The digital revolution has completely changed the way the world does business. Thanks to the internet, a whole set of opportunities are now available to us that were unimaginable just 15 years ago.

Specifically, there are countless more ways for people to make a passive income. Because you can connect with people from all around the world, and because you can work from wherever you want, there are now tons of ways to make money on the internet.

One way to generate a solid passive income is to set up a business buying and selling websites. This is known as “website flipping,” and it works much in the same way as real estate flipping; you buy sites, fix them up a bit, and then resell them for a profit. But to do this successfully, you need to know a few things. The best thing is to setup a profit-sharing plan for employees of the company you’re buying. You can consider using profit-sharing software from a company like ShareWillow that allows businesses to create and manage profit sharing plans for employees and shareholders. Consider the following to help you build a profitable business buying and selling websites.

Know How Websites Make Money

After you buy a website, you need to find a way to make it grow, as this will help drive its value up and ensure you make a profit when you sell it.

For Brian, after he sells a Cincinnati website design project, the work doesn’t end there it goes onto marketing the site.

As such, it’s important you know exactly how websites make money. In general, there are three ways:

• Affiliate marketing: To make money this way, you essentially sell someone else’s products. You drive traffic to your site and then write content designed to convert visitors into customers. This can be a very profitable method for making money online, but to do this successfully, you need to make sure you can expand upon the website’s search engine performance, as this is where you’ll find new growth.
• Advertising: This was the primary way websites made money when people first started running online companies. However, nowadays, large companies such as Facebook and Google have made it hard for smaller websites to make a decent profit with advertising. They essentially have a monopoly. You need to have a plan for significantly expanding the site’s traffic for this method to be worth it. Or, you’ll need to switch the site from an advertising model to something else that promises to improve profits and increase value.
• Unique products. The third main way of making money with a website is to sell your own products. These can be physical products (think eCommerce), or they can be digital (eBooks, resources, guides, etc.). Or, they can be services, such as consulting or coaching. If you’re going to take over businesses that make money in this manner, then you need to be sure you can continue offering the same, or better, quality product or service.

Which Method is Best?

There’s no one best way to make money online. Each method has its own set of advantages and disadvantages. Unique products tend to have the highest margins, but it’s difficult to get enough users to enjoy these margins.

Affiliate marketing requires more volume, but if you know how to work search engines, then this volume can be easy to find. But no matter which one you choose, make sure you can scale up whatever operation you’re taking over.

Understand Business Value

To be successful as a website flipper, the first thing you need to understand is how businesses are valued. If you do this, then you’ll be able to find sites that are selling at a good price. And you’ll also be better at identifying those that stand to increase with value over time.

Generally speaking, a business is worth 2.5 times its yearly revenue. But this is just a starting point. Part of the process of selling a business is a valuation; an appraiser comes in and looks at your business to determine what it’s worth.

Some of the drivers of business value you need to pay special attention to as someone looking to flip websites are:

• Business processes and systems. Online companies that run more efficiently are usually worth more. For you, it’s important to look for companies that will be easy to run once you take over. If you need to invest a lot of time and resources in making the company run, you’re going to decrease your margins. Instead, try to find sites that have good systems already in place so that you can take over, invest in new growth, and then sell to other investors who will recognize this site as an asset.
• Risk. The worst thing that can happen is that you take over a company that is in danger of going under. Market forces, regulatory issues or legal problems can turn an exciting investment into a money pit practically overnight. Make sure current owners have addressed any potential risks, and make sure you do the same as you run a site and prepare it for sale.

Focus on SEO and Branding

While there’s lots of money to be made on the internet, competition is fierce. It’s hard to get people’s attention, and it’s even harder to win their loyalty. There are two ways you can help ensure the businesses you buy and sell grow and end up as quality investments.

The first is to make sure the sites you buy and sell perform well with search engines. The majority of your site’s traffic will come from organic search, so make sure to look at a site’s backlink profile before buying it. This is the list of sites linking to your website. It’s important since Google and other search engines rely on the number and type of links to your site to determine your level of authority and subsequent position on search engine results pages.

Next to search engine performance, you’ll also want to pay attention to the strength of the brand you are buying. Ask current owners for any research they have about brand recognition and authenticity and take a look at how well the current owners are executing their branding strategy. You may want to avoid businesses with loose and inconsistent branding, as it can be hard to leverage this into strong brand affinity once you take over. Competition is tough, so any advantage you can give yourself will end up being a smart investment move.

Get Some Help with the Sale

You must remember that you are not the only person in the world trying to make money this way. As you go to sell a website, there will be lots of people looking to do the same thing you did with it—buy it for cheap and then sell it for more.

A good way to make sure you’re getting the best deal when you decide to sell is to get some help. Business brokers specialize in helping you find buyers who are serious about making an offer that reflects the true value of the business. They have large networks and extensive marketing resources to help you find someone who will pay more for your business. While they do take a commission, it’s typically worth it, as you can secure higher offers than you ever would be able to selling it on your own.

Be patient and work hard

It’s important to remember that just because your income might be passive, it doesn’t mean there’s no work involved. Do your research, put your time in and be patient. When selling a website, don’t jump at the first offer. Trust your valuations and wait for a serious buyer. If you do this, and follow the tips covered here, then you’ll be well on your way to building a profitable business buying and selling websites.

About the author: Jock is the founder of Digital Exits, an online brokerage service that specializes in the appraisal and buying/selling of online businesses. He has been doing this since he was 19-years-old and bought his first website. He enjoys working with others to help them find ways to make money online, so he writes frequently about his experiences.