This post is part of my series on digital investment. See here for an overview.
So you're buying a website, or app, or something online.
If it's your first time considering investing in this world, you might come across a few (or many) unfamiliar terms relating to investing in websites or buying an app.
This is thus a glossary of terms about digital investment that you might hear a lot.
This website investment glossary is targeted at people with money to invest... or people who one day will, once you sell you ailing Lyft stock or whatever. I presume if you have something like $10-100,000 to invest then you are familiar with general investment terms like return on investment, valuations, etc. This isn't targeted at that.
So this glossary is for people who are familiar with other somewhat traditional investments, like stocks and real estate, and who want to get themselves acquainted with what you need to know to invest in websites.
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Finance and Valuation terms
These words are about money. Mooneeey!! That's why we're here, isn't it?
This is a fancy word that means "how the website makes money out of its traffic" and any other assets.
I've spelled it with a "z" against all my intuition, because it's definitely an american word. British people would call it "encashification" (no we wouldn't).
Some examples of monetization strategies are ads, product sales, and putting up a link and saying "buy me a coffee".
How long it would take back to earn back the money you invested into a site. This is related to the earnings multiple.
Basically you think "I dumped $50K into this thing; how long is it going to take me to make it back?" Hopefully two years or so (factoring in growth).
And after that, you can sell it!
This is also known as the "earnings multiple". In the website and online business world we value businesses by a "multiple" of their average monthly net profit.
So if a website's multiple is 36x, then you would expect it to be priced at 36 times its average monthly earnings (over a certain period).
If you have ever done stock valuations, you might be familiar with the P/E ratio of a company (that makes money). In the olden days a P/E ratio of 10-15 was average, and now, thanks to Amazon and the like, nobody knows.
Website Design and Performance terms
These words are loosely about designing websites and then measuring how well they're doing.
A niche is a sub-sub-sub-segment of an industry. It's a word you know, but you should know that people describe it as a specific sector of one market that a website targets.
For example, "watches" is a niche. But a better example of a niche is "designer luxury watches" or "vintage used watches".
People say "the riches are in the niches", which only works if you pronounce "niche" the ways Americans do. Otherwise you can be unnecessarily fancy, like I am, and say les riches sont dans les niches.
A niche isn't just any industry. By saying a website is in a niche, you're implying that it's a niche that exists (i.e. people are interested in it) and that the website can successfully rank in that niche. So "space food snacks for cats" isn't a niche, unless you're a visionary and I'm a fool... excuse me while I go buy "spacefoodforcats.com".
Traffic means how many visitors come to a site. It's usually expressed as a monthly number. I.e. "Traffic of 35K" means 35K visitors on average to the site every month.
Traffic can be expressed as sessions, pageviews, or uniques.
You should get sellers to be specific as to whether they mean pageviews (usually the highest), sessions (a slightly lower number), or unique users (usually the lowest number). For example, traffic might be 50K pageviews, 40K sessions, and 20K uniques.
Traffic is a bit like people walking past your store. It's up to you to pull them in and then monetize them!
Sessions, Pageviews, and Uniques:
These are all different measurements of traffic. You can make an argument as to which one is most relevant for each company.
- A unique user (monthly) is one person who visits a website in a month — no matter how many times. This is like someone who came to your store.
- A unique session is when they visit it in a 24-hour period. They might click around a few times. Multiple sessions per user is when someone is interested in something you have, or in your general site.
- A pageview is each thing they click into. Multiple pageviews per session is when someone really enjoys clicking around a lot or is possibly stalking you.
A good metric of how active people are on your site is pageviews/session.
I love this term because it literally means "the rate at which people bounce"... metaphorically.
So if someone shows up to your site and reads a bit and says "yo, I'm gonna bounce" without looking at anything else, that's a bounce. If they click on ONE other thing, then they're not a bounce.
It's great to have a low bounce rate, but it's not necessarily bad if you don't, unless your time on page is also very low.
There are a few kinds of redirects. But generally, it means people going to one website end up getting redirected to another.
They're important in the world of buying and selling websites.
When someone starts in the website world, they often go buy a cheap and available domain like "ohmygodletsgobuysomestuff.co.il". They build a website and get a little traffic.
Then they muster up the courage to drop a solid $20K on "buystuff.com", and maybe that gets them more traffic (I don't know), but more importantly, they have to redirect all their traffic to the new domain.
Sometimes websites come with a few domains and with redirects built in to them.
