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A Guide to Basic Variables That Make a Site Valuable
Criteria for website valuation
mrowton




msg:792245
 1:40 am on Mar 12, 2005 (gmt 0)

I was going to post in reply to What is my site worth? ( Not for sale, just valuation) [webmasterworld.com], but decided it may take things too far off topic. Instead I'll start new thread and ask for feedback.

Below is my thought process behind the value of a website. Its written more for buying than selling, but it should be close either way. I only deal with content sites that get revenue from ads. So I could be off by quite a bit for other business types. Its also more beginner oriented.

I'm especially interested in critisism, as I'm sure there are areas that I left off. Much more could easily be written about this subject, I just want to make sure I hit all the high points.

Know the financial breakout
Web sites are bought and sold based on the expectation of future profitability. To find this you must first determine the “profitability”. Profits are defined as earnings minus expenses.

For example, site “A” earns $175 a month from advertising. In order to earn this it must spend $10 a month on hosting, $1 a month on domain name registration ($12 a year), and $64 a month on advertising. In this example, site “A” has expenses of $75 a month. This leaves site “A” with a profit of $100 profit per month.

Using a different example, site “B” also earns $175 a month. But in order to earn this it must spend $10 a month on hosting, $1 a month on domain name registration, and $139 a month on advertising. In this example site “B” has expenses of $150 a month with a profit of $25 per month.

What changes when it is sold?
This is an important area, if only because it is often overlooked. Let’s say that I’m considering purchasing site “A” from a person named “Fred.” Fred shows me that site “A” has 2,000 back links in the popular search engines. It receives 1,000 unique visitors per day, and 3,000 page views per day. Site “A” also has a Google page rank of 6.

At first this seems like a very healthy site, but upon further examination I notice that the majority of back links and visitors come from other web sites that Fred owns. In this example, if Fred were to sale site “A” he would remove all these links and referral traffic. Of course Fred may keep them for a little extra money.

What’s your multiple, 8 months or 12?
Lots of people will tell you to buy a site based off some arbitrary multiple, for some reason it’s usually 8 or 12. This means that if a site makes $100 profit a month, then you would pay $800 to purchase it at a multiple of 8. This is one of those areas where almost any advice you get is incredibly stupid. Multiples should be determined based on the expectation of future profit of the prospective web site, not from other people.

Instead of trying to come up with a good multiple to use, you should instead determine a good “system” for determine a separate multiple for each website.

I’m going to go over an example of buying a site and explain how my system works. Its just to give you an idea of my thought process.

What industry is it in?
Topics like technology and travel have a higher profit potential than sites about games and jokes. For a technology site, I may start with a multiple of 6. For a site about trading jokes, I may start with a multiple of 2. The example site “widgets.com” is a technology site, so I’ll start with a multiple of 6.

How relevant is the traffic?
Believe it or not, many webmasters can do some very unscrupulous things to drive traffic. The problem is “relevancy” if a site has lots of irrelevant visitors then companies in the industry will pay less for advertising on the site, or if the site sales products then there will be a lower purchase percentage. Fortunately widgets.com receives most of its traffic from natural searches. The webmaster has never done much search engine optimization, so this almost assures us that the traffic he does get is relevant to what visitors are looking for. Because of this, I’ll raise the multiple by 2, bringing it to 8.

How much traffic?
The amount of traffic a site has should play almost no role in determining the multiple. How can this be? Just keep repeating to yourself. You are purchasing the site based off expectations of future profit, not the expectation of future traffic. This means that all things being equal, a site that gets 10 visitors a day is worth the same as a site that gets 5 visitors a day - if they make the same profit. There are of course exceptions to this which are explained in the next topic. The multiple I’m using for widgets.com, of course remains at 8.

Is it established?
Earlier I talked about how traffic alone shouldn’t change your multiple. This is true in all but extreme situations. If the site looks good but has no visitors, then it isn’t established. I personally don’t consider buying site like this, because it’s impossible to get an idea of future profits. When dealing with non-established site the average profit is usually $0 or some very small number. Using my system you would never be able to purchase one of these sites. At least it would be very hard to purchase one at a multiple of $0. Granted, some of these sites do have some value, but it’s a lot more risky.

