Selling my Site

How do you valuate a niche site?

[z80crew]

Someone wants to buy my site, so I have to valuate it. In fact, it's not a single site, but consists of two websites. The first site is established since 2000 and is regarded as one of the best information sites in its area here in Germany. The second site is a pure ecommerce site which sells access to a database containing information very valuable for the visitors of the first site.

How would you calculate a price when selling a site? Are you using some kind of formula or are you just guessing?

Here are some data (in Euro):
Revenue came from
- subscriptions to the database (2003: 45.000,-)
- getting hired as a consultant (2003: 10.000,-)
- selling Adsense (2003: n/a, expected for 2004: 15.000,-)

The costs for running the sites (esp. paying someone to maintain them) and buying the data for the database are about 20.000,-.

[Macro]

Hi Z80crew, and welcome to ww

First, I don't understand any of those figures. Is "20.000,-" actually 20,000 euros?

With regards to price - there is no fixed rule. A business is only worth what someone is willing to pay for it. You may have a useless business worth $10 but may have someone willing to pay a million. What's usually the case though is that people have businesses that they or their advisers value at $X but they get offers only for $X/10.

Sometimes a price is paid based on earnings and is a multiple of what the site earned over the last year - possibly 1.5 x earnings. However, you will have to demonstrate that your involvement is not required to meet those earnings figures. Good luck with the sale.

[sweetberry]

Hi Macro,

1.5 seems low and is definitely low by terrestrial standards. Is this multiple based upon actual experience? I'm interested because I may try to sell my site later in the year but if I thought that I could buy a site and have my money back in less than two years then maybe I will be a buyer rather than a seller ;-)

[z80crew]

First, I don't understand any of those figures. Is "20.000,-" actually 20,000 euros?

Of course, yes, I mean 20,000 Euros. I always mix up dots and commas when it comes to numbers in English (and Excel sheets *g*) ...

A business is only worth what someone is willing to pay for it.

I'd say: The price of a business is what someone is willing to pay. It can be worth more or less of that figure. My problem is to find some help to make up my mind how much my busines (based on the two sites) is worth for myself.

In other words: If I'm selling, how much money must I get so that it makes sense for me to sell it.

possibly 1.5 x earnings. However, you will have to demonstrate that your involvement is not required to meet those earnings figures.

Earnings - is this profit or turnover? The subscriptions and the Google AdSense are pretty stable without requiring my involvement.

Thanks for your replies so far.

[karmov]

There's only one person who can say how much money it will take for it to make sense to *you*.

I've never gotten to the point you're at, so I can only speculate. I'm sure though that there is a range of "no way", "well maybe", and "Wow, you want o pay all of that?".

You often have to look past the raw figures, what are these sites worth to you? As the others have said, there is no fixed formula for what a site is worth, only the buyer and seller's valuations matter.

If you're looking to move on and do something different, you may be willing to settle for less. If it's a low maintenance source of revenue you might want more. Think about why you're selling it and what you want out of it.

Worse comes to worse, sit with a friend and have them make pretend offers on your site and see what your reactions are to the numbers he/she offers :)

[Macro]

I'd say: The price of a business is what someone is willing to pay. It can be worth more or less of that figure.

I think that's where we differ. I don't believe any business has a worth that can be pre-determined and accurately calculated. If there was such a figure why would anyone pay any more? And why would anyone accept any less? OK, that's a bit of over-simplifying the situation. But even listed companies (presumed worth = # of shares x share price) can be wildly off on "worth" despite a lot of their information being in the public domain. The share price goes up and down based on market sentiment more than any other factor.

If 10 economists will give you 11 different opinions on an economics matter, 10 accountants will give you 100 different calculations for a business's worth ;-)

[krieves]

Something else to consider is the earning potential over time. If you hang on to the websites, is there the likelihood they will produce income at a greater rate (becoming more profitable)in the future?. If that is the case, you should ask for more money or consider not selling. If it looks as though the market is declining, it may be best to sell now if the price looks reasonable.

Another thing to consider is opportunity costs. If you sold the sites, what would do with the money to produce more income? Change businesses? Invest? The alternatives may be less profitable than keeping the sites.

[Macro]

Earnings - is this profit or turnover?

I hate to break this to you... it's net profits. Yes, people are selling for 1.5 x net profits for the year. That's why I'm looking to pick up some sites. I suppose the low multiple is because of the perceived extra uncertainty with anything that's "online".

Turnover is not really that relevant (unless it's about market share and you have a major chunk)

[z80crew]

There's only one person who can say how much money it will take for it to make sense to *you*.

Yes, of course. I'm just looking for some help, guidelines, formulas or experience to make up my mind.

I'd say: The price of a business is what someone is willing to pay. It can be worth more or less of that figure.

I think that's where we differ. I don't believe any business has a worth that can be pre-determined and accurately calculated. If there was such a figure why would anyone pay any more?

Okay, I should have written: It can _seem_ worth more or less for different people. This varies with the business models and the expected growth of the busines and/or sites.

Earnings - is this profit or turnover?

I hate to break this to you... it's net profits.

No problem. These are in fact the numbers I'm calculating with, though I hope to get a better offer. *g*

I suppose the low multiple is because of the perceived extra uncertainty with anything that's "online".

I think this is the key factor to all calculations: How much profit does the site generate in a given period and how long will this profit last? If buyer and seller can agree on this factor, chances are good that they can find a price to sell the site.

[Macro]

It can _seem_ worth more or less for different people

We're getting closer to the business being worth what someone is prepared to pay for it ;-)

Seriously though, that chestnut gets dragged out so often and has become so cliched it's almost too boring to stop and think about what it actually means.

If uncertainty is the issue that's lowering the price then trying removing the uncertainty factor. Is the buyer not confident that the current profit levels will continue beyond the second year? Is he worried about the possibility that all traffic will dry up the next time Google dances? Find out what it is that concerns him as regards expected duration of revenue stream. And then remove those concerns. How? Tie some of the price to future performance. Pay me x now and an annual payment of y% of what you make from year 2 to year 4.

sweetberry, you are correct in that at those multiples it's better to be a buyer.