Platform is a somewhat loosey-goosey term. It basically means "the thing on which the website is built", and is a combination of the host and the technology.
The platform is usually a content management system, or CMS, that's the backbone of the website.
The platform of most websites that are sold is a CMS, the most common of which is WordPress, but sometimes you'll see custom ones.
A CMS is a content management system. A content management system is a system that manages your content. You're welcome!
A typical CMS does two main things:
- Provides an interface for the user to create content, and
- Publishes it, making it available as HTML.
By far, the most common CMS is WordPress. You might have heard of Wix, SquareSpace, or Ghost (one I wax lyrical about... and the one on which this site is built), but in the world of buying and selling websites, the lion's share is on WordPress.
Clickthrough rate (CTR)
This is a functional metric that describes how often someone viewing a page on the site clicks on an ad or offer.
In the real world, this would be the proportion of people who buy the shampoo after seeing the lady on the TV ad swirling her hair around. Visualise it...
Conversion rate (COR)
This is a metric that describes how often a click converts to a sale. The traffic x CTR x the COR x average sale price = how much money your site can make.
SEO terms related to websites
SEO is "Search Engine Optimisation". It is a dark art that is all about making it very easy for a search engine to understand your website so you have the best possible chance of getting it in front of users.
If you're curious, check out my article explaining SEO in one sentence.
A keyword is a word or phrase that people search for on a search engine (i.e. Google).
For example if you're looking for the best mountain bike, you'd search for "best mountain bike". We call that one "keyword".
Keywords can be things like
- hairdressers in the mission
- best cat food persian cats
- bitcoin price
- drive for lyft vs uber
- best looking motorcycles 2020
A website that performs well on Google needs to rank highly for many keywords, i.e. when you search for that keyword, the website needs to appear near the top of page 1.
A domain rating, sometimes also called the "Domain Authority" (which is a separate metric) is just a way that third-party companies like Ahrefs or Moz say how "trustworthy" a domain is.
In all systems, the higher the number, the more trustworthy the website in its niches. By trustworthy I mean the website is likely to a) rank higher and b) rank faster.
Generally, you can increase your domain ratings/score/whatever by doing whatever it takes to rank higher for certain keywords.
Rank and Ranking
A website "ranks well" or "needs to increase its ranking" when you notice that searching for various terms won't cause the website to show up.
This one threw me for ages. I kept trying to guess it from context, but couldn't. It just means "Search Engine Results Page", i.e. a page of Google (or whatever) showing you the results. You want to rank higher on the SERP.
Purchase intent is how you describe the quality of traffic. It describes the traffic as being "very ready to buy" down to "looking for information" (or "lost", like someone who clicked on the wrong thing).
Purchase intent is mostly relevant for websites that sell things. There are certain search terms (keywords) that indicate a high intent to purchase, like "best value computer", which is much more likely to lead to the sale of a product than, for example, the keyword "history of rome".
Back links (or backlinks... I think it's one word now) are links to a website from other websites. There are two main kinds: unique links from pages and referring domains.
The more (high-quality) backlinks, the higher the site is likely to rank on Google and retain its ranking.
Link building is the process of building backlinks so that a website will rank higher on Google.
You can do link building by
- Writing guest posts on other people's blogs
- Asking people to link to youiently
- Waiting pat
- Using villanous hackers procured via the Dark Web
I've tried the last one and it actually seems to work.
Whichever way, it's usually a long and arduous process. That's why people use PBNs.
Private Blog Network (PBN)
There are various kinds of PBN, but all of them mean backlinks that have been obtained not naturally in some way.
Some people own their own network of websites and link to their new websites from that network. Some people pay other PBNs to link to them — but this always ends in tears.
Deal-making terms related to buying and selling websites
An escrow service is a third-party service that holds your money while you verify an asset. It then pays out to the asset owner once you've verified it's all kosher. Probably the most famous one is escrow.com. I was sceptical because of the convenient domain name (shouldn't it be EscrowMonkey or YellowEscrow or something more startup-y?), but it turns out that a lot of people use them.
Sometimes you can buy a website for less than the listed price if one of the terms of the sale is an earn-out.
For example, if a website is priced at $150K and you buy it for $130K + an earn-out, then you buy the website for $130K but give the first $20K of earnings to the seller.
To me, this is just like paying the full amount. I can't figure out the difference. Whether or not the earn-out is a good strategy is a topic for another day.
Got another term that was a mystery to you? Even if you've googled it and figured it out, email me and let me know to add it.