The other side of the coin is authority sites. Authority sites have usually been around for a long time and are the top site in their industry. They usually have a list of current advertisers, returning traffic, good public relations, etc.. If a site is an authority, then the multiple goes way up. While widgets.com has been around for 2 years and has a steady base of return traffic, it’s not what I would call an authority site. Because widgets.com is “established” but not an “authority”, the multiple remains at 8.

Is the traffic good quality?
Earlier we talked about the relevancy of the traffic and how this can affect future profits. Now we are going to talk about the quality of the traffic. The best way to describe the difference is to use an example. Widgets.com has a forum that accounts for half its traffic. Forum traffic is notorious for not being profitable. While you may make money doing simple CPM advertising (where you get paid based on the amount of page views) it’s difficult to get visitors to click on ads, this rules out Pay Per Click (PPC) and Pay Per Lead (PPL). Because forums aren’t as good quality (when thinking in terms of profit) we will lower the multiple by 2, bringing us back down to 6.

Another problem with widgets.com is that many of the forum topics and site content is based on hacking tech devices. There are articles on how to get free cable channels, hacking your X-Box, pirating DVD’s, etc. So while the traffic is relevant, (people look for these topics on search engines and find answers on widgets.com) the traffic is not of good quality. Individual companies will not want to advertise here, and it may be against the terms of service to use a third party ad group. Because of this we lower the multiple by 2, bringing it down to 4.

How much time does it take to run it?
Just because you aren’t paying yourself by the hour doesn’t mean your time is free. If a site takes a very small amount of time, such as 2 hours a month, then this leaves you time to make more profitable use of your time elsewhere. If a site requires a 40 hour work week, then you have locked yourself into a career and can’t spend time pursuing profits elsewhere. Widgets.com only requires 2 hours a week to run. For this, I’ll raise the multiple by 1, bringing it to 5.

Where’s the content?
In the world of internet advertising, content is king. If a site makes money off a “links directory” or web mail then it offers no original content. If the site contains hundreds of lengthy articles about the industry it covers then it deserves a multiple bump. Of course if the site is an e-store then this doesn’t matter as much. While widgets.com does offer forums, it also has many original articles, which will be included with the sale of the site. For this it gets a multiple bump of 2, bringing it to 7.

What are the income sources?
If a site makes most of its money from a single advertiser or product, then you are taking a larger chance at determining future profit. If a site has various income streams, some PPC, some CPM, some with individual companies, and some ad networks, then its much more stable and deserves a multiple boost. Widgets.com makes most of its money off a single PPC company. Because of the fluidity in this single PPC profit, I will lower the multiple by 1, bringing it to 6.

Is it fun?
If I could leave you with one piece of advice it would be this. Don’t consider purchasing a website, if you don’t like the subject. Like any other small business, websites NEED tender loving care. There is nothing like purchasing a profitable website and just letting it set and mold. If you like the subject then you will be more inclined to advertise, update, and add to it. If you like the subject, then it will be more profitable for you. I personally don’t like widget.com very much. While I usually like keeping up with tech related matters I would find it difficult to keep the forums on topic. I wouldn’t want to write papers about DVD pirating, and I don’t agree with the general principles behind the site. In order to run this site, it would require me to spend time doing things that I don’t want to do. Remember the quote, “Its business not personal.” I don’t think this applies; each site should be a personal project for you. If it is, then you will spend more time improving it. Because of my feelings for widget.com I’m lowering the multiple by 3.

So in the end, I offer widgets.com a multiple of 3 times the average of the previous 6 months profit. The owner is outraged and counter offers a price of twice that much. I explain my reasoning to him and also explain the good and bad points of widgets.com.

I explain to him that I have put a lot of work into coming up with a price that I think is reasonable and unless there is new information about the site that I didn’t know before I won’t change the price.

