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If you had a website with 85,000 USD/year of Adsense revenue, would you sell it for 285,000 USD?
Would you buy a website for 285,000 USD with a revenue of 85,000 USD/year?
1. How useful content is without Adsense.
2. What field the website is.
3. Ability to develop website further.
4. Possibility of sell advertising on your own.
Also buying a 'good site' for 285k with 85k/year revenue is not a bad idea if the revenue history is solid and future look pretty good.
85,000 after taxes is obviously a lot more than 85,000 before taxes.
From a sellers perspective the problem is you only have 140,000 USD left when you sell for 280,000 USD. Then once you have spend the 140,000 USD.
The tough bit though is imagining to have to start again from zero the next time you do a webproject....when you are already used to having a busy website with "free traffic" - and you do a new project - it is really hard to wait 3-5 years before you finally have a busy website again. Most people give up after 1 or 2 years with a new website if it doesnt take off immediately. Nowadays it is also a lot harder to manage to build a successful website - and in 2 or 3 years it will be even harder.
And if you are patient and wait for 3 years you have the same + still own the website - and who knows, maybe Adsense manages to give you 2x more revenue then today as it gets more intelligent - and you even have the chance to increase the revenue to 250,000 USD/year or even more...the longer a website exsists, the less likely it will "suddenly stop". Unless you have 90% search engine traffic, not much can happen in the short term.
And if you are patient and wait for 3 years you have the same + still own the website - and who knows, maybe Adsense manages to give you 2x more revenue then today as it gets more intelligent
There is more risk with Internet businesses than B&M ones. That's why the prices they tend to sell for are lower than similar B&M businesses.
I've written on business and website valuation methods in various places. I've got many years' worth of statistical data on what sites actually sell for in online marketplaces.
$85K, assuming it's net profit after deducting all costs including a nominal cost for webmaster/owner time spent would make the selling price of $285K a multiple of 3.35x annual income. For long established sites that's not an impossible figure. Some sites go for 5x or more. It would depend on how strong your site and earnings history are, how confident buyers are that the earnings will continue/grow and what risks they see. Most content sites with solely contextual earnings tend to go for under 2x, and 1x is not uncommon. A Google search for website valuation site multiple chart may take you to more information.
Let me also add that other things being equal a site earning $10K a year is more likely to get the 3.35x than a site earning $85K a year purely because more buyers can afford 33K than $285K.
I often considered the same question. I have site that brings in considerable income for my family. It is my full-time job. I've had investors talk to me about either buying or investing in the site. Every time I crunch the numbers for what it would take to buy me out, it always comes out much higher than any buyer would want to pay.
Why is that? Well, this is my livelihood. I earn a pretty good living for my family from my site(s). If I were to sell at a 3X multiple, after taxes on the sale I may have enough cash to last 2.5 years (assuming zero income). Then what?
Most of us have sites that are growing each year... My traffic and revenue keeps climbing. I just can't bring myself to give it away. My wife and I talk about it, and we always end up at the same place... it would take A LOT more than a 3X multiple for us to sell. It is just not worth it.
At the same time, we can appreciate the risk involved with buying ANY business, both online and offline. Heck, I've seen enough local offline shops here start up and go under that I don't really think there is a big difference in risk when it comes to both types of businesses.
As a buyer, I would be hesitant to drop more than 3X annual net on a business (any business) since it does hold so much uncertainty. But with that uncertainty comes the risk of high reward. For the growing sites that are evergreen, you can make your money back in less than 3 years and be in pure profit mode after that... for who knows how many years...
As for me, I prefer to remain in full profit mode right now... which is why I always fall back on my same decision... to keep my site(s)... Which also happens to be the same reason why you don't see many of these sites exchanging hands... they are typically worth way more to the owner than the seller... and not just sentimentally... but financially...
There are only two factors that define the value a buyer sees in your site: today's value of the future profit he can make and an adjustment to that figure for the risk he perceives.
Some may argue that there are numerous factors, but they all boil down to one or the other of the above - from the cost of capital (interest rate) to the "potential" of the site to the value of the domain name.
But I see other sites come and go in the serps more readily, so I usually only buy sites that are inexpensive. That way I'm not out a lot of money if they do happen to tank. I've seen major sites disappear from Google's serps overnight, and many never come back. A lot of these are ones that push the SEO envelope and they do fine for awhile. Then one day Google's algo gets some new spam filters and they disappear.
[edited by: Jane_Doe at 3:30 pm (utc) on April 28, 2009]
Generally speaking though:
Would I sell? No. Not unless I had other sites of similar earning capabilities that I could rely on. I haven't had a "real" job in years and am not too anxious to start looking for one. If we were talking 2.85 million it would be a different story. Knowing me I'd run through 285,000 pretty fast and not have a thing to show for it. Just a theory that I'd love to test.
Would I buy it? No again. As has been already pointed out, nothing is certain on the web. If this was an established blue chip property, or at least some shade of blue, and everything checked out (and I would NOT do the checking myself), and I happened to have the money at the time (in itself a deal breaker), I might consider it. I'm much more of a buyer than a seller but still... that's a lot of money and a lot of uncertainty. I doubt I'd sleep very well at night and I value my sleep pretty highly.
Interesting question though.
1 x annual earnings would be more typical--due to the uncertainty that the earnings can be sustained.
I believe the above quote is not valid anymore. Google has been producing a steady revenue stream for 6 years. It's obvious that they have a sustainable business model. Had we listened to the same advice - I'm sure some did - back in 2004, 2005, 2006, we'd be kicking ourselves. I made the argument back then that 1-2X earnings (net) was insufficient to sell any business. More like 3-5X would be more like it. Depends on the niche, the site and whether more revenue can be squeezed from it, like any other business.
I dare say that any business doing $85,000 would likely be able to attract another $30-50,000 in direct advertising, making the site worth more like $400-500,000.
Valuation is a tricky business, but try buying any business for 2-3X earnings. Very difficult to find.
I'll never sell another site making money for less than 6 times earnings...unless of course I was simply moving on in life and don't want to deal with it any more.
It is alot easy to keep the money coming in than developing new revenue IMO
It is alot easy to keep the money coming in than developing new revenue...
I make money in my sleep and I don't have to talk to anybody to do it. How do you put a price tag on that?
But I had a lot to show prospective buyers. All stats were trending up nicely. Unique visits, page views, earnings, PR6, and all that good stuff. Many people selling sites are trying to dump them while key stats are declining. Those should be looked at skeptically.
So if you need/want to sell, why not see what the market will bring? An auction is fairly inexpensive and if your reserve isn't met you have no obligation to sell.
If you do sell, I will have a margarita waiting for you under the palm tree ; )
It is alot easy to keep the money coming in than developing new revenue IMO
Owning an "evergreen" Web site is like owning rental property or the rights to Agatha Christie's novels. Why sell if you don't have to, unless you're staring the Grim Reaper in the face and you're worried about your heirs?
Why sell if you don't have to, unless you're staring the Grim Reaper in the face and you're worried about your heirs?
Or maybe you want to buy a house, a car, or both.
Or you're going through divorce and need to split assets.
Those are just a few off the top of my head. There are probably a lot more.
If you look at most sites for sale on Sitepoint and similar, they are all in decline, and usually have low quality content.
I am not necessarily disagreeing with you, but, in general, people do not sell good sites.
Good business sense suggests selling just as the business peaks. Very hard to actually pull off!
While I am about it, revenue multiples are not important: profit multiples, after deducting the value of the proprietor's unpaid work, adjusting for risk and growth (like proper investment appraisal), are the right way to do it.