats. There are actually courses now that people are teaching on how to go to various marketplaces who are selling websites and find out all the data they can just to recreate the site someone else built. Obviously, that’s a lot easier said then done, but it’s still out there.

    • Justin Cooke says:

      Thanks, David.

      You’re absolutely right. We know about those courses because we were featured in one of them when we were first starting off!

      The next question, of course is – if the site’s valuable, how can it so easily be copied? I tried to answer that in point #2 above, but it probably deserves a bit more fleshing out…

      • David Gass says:

        In my opinion, the guys selling those programs are really just snake oil salesman. If you could really just look at a competitor and see what they are doing to recreate it and be just as successful, it would be done all the time. People don’t really even need to look at the data provided on a site like yours to copy it, there are plenty of 3rd party tools to see that data anyway.

  5. lebron says:

    I actually found out the URL of one of the sites listed on here. Wont be revealing it obviously. Hope the website sells successfully though!

    • Justin Cooke says:

      Hey Lebron,

      Did you guess it or do you know for sure? If it’s a guess that’s fine, but if you found it via some mistake we’ve made where it’s public, please shoot me an email to let me know! :-)

  6. Travis says:

    I understand why you charge a deposit AND I trust you guys but there is just something about requiring a deposit just to get some preliminary info doesn’t feel right. Heck, I can buy a residential or commercial real estate properties in the millions without putting a penny down to get the info I need to decide if it’s something I want to pursue. I love what you guys are doing here but I’ll likely never buy because it’s a pain to pay a deposit and deal with refunds just to evaluate a business opportunity. It seems to me there would be other ways to vet buyers. Maybe require them to fill out some kind of application or form with a one-time fee. The. Maybe you follow up with them via email or Skype to verify everything.

    Travis

    • Justin Cooke says:

      Hey Travis,

      I hear what you’re saying, but it’s a market question, right? If the market were showing us this were a bad idea (i.e. we weren’t getting depositors/buyers) I’d say you were right.

      The fact is, though, we consistently have more buyers than we do sellers – especially true for sites under $100K. It’s just not a problem for us – definitely not one we’re looking to solve.

      Joe has a few times asked for:
      1. Picture of prospective buyer holding up clear, gov’t issued ID
      2. Bank/Asset statements showing liquid/available funds with same ID shown in picture

      Nobody so far took him up on it.

      If we switched from deposits to a system like that…well:

      A) Why would we if it’s working?
      B) In a few test cases, the verification did NOT work

      See what I mean?

  7. mike says:

    Keep the deposits going. I think it’s an excellent differentiator from flippa and the copycat prevention is most welcome.

  8. Grigore says:

    Let’s say i’m the future buyer, and i wanted to know more about the business before talking to my investor. What would be the right way ?

  9. NAHLA ABBO says:

    As potential buyer and commercial realtor, I am wondering why signing a non-disclosure with a non-compete clause isn’t enough if your main concern is exposing the seller to proprietary theft and competition. Are there other reasons a deposit is required?

  10. NAHLA ABBO says:

    Nevermind….You gave valid reasons in your web conrent above. I should have read it entirely.

  11. Andy B says:

    Sorry, but as a buyer in this space across multiple services, I find this a great limitation with Empire. Why do you only consider the two extremes of full disclosure and what you do now (which is only really category and type of site)? The problem I have today is that I see something like “FBA business in the Sports & Outdoor vertical with XYZ financials”. From that I think: that generally meets my criteria but the sports & outdoor category (like all your others) is extremely broad. I need to ensure that the products are aligned (generally speaking) with my interests and where I can make an impact. My suggestion is to describe the product area more specifically without revealing the site information. Something like adding “selling lacrosse equipment and accessories” would be a major help. Otherwise, I have to make a deposit and find out 5 minutes later it isn’t to my interest. That isn’t efficient to put a $10k deposit down on. I’ve used my limited VIP passes to look at several of your listings that, at first, looked interesting but were not once I got the rest of the details. I’d like you to consider this hybrid as, otherwise, I think you are hurting sellers and buyers by artificially limiting your market.

    • Greg Elfrink says:

      Definitely feel your pain Andy. There is a few problems though with the suggestion.

      For example saying “Selling lacrosse equipment and accessories” is fairly specific. If I was an SEO, I would just keyword research everything about that niche and likely even find your site and reverse engineer everything for myself.

      A deposit limits copycats pretty significantly, even with it being a refundable one. We are growing the descriptions we do give on the listings to help qualify a business more before someone puts down a deposit, but also without risking the niche being known just by someone glancing at our marketplace. We have a lot of people that come to our marketplace specifically looking for proven businesses they can copy (similar with other brokerage sites). So we try to minimize this using a deposit process, which to date has worked really well in protecting both our sellers and buyers.

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