If you buy the site at your chosen multiple, great; there is a good chance you will make a profit. If you give in and raise your price then you are decreasing your chance at becoming profitable.

Remember when purchasing web sites its important to put a lot of time into coming up with an acceptable price. If the owner doesn’t agree with you then move on. There are many other owners who will respect your well thought out, reasonable offer.

 

stuntdubl




msg:792246
 5:29 am on Mar 12, 2005 (gmt 0)

Great post! Bookmarked, and I promise to reference it often for others. Thanks for taking the time to lay out and categorize these important concepts.

filmfodder




msg:792247
 3:30 am on Mar 17, 2005 (gmt 0)

Excellent post. I wish the simplicity exhibited here was adopted more often by businesses dipping their toes into the Web world.

maximillianos




msg:792248
 4:31 am on Mar 17, 2005 (gmt 0)

Thanks for the post. Very interesting read. Your concerns regarding inbound links from sites the owner controls is very valid and should be investigated thoroughly before buying any site.

I can see how the owner of the site you were bidding on may have been unhappy with your offer. In a traditiona brick and mortal business you sometimes use a yearly multipier for 3-5 years of what the business nets. In the online world, it is obviously not the same as there are (in most cases) no concrete assets such as products, real estate, etc. This leaves site profit and traffic as the most valuable factors. Traffic is one area I disagree with you on. I think traffic is definitely important in determining price. If Joe Smo is making $5/month off his 1000 visitors, and Tim Smo is making $20/month off his 50 visitors. I would see the 1000/visitors a month site as much more valuable for the potential of what could be marketed to those 1000 folks. In many cases, the current owner may be under marketing the site, or under selling products or affiliate programs.

Good work on outlining a solid strategy to help those considering investing in sites. It will definitely help folks with ideas of what they need to think about before investing in a site.

bts111




msg:792249
 4:31 am on Mar 17, 2005 (gmt 0)

What a great post!

Thank you for your time.

nuevojefe




msg:792250
 4:51 am on Mar 17, 2005 (gmt 0)

Nice thread, just a few things I might consider:

So in the end, I offer widgets.com a multiple of 3 times the average of the previous 6 months profit. The owner is outraged and counter offers a price of twice that much. I explain my reasoning to him and also explain the good and bad points of widgets.com.

And in the end you probably won't get the site.

That's great if your system includes your pricing influencers in their entirety but for some people there are other things to consider.

1. Are you truly good at SEO or search marketing or even Internet marketing? If so, or if you know of a good company that is affordable to you:

A) I would strongly look at how many popular keywords(targeted) this site ranks fairly high for but not quite top ten and consider the effect on targeted visitors obtaining those top ten positions could produce. (I'm in escrow on a site right now that is very close to some money keywords and with a little help will see huge increases in traffic)

B) I would consider what cross linking (or for the more marketing types, "cross promotional") opportunities exist with other sites in your portfolio. (Site I referenced earlier is also great for adding a few targeted one way links to an existing site of ours)

C) Are there flaws in the existing (assuming they are PPC'ing) PPC advertising efforts? Could more ROI be squeezed out of the existing spend or are they failing to target a goldmine of different key phrase nuggets?

D) Is the site's architecture flawed? For instance, are search engines able to spider and index all the content? If not, can you feasibly make that content spiderable/indexable and increase traffic (by a little, or even a lot)?

F) You have to consider what improvements you could make to the site: Can the site's sales channels be improved, can conversion rates be improved, is it properly offering its entire demographic products or services that they would find useful while maintaining customer satisfaction to a high degree?

2. Are they your sole or one of your few competitors? Getting rid of the competition can do wonders for your business (gee, no kidding?)! Narrowing it down or becoming the big kid on the block can also help greatly too.

3. Are there any sombrero negro issues that might lead to search engine banishment or penalization in the future? Link schemes, cloaking, doorway pages, PFPR (pay for PR), duplicate content, etc.

