Valuing a travel site for sale -

[webpro00801]

How would you value a travel site for sale?

Say you had a geography specific (one part of the world) travel site. If you thought the big fish were ready to bite, how would you put a valuation on it?

1.) number of users and/or page views
2.) gross sales
3.) net sales
4.) potential sales
5.) search engine placements and links in
6.) etc.

(Sales = travel, merchandise, adverts and affiations)

Travel is a legitimate and growing sector of the web economy. This question is hard and I have seen a lot of different numbers/theories/methods out there ($100 per monthly user, 3 to 5 times gross revenue, etc.). Any informed opinions welcome!

[maximillianos]

For a brick and mortal business, I thought you usually take at least 3-5 years gross rev in evaluating the price. For websites, particularly those that rely on search engines (ie - not much paid marketing), I think that window is much smaller. I've seen folks mention 6 months revenue. I personally think that is too short a time frame. If your site has been around for a while (4-5 years) I would think you could get away with evaluating it based on a 2 year window. If it is new (ie - under 1 year), then you might have trouble asking for what you really think it is worth since you don't have a solid history to show consistent earning information, etc.

I think the most important bottom line is how much money you make, and that number alone should be the primary factor in your selling price. Add in the cost of building the site and the value of the domain as inventory since it is valid business real estate, just not a brick and mortal building. Use the "potential" to make it look more attractive, but base the price on earnings.

Just my opinion... I am not an expert... but I hope this helps.

[webpro00801]

"I think the most important bottom line is how much money you make, and that number alone should be the primary factor in your selling price."

Well that is what I was wondering - I am sort of thinking a potential buyer would be willing to pay more for the site's potential - i.e. what they could do with the traffic, especially in the travel category.

[Macro]

>>I am sort of thinking a potential buyer would be willing to pay more for the site's potential

I buy sites (not travel related).

If a site doesn't have potential I don't buy it.

If a site has potential I invest time, effort, skill and money to realise that potential. If I then make more profit why should that profit go to the previous owner (by being included in the sale price)?

[webpro00801]

When I say potential I mean traffic. If you have 500,000 monthly sessions and are under utilizing it, but another site in the same space can look at their numbers and say - hey with 500,000 more people a month we could add $X to the bottom line - then it is worth paying for it. I am not talking about a domain name and a useless site, but one with a lot going for it, real traffic, search engine placements, etc. that its perhaps underperfoming revenue wise due to lack of infrastructure, back end, etc. I see where you are coming from, but I think it is an apples to oranges comparison.

[Macro]

If you don't have historical figures for the quality of that traffic and how it converts then it's still potential and involves considerable risk.

If the valuation of sites is a highly subjective affair then the valuation of potential is even trickier. Sellers, invariably, think it's worth a lot more than a prudent buyer who does his due diligence ever thinks. I've seen sites with a 100K uniques a month struggle to make $100 - even in the best of hands.

One can dream, yes. But, if you've allocated an arbitary value for "potential" you'll likely not achieve a sale. Get a neutral third party's opinion and you may be shocked. Try an accountant who specialises in valuing businesses and their assets (with experience in handling dot com deals). Tell him you are looking to buy this site, what you think you can do with it, and pay him to carry out the due diligence and come up with a figure.

$100 per monthly user, 3 to 5 times gross revenue, etc.

You may have been misled as to what sites really sell for.

[webpro00801]

I agree with a lot of that - this is a travel site with an average of about 400,000 monthly user sessions and current gross annual sales of about 900k. I think the potential part is to greatly grow the travel sales of it (through better technology and marketing), and the potential ad revenues. I thought it could be worth in the 4 million dollar range to the right party.

[Macro]

Sure. Great. Would you not then take up the suggestion to try an accountant? Or a "business transfer agent"? Maybe very nice figures but the bigger the sum of money I'm investing the less the risk I want to take in something illusionary, like "potential", and the more I want to rely on proven income.

I believe you have very, very high expectations. I get about 250K uniques p.m. on one of my UK sites (not travel, but a lucrative market nonetheless). It sells over a million dollars worth of widgets p.a. with NO advertising (on about 10% margins). Has been doing so for the last several years. I'd sell the site in a heartbeat if someone offered me half a million (circa £250K).

[webpro00801]

Understood. You may be right about my expectations -

So a website that nets about 100k before you factor in expenses, etc. would sell for 2.5 times that? So in the above case, 400k monthlies and about 200k gross net - worth about 500k?

[walkman]

First gross means nothing. What natters how much you get to keep after all the expenses have been paid. If you sell $1 million as an affiliate but only get to keep $15,000, that's the number that matters to a buyer.
---
"So a website that nets about 100k before you factor in expenses"
what are the expenses though?

Second, what happens if Google, Y! or MSN drop you for a reason or another? That's why the 3-5 times valuation thing doesn't apply to the internet. Too many things you can't control.
--
"Well that is what I was wondering - I am sort of thinking a potential buyer would be willing to pay more for the site's potential - i.e. what they could do with the traffic, especially in the travel category."

That doesn't matter much IMO. There's huge potential for everything. Real estate, finance, healthcare, and saying it's a $2.4 trillion industry is not going to impress anyone. It atually might work against you. Those people who sell "get rich quick" schemes use this.
--
"($100 per monthly user, 3 to 5 times gross revenue, etc.)"

I'll sell you a site RIGHT NOW for $1 a monthly user. Have a $300K bank check ready....

[Macro]

>>gross net
Huh? :)

[webpro00801]

Gross net is sort of another way of saying margin in some cases - for example in affiliate sales, if you sell 1 million bucks of something but net 10% or 100k that can be considered your gross net (your net of the affiliate sales before dedcution of your expenses). You can't really say you grossed 1 million in sales in that case. Or maybe I am just crazy :)
I can't remember where the hell I picked that term up from...

[Macro]

webpro, AFAIK this is the simplified version: "turnover" is total sales, "gross" is profit before expenses, "net" is profit after expenses. So, to me, "gross net" has no meaning.

Seriously, consider the earlier suggestion to get an accountant to look at the figures. But, even that is meaningless to a certain extent. As they say in the business - a site is worth only what someone is willing to pay for it. And the only way you'll know what you're likely to get is to test the waters and put it up for sale.

[webpro00801]

:"gross net" has no meaning"

I will agree! Yes - the idea of professional help is a good one. I am not trying to sell a site though actually, I am just trying to understand how a site in a certain category could be valued. This information is not dispensed so readily.

And I totally agree that anything is only worth what someone is willing to pay for it .

Thanks for your comments, I had some good laughs from this thread.