Forum Moderators: skibum
If you are devoting a lot of time to pursuing an offer bear in mind that it can all fall through and that time could well end up being wasted :-(
I don't know what dollar figure you were thinking of, but 10% of one year's revenue? That's a joke. If the site owner thinks that 10% of the site's revenue can be a lot of money, then he won't sell at any price.
So Macro, what's your estimate?
So Macro, what's your estimate?
If someone's buying a site for love/emotional reasons the amount they may be willing to pay is limited only by how much they can beg/borrow/steal.
If one is approaching it as a business decision the main reason for paying money to acquire a business is for the potential profit that business can bring in. As such the price payable should relate to how much that business is expected to earn in profits over the immediate future (excluding factors like potential for capital appreciation/tax advantages to investing in SMEs etc. to avoid complications.).
As nobody can predict the immediate future - or any future - you do need to have some concrete basis for evaluating a business's potential profits. Accountants often use historical figures and look at the profits the business made over the last few years, and calculate the average earnings per year. The amount the seller and buyer usually haggle about is the multiple of earnings. For internet business the multiple is pretty low and it's not unusual for the bargaining to start at 1-1.5 x average earnings.
For a site that has no historical earnings the risk to the buyer is that much more. He may not generate any profit at all. What he does generate is also in large part due to his own efforts. The original idea of a % of profits sounds good to me. It will sound good to the seller if he believes in your monetising skills ;-)
IMO a fair value for a decent site would be about $1 to $10 per daily unique, assuming the traffic is free and reasonably reliable.
I would assume more than that - although the method of evaluating is quite interesting.
The reason I say that the price per daily unique is out is this: One site we manage gets about 600 daily uniques a day which earns about £3,000 per month ($5,000) in dividends to the share holders. So - That would sell for about 5-10 years profit under normal (non-internet) logic - say $300,000. This would be conservative I think. True, it has real product that they have proprietory rights over, but even so, in the example given - the site is worth $500 per daily unique, not $1-$10.
Or were you defining daily unique differently to me?
although the method of evaluating is quite interesting
If a site with a collection of links to freebie downloads had 10,000 uniques a day, costed a fair bit in bandwidth, but earned nothing at all, would this site have a value that could be calculated as a multiple of uniques?
The number of unique visitors is a nice figure to quote when talking up your site - as is Alexa ranking and PR of your home page - but serious buyers would be interested in how much the site is making in $$$. The number of visitors is itself not valuable. It's what's those visitors can do for your pocket :-)
I do think that overall traffic is a reasonably important factor (although clearly it would help to have an in-depth knowledge of the intrinsic costs and potential earnings of a font site in general, and this site in particular). For example, 35,000 visitors a day works out to 11 million visitors a year. If you're willing to put a value of 1 cent on each visitor, that works out to the equivalent of $110,000 per year.
Of course some sites don't even earn back their bandwidth costs, so the value of a visitor might well be zero or even less (the more I think about it, the more I suspect a free font download site might be one of these). But there are lots of areas in which 1 cent per visitor would be a real bargain.
Of course, different sites have a wildly different value per visitor - this I do accept entirely.
I think as well, there has to be multiple channels - if all the traffic comes from Google natural then most serious investors would consider that to be far too risky.
Of course in the first post of the thread it says that the current owener of the site does not seem to do much with it so maybe he could be such a person.
there has to be multiple channels
Sigh. Whatever.
It may seem pedantic to point out the distinction but this is the greatest disappointment small business owners face i.e. being told that their business hasn't actually been making any profits. They trundle along for years surviving on their businesses but when it's time to sell they suddenly find that the business has only been paying them a salary and as it hasn't generated profits for years it is almost impossible to sell.
But when it comes to selling, I have to agree that the definition of profit is clearcut and vital (not that I've ever sold a business yet.)
In the real world of publishing, it's not unusual for a property to sell 5 times annual profits, sometimes 10 times. (New York Times sold Golf magazine for over 10 times--they are great business people.)
Ah, now--the web! It is how different than print?