Gotta run, hope that helps add some extra considerations into the mix.

creepychris




msg:792251
 4:55 am on Mar 17, 2005 (gmt 0)

Very interesting points raised. Great post. However, I think one of the multipliers should be modified:

How much time does it take to run it?
Just because you aren’t paying yourself by the hour doesn’t mean your time is free.

That's very true. But a better way to figure this into the calculation is not to make a modifier based on the amount of time it takes to run it, but to pay yourself what you think you can get for your time elsewhere and add that to the costs. Therefore the initial profit number (to be modified) will be = revenue - hosting costs - your hourly wages.

It may trivial but the difference is important. Suppose you value your time at $25.00 an hour. If a site's profit (before taking into account your wages) is $100 but requires 10 hours a month to run, then clearly the true profit is -$150 dollars because your time is worth more.

Receptional




msg:792252
 8:05 am on Mar 17, 2005 (gmt 0)

It seems clear that others think this is a great post. Since forums are all about debate, I hope people will not bite my head off when I say I disagree.

So in the end, I offer widgets.com a multiple of 3 times the average of the previous 6 months profit.

Buying a web site is buying a business. Anyone selling a site for three months profit is probably going to better spend his or her time ignoring the buyer entirely and letting the site turn to dust. THREE MONTHS? What kind of short termism do you guys live on on that side of the pond?

A sound business (though not necessaruily web based) should be one that won't vopourize overnight. As near safe to bricks and mortar as you can get. Now - if a web site business was a s "safe as houses", then in the UK a buyer would consider a multiple of maybe 3 years, not 5 months. The buyer would take 10-15 years to "double his money" by banking it, so doubling it in 5 year represents value for money.

Now, I understand entirely that a web business is hardly a house, but you should have a site that has real users, real visitors, real buyers before it is even worth talking to a potential buyer.

That's just my opinion.

Matt Probert




msg:792253
 8:14 am on Mar 17, 2005 (gmt 0)

Buying a web site is buying a business. Anyone selling a site for three months profit is probably going to better spend his or her time ignoring the buyer entirely and letting the site turn to dust. THREE MONTHS? What kind of short termism do you guys live on on that side of the pond?

When recently someone enquired with regard to purchasing our domain name from us, and by inference our web publishing business, we considered the price we should accept as being the expected loss of revenue for the next ten years. Our business has taken over ten years to build up, and makes money. Suffice to say although we never discussed figures, the potential "buyer" never came back with an offer.

Matt

icedout




msg:792254
 8:20 am on Mar 17, 2005 (gmt 0)

with all due respect, I don't see how you can realistically expect some one to buy your site if it'll take them ten years untill they start seeing a return on their investment.

Edwin




msg:792255
 8:22 am on Mar 17, 2005 (gmt 0)

At the higher (i.e. authority site with major traffic) end of the market, there is a huge "grey" factor to consider, which is replacement cost.

A site that has been building up traffic, links and a very solid industry reputation for 5 years or more is, in some cases, going to be near-impossible to dislodge no matter how much money you throw at the problem, simply because they were there first and the vacuum in that particular niche has been well and truly filled. Suppliers and customers are familiar with the authority site and return to it frequently - meaning any new arrival will be left out in the cold.

The real issue is how to price this. It's an inherently unmeasurable factor (of course, se rankings, incoming links, media mentions, number of supplier relationships etc. are all possible metrics to throw into the mix) since it is based partly on *perception*. But it's probably the nearest thing to the real-world "goodwill" that there is on the web - and as such might end up constituting the bulk of the value of such "desirable" sites.

Sorry, I don't have the answer - but I wanted to throw the above into the mix since often the sites that make the most attractive targets to cash-rich, reputation/traffic-poor companies are going to be exactly those sites that dominate their particular niche.

nuevojefe




msg:792256
 8:39 am on Mar 17, 2005 (gmt 0)

I think the notion of buying a site on current stats is somewhat flawed. I would almost never buy a site unless I was confident I could completely improve revenue and profit.

I see lots of people throw around big bucks to buy a site, make one or two changes and just let it sit - waiting for that 11th month when they start making profit. Little too risky for my blood.

I want to pay 10 or so months multiple and make it back in 4-5.

old_expat




msg:792257
 9:19 am on Mar 17, 2005 (gmt 0)

mrowton - great post .. and a post doesn't always have to be "correct" in every detail and on every factor to be great.

I tend think in terms of potential for upside movement ala neuvojefe, as to what a site is worth. If the movement isn't there, why tie up the capital?

Another factor might be whether the present site owner has even tried very hard. Maybe he doesn't know how to monetize a site.

What is a site worth that has 500 pages of timely articles on a good keyword?

It is certainly worth more than $0

And as someone commented about factoring in your salary as an expense before considering expected income, I would say that sites in the "potential" area should be considered as having a base $**** value *plus* being worth a multiple of income.

All that being said, how is a good way to find websites for sale .. other than surfing the web.;)

esllou




msg:792258
 12:41 pm on Mar 17, 2005 (gmt 0)

with all due respect, I don't see how you can realistically expect some one to buy your site if it'll take them ten years untill they start seeing a return on their investment.

icedout, I think receptional make it quite clear that 3-5 years was the time frame he was looking at for a good, established "safe" site. The ten year figure was receptional talking about if the buyer were to "bank the money".

Pico_Train




msg:792259
 1:09 pm on Mar 17, 2005 (gmt 0)

An offer of a few months income for a site is tantamount to calling the site owner a fool.

I've been offered a few months income for my site. What did do? I said stuff you, I'll wait 7 months, make the same amount and still have further income coming in for the coming months and years.

A poor offer causes nothing but tension. A realistic offer breeds negotiation.

rogerd




msg:792260
 3:17 pm on Mar 17, 2005 (gmt 0)

I agree that buying a website is, in almost every case, buying a business. The value of a business is determined by the future earnings stream from that business.

Future earnings are often based on past earnings (if the business and industry are fairly stable), but can also be based on future earnings (if the buyer thinks he can improve earnings by changing the business). Investment needed to achieve the future earnings must also be considered.

The stock market provides one indication of how companies are valued as multiples of earnings. Multiples of ten to thirty times annual earnings aren't uncommon, depending on how the market evaluates the firm's future prospects.

Small private companies don't usually achieve the earnings multiples of highly liquid public firms, but in my experience an earnings multiple of less than one is very unusual and would be seen only if the company was expected to go in the tank very soon. (Valuing a company at three months earnings, for example, would be a P/E ratio of .25 - note that the P/E of a public firm with good prospects could be a hundred times higher.)

Another way of looking at valuation is simply the return to the owner. If an owner plans to cash out a site, he probably has other investment opportunities that have better yields. If an owner has a site generating a monthly profit of $100, and sells it for 10 months profit ($1000), he needs to invest that money in something else. If the "something else" is a bank account returning only a few percent per year, his monthly return will drop from $100 to, say, $3 - not a good deal.

Size is a factor too - very small deals (e.g., a site making or losing a few hundred dollars per month) will be evaluated by serious buyers mainly for their future potential, with little regard to the current minimal earnings or losses.

In summary, I'd say that an owner willing to let a site go for a price equivalent to a few months earnings is either really dumb or knows something the buyer doesn't know about future earnings. Perhaps the site is highly dependent on linkage that will go away, or on an affiliate relationship that will change dramatically. Of course, if a buyer can actually find opportunities in this price range and the prospects are unclouded, the buyer will do very well.

robho




msg:792261
 8:54 pm on Mar 17, 2005 (gmt 0)

I offer widgets.com a multiple of 3 times the average of the previous 6 months profit. The owner is outraged...

Have you tried this? What proportion of these types of offers are accepted?

Unless it's a highly labor-intensive site or there's some serious bad news hidden somewhere, I can't see any reason why anybody would even reply to offers like that.

From a buyer's point of view it might make sense, but unless there are sellers at that level it doesn't matter what the buyer thinks.