A lot. But, it depends, too, what you get with the site. Email newsletter? Ads sold already?
Obviously, you see some value here, but I would advise you to put a HARD number on the income that would result from any changes you make. They can't just be pretty or neat. (It's amazing how readers don't care about sophistication. In some markets the ads in those Shoppers that come free in the mail will pull just as well or better than the newspaper with comics and a staff of reporters.)
most of the rules above don't apply to the eBays and Amazons of this world
You think trying to buy amazon.com might be a special case?
Good luck with this no matter how it turns out.
Two reasons why entrepreneurs are willing to sell business are:
1) cash flow -- they need the money either for another investment with a higher return on investment (or to live on...)
2) they are bored -- and want to start on something else/retire/move etc.. ("true" entrepreneurs are continuously chasing the next rainbow)
If either of these cases exist, then the seller will be much more flexible on the price. (or be willing to sell in the first place :-)
Colin
In regards to an earnings multiple, it is typically some factor (5-10X for publishing) of NEXT year's projected profit - not the current year's, or last year's. In this way, a valuation takes into account many of the things discussed in this post (cost to maintain the business, diversity of revenue streams, etc.).
As an example, I would bet that Friendster "lost" a lot of money this year. That doesn't mean that any of us could snap it up for a bargain price. The trick is in negotiating a rational / reasonable expectation between buyer and seller of what a company like Friendster could do next year with the boatloads of traffic they are getting.
Of course, anything is negotiable, but there is nothing like real hard numbers to galvanize a negotiation I would have thought.
Depends I guess on the evidence that the seller can bring to the table that next year's profits are going to be better. EVERY cashflow forecast or P&L forecats I ever wrote predicts honey later for heartache today - and I am guessing the bnak mangers of startups have seen that dip then skyrocket line on many a graph and knows to take it with a healthy degree of scepticism.
I am considering selling a content based website to a media company that has broad national and international recognition in the same field. The site currently brings in around $250/month in advertising revenue. The steady increases would lead me to project an average of $300/month for the coming year.
I have no doubt that the potential buyer could multiply that by between 10 and 100 by simply mentioning the website in their other outlets. (i.e. without any material changes to the site)
Obviously, they would tend to negotiate from the $3,600 position. I also realize that is a large gap between $36k and $360k, and that simply approaching the higher end will bring on additional costs related to the oversight of the revenue.
Never the less, my question is: do I reasonably consider the next year income to be $3,600 or something between $36,000 and $360,000?
do I reasonably consider the next year income to be $3,600 or something between $36,000 and $360,000
The thing is that everyone looking to sell a site points out how much it *can* make, how much it *can* be developed, what the untapped potential is, and/or how new owners could leverage their existing position to make *substantially* more out of the site than the seller has been making.
Everyone selling a site does that. From my experience buyers have developed a kind of mind block to those arguments. It also serves the buyers' purpose to insist on seeing what the historical figures are - that gives them a better price to bargain from.
If you are looking to sell a business - and talk to business brokers - the first thing they will ask you for is the last 3-5 years accounts. I've spoken to hundreds of "business transfer agents" in my time and that is invariably what they want first because that's mainly what they do the pricing on, previous years figures.
The steady increases would lead me to project an average of $300/month for the coming year.
As I say, nothing like hard numbers to galvanize the thought process. This is $3,600 per annum LESS the hosting fees (say $600 - although I realize it may be less) less the time you spend on the site every year at... say... $10 per hour.
So... If you spend an hour a week on the site or if they would need to... then your profits are nil, so you need to find a different wat to pitch your proce altogether.
On the other side, if the $3,600 was entirely profit, then probably the upper level would be $50K. This being the amount that a person would have to put into a high interest account to earn $3,600 risk free in a year.
Also - to make it worse - if they are a large company, they would expect to spend severel thousand on "due diligence" which they would take off the percieved worth in their eyes... which could mean that a $50K site isn't big enough for them to instruct their lawyers.
Then again - if it is the best in its field then -as you say - it is not the profit that they intend to buy, but the brand value.
Makes you think, doesn't it?