If there really are sellers like that, I'll be buying!

paybacksa




msg:792262
 9:46 pm on Mar 17, 2005 (gmt 0)

It doesn't take so much analysis. If you want to know how much to offer a small business owner for her business, when she has offered it up for sale voluntarily, just try this fun method:

Take the owner on a 5 day golf/ski/whatever vacation. Pay for it all. Tell her to bring the husband, kids, whatever, and you do the same. Plan to get to know each other better and talk business sensibly over good food in a cozy resort. The total cost is less than the cost of a goof arbitration lawyer so consider it a pro-active investment.

In your mind, set a very low bid for her business. After all, ther are so many unknowns!

By the end of traveling TO the destination, you'll have a good sense of her organizational skills (met the limo, arrived on time, settled in calmly, socially adjusted individual) and her ability to handle uncertainty and share control. Is she "my way or the highway" or "my way or the right way" or "my way or...no worries"? You'll have vetted the control freaks by the end of day 1, and can adjust your virtual bid upwards.

By day two you've tested delegation skills and stability of the business she left behind. Is she on the cell all day? Managing crisis after crisis? Yelling and screaming, or calmly answering questions? Is she gettingfrustarted and angry, or directing soundly? Do her "people" seem to be listening? Do they need to be told *everything*? Remember... if you buy a business you buy someone else's "issues". At the end of day 2, you can raise your virtual bid if it seems the business can survive the loss of it's owner.

By day three you really know who's who. This person is penny-wise and pound-foolish, or appreciates quality? Willing to think first to ensure a quality decision, or a hasty-decider who prefers to manage-after-the-fact? If it was golf, you should know much more by now :-) I am sure each activity has it's own way of easing out the character traits...

If there is a day four, raise your bid considerably. After you buy her business, you will appreciate her availability for questions and advice, because you can learn alot from her. Unless you pay her a fair premium, she'll probably become your worst competitor before you can say "boo".

Bottom line: business is about people, and people are predictable if you can get enough background information.

RichTC




msg:792263
 12:57 am on Mar 18, 2005 (gmt 0)

What a load of old tosh ive read from the start of this thread.

In business you take into account the potential earning revenue and your combined market position potential.

If the site you want to aquire is taking market share away from you, how much is that lost revenue worth to you?

Also, if that site is taking traffic away from you how much would it cost to buy in that trafic via PPC?. 100,000 visitors could cost you 20-30k plus a month depending on sector! In orther words a high traffic site could cost you £500,000 + a year just to get the same traffic levels!

Even if a site is losing money it could be worth a small fortune to you in your business.

Also it takes YEARS to build a quality, rich in content site, it would take someone else this long also, if they want a head start with your site they need to offer good money to get it.

Hence 25 to 40 times PE ratios ive seen as realistic offers for certain sites on a number of times.

If anyone wants to sell me a well established website, with quality content, high PR, high traffic and good monthly profit for three times a months profit ie a PE of .25 just tell me where you want the cash sent and you can consider it a done deal!

Some on here clearly live in cloud cookoo land!

yvt360




msg:792264
 11:21 am on Mar 18, 2005 (gmt 0)

I think there may be a moving scale of how much a site is worth in relation to how much revenue is made. What I am saying is a website that generates $100 per month may only be worth 10 months earnings, but I think when you get to a website generating $5000 or $10,000, or even $100,000 per month, the scale of value maybe more in relation to that of a business. What you have to take into condiseration is the current value and revenue, and what the value and revenue will be when you have finished paying for the website.
If you buy a website that generates $120000 per year in revenue, and it takes you 5 years to pay it off, hopefully you have improved it and the revenue has grownt, therefor adding to the value of the site. If the website increases in value by 10% each year and it takes 5 years to purchase the website, you have generated $600,000 in revenue. I think for the higher value websites it might be more like 2-3 years of revenues, after all, when you are finished paying for the website you have an asset that should be worth at least what you paid for it.

Just something to chew on.

cyberair




msg:792265
 4:50 pm on Mar 18, 2005 (gmt 0)

Actually, as long as the site continues earning the same, your asset has not lost value. Therefore, all the income you are receiving could be considered a profit.

As for a 3 to 6 months multiple, I would love to find a seller willing to accept those terms. If anyone can find one, buy the site and sell it to me for 12 months multiple asap.

I agree that a solid web business is just as any other business. Web business also have real estate and assets. A very important real estate in the web is the Domain. If you are in the widgets market, and the website being sold is widgets.com, then it is fair to recognize widgets.com as a very valuable piece of real estate. Widgets.com becomes a location, an Address, the same as a retailer buying a block at Rodeo drive, or XYZ company buying an office near Wall Street, it's prime location for business.

mrowton




msg:792266
 2:00 am on Mar 19, 2005 (gmt 0)

If anyone wants to sell me a well established website, with quality content, high PR, high traffic and good monthly profit for three times a months profit ie a PE of .25 just tell me where you want the cash sent and you can consider it a done deal!

Some on here clearly live in cloud cookoo land!

I don't live in a cloud cookoo land. I'd also be interested in buying a site that you described for three times monthly profit. You described qualities of a site that didn't exist in the example but used the same value of the example site.

There have been a number of comments similar to this, so I'll try to address them all.

No I have never bought a site for three times the monthly earnings. I doubt if anyone would sale a site for this much. It was a bad example.

This is what I was trying to do. Say you're looking at a site and you like it. You like the audience, the content, the stability, etc... You may want to buy it. You can use the above formula to help determine an offer.

Now lets say you don't like a site (like the example I gave) the site has a poor audience and shady content. You would probably not want to buy this site. Does this mean that the site is worthless? Absolutely not! For me, using the above system is simply a way of quantifying a value for every site, even the ones you don't like.

Even sites that you would not want to purchase has value, this systems gives you a repeatable process for determining the value. Because it is a poor site that you don't want to buy this will be a low value.

Using the same repeatable process for other sites would yield a larger value. I didn't want to say what my average multiple because it depends on many different criteria, I tried instead to explain what my criterion is. Unfortunately by using an example of a crappy site, I probably gave the wrong impression.

More often than not, if I want to buy a site and am happy with the content, audience, and earnings, and it is a medium sized site (between $1,000 - $5,000 monthly profit) then I can expect to pay a 12 month multiple.

In general the larger and more stable a site is I can expect to pay more (a year or so out).

Look at the recent purchase of about.com, of course this formula would not work here. I understand this. I also understand that for the profits of sites that I am usually interested in buying, this system does work.

I can't help but think that some people just read the last part of the post where the example offere was 3 times the monthly earnings and took offense of it.

I admit, I should have used a more valuable site in the example and showed how the multiple could easily have been 12-16 months instead of 3.

In summary, the only reason I used the example was to show you a repeatable process. The less you use feeling like "I like this site" and "I don’t like this site" the better off you will be. Using this process you can work out a number that quantifies that you like or dislike the site.

The comment about this not applying to more established large site is noted. I've probably never bought a site that would be considered "large" to most of you, so I can only imagine that it would be more like buying a business (using years instead of months as a multiple)

Another comment that talked about "authority" sites being priceless is also noted. While this is something I would agree with, I've never attempted to purchase an authority site.

I've learned quite a bit from many of your comments.

Thanks

Mitchell

MovingOnUp




msg:792267
 6:50 pm on Mar 19, 2005 (gmt 0)

I wouldn't sell any of my sites for less a multiple of 5-10 years of earnings. Even at that, I would consider it a steal. Many public companies are valued at 20-30 times annual earnings or more.

nakulgoyal




msg:792268
 6:06 am on Mar 20, 2005 (gmt 0)

I agree MovingOnUp. What would be the value of Babies R Us and Toys R Us, which were recently sold. Yes, that number is realistic, as you also sell a brand and some goodwill, which is really costly. But some smaller websites, they seem to be flipped out using most of mrowton's numbers. Great Post mrowton. Bookmarked.

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