How much is my website worth?

[vampke]

I have googled on this, and apparently a website's value ranges from 0 to 5 times yearly earnings (according to 'specialists' in different forums)....
Clearly there is also a lot of 'it is worth whatever someone wants to give you for it', which is a pretty useless remark

Mostly I found that the worth is about 12 months income for content revenue sites and 6 months for e-shops

What's the latest on this?
Anyone any ideas?

[cabbie]

I have bought many websites and not one has been based on its revenue earning, whether it be gross or net.Domains, yes, but not websites.
I buy them for what they are worth to me.
I still apply Oddsod's due diligence so I have a idea of what income I can make from it or its value as a member of my network.

[shallow]

Most small businesses never sell. Because when the owner sees what he's going to get for his baby he says to himself "I could just run it for another couple years and get that...and still have the business"

Exactly!

I had informal dialog with two very knowledgeable persons about selling my website. I don't know if they would consider themselves experts but the person who recommended them certainly did.

Anyway, both were given the exact same information. Each provided a rational approach as to how they arrived at their figures.

One gave me a price of about $25K while the other, who handled website sales for clients, gave me a price between $65-85,000.

I might be interested if the latter were true. But not the former since I'd make more money by not selling and just putting in a few hours each a month tweaking my site.

I don't think anyone really knows the value of most websites owned by small business men and women.

[cnvi]

heres a tip along the lines of this thread.. if your site is worth a decent amount (calculate 5-7 X earnings), consider selling to a larger company when you are on top of your game. Your site will be worth much less if it peaks and then slows due to increased competition or other market factors.

Many of today's webmasters are netrepreneurs .. people who startup sites based on necessity and then grow them into a working model. Once the site is enjoying good revenue and positive growth, SELL IT while you are on top. Hire a business broker to help you sell it.

[BigAdventure]

Great point Cnvi

Most people hang in way to long, don't sell at the peak, and then try to sell when they're burned out and things are declining.(been there)

Common business fantasy #? = "Absentee Business Ownership"

[carguy84]

One man businesses never like to hear that . They may be enormously successful at making money. They may be officially called businesses but if ownership in them can't easily be transferred then they have failed to create a business, they have created just a job.

You can't not have a business, if you have something that is "officially" called a business. That doesn't even make sense.

[BigAdventure]

One man business or a multi-person business?

It doesn't matter. The key is to get what you like that makes you happy.

That way you own the business instead of the other way around.

There are always others out there who have similar tastes and will buy what you have.

If you keep good books and can make a legitimate presentation.

A decent broker can help you package it for the proper audience. There are plenty of corporate types that would LOVE to get away from having employees.

No experienced broker is going to BS you with an inflated price...if you pay him comission only on the sale. He knows that will just make it harder to sell in the long run.

If you are paying an up-front listing fee, some guys might BS you to get the fee. There are a lot of starving brokers out there that are just happy to have a few hundred dollars in listing fee money.

I wouldn't pay a listing fee up front. Especially since only about half their listings ever sell.

[rogerd]

You know that study about how a housewife should earn $135,000 per year based on her many roles as caregiver, chef, chauffeur, etc.? That's kind of the same thing as the typical site owner/operator who may wear various hats - HTML coder, server admin, PHP programmer, graphic designer, researcher, writer, editor, community manager, etc. Like housewives, webmasters never quite get their due. However, a site buyer does have to consider filling all of those roles by himself, with staff, or using contractors. Hence, the difficulty in valuation.

[wingslevel]

look at it this way, the dow is trading at about 18 times earnings, but these earnings are after taxes and depreciation and amortization (which can be substantial). i am guessing that the dow is probably trading about 12 times cash flow (which is closer to the profit multiple that is being discussed in this thread).

so, if the 30 biggest companies in the US are worth 12 times cash flow, what is a web enterprise worth? are there any physical assets like inventory, patents, equipment, real estate etc.(the dow companies have these in spades)? many web businesses have the domain, the value of their customer or subscriber list and the value of any unrelated links as assets.

5-7 times cash flow is a really big percentage of the value that blue chips trade for - if you have a small web business (less than $1 million US in sales) and you can get 5-7 times - cash the check immediately!

i have bought 4 web businesses and have never paid more than 3 times cash flow after reducing the seller's profit # by the amount that i felt it would cost me to replace him. remember it is virtually impossible to get financing for deals of this size, so many potential buyers are not going to be able to swing it....

i really don't think you can realize 5 times cash flow unless you have a business that is generating more than $5 million in revenue and has enough staff that there won't be continuity issues for a buyer.

[PoohBear88]

When you say 3x cash flow, do you mean 3 years of earnings after expenses and taxes?

[King_Fisher]

I have sold three business(virtual) and one on line.

I have never heard of anyone factoring in their time of running the business.

While it might be a good thought to keep in the back of your head I don't

see how it would be an effect in figuring your purchase price...KF

[oddsod]

King_Fisher, speak to any good accountant - no, any accountant - business broker, or someone experienced in this game and you'll find that it's standard procedure. Don't account for your time in the pre-sale documentation and correspondence and you're effectively a fraud. Legally. Even if it were unintentional.

See BigAdventure's comments on Adjusted Net Income

This is where you add in a salary to replace the owner

Why adjust income at all? Because the old adage is that businesses are run for the benefit of the owner, not the taxman. Hence, the official figures may (legally) mask some facts. I'll give you an example: depreciation. You take it out of your gross profit at the rate allowed by law. But a server that's going to last you the next six years may be written off in four. What if you sell the business in four years, isn't that server an asset? Not a brilliant example but gives you an idea of why net income needs to be adjusted. For owner run small businesses the biggest reason for adjusting net income is owner's time calculation. If you as seller don't factor it in the buyer would. Or should.

>>The key is to get what you like that makes you happy...That way you own the business instead of the other way around.
I like that :)

So if I hire a secretary, then my business is suddenly a REAL business?

You are being facetious. If someone - like your family - can seemlessly take over then I don't see where we differ in opinion. It's not about who is running it, it's about who can. Are there elements that only you understand? Is it personality based? Will the revenue drop if you die tomorrow? Those are the kinds of tests that determine whether it's a business or a job i.e. can it be easily transferred. As rogerd points out, 100% staff turnover is a big deal even if the new staff can run the business.

One gave me a price of about $25K while the other, who handled website sales for clients, gave me a price between $65-85,000.

And, shallow, they were both right. As we've discussed privately some months ago, it depends on when you sell, to whom you sell, how it's marketed and what the market sentiment is. And, yes, the exact same site can get only $25K at one location but $85K in another.
Was one of those estimates from me? ;)

When you say 3x cash flow, do you mean 3 years of earnings after expenses and taxes?

That's actually a very good question ;). Cash flow (Wikipedia definition [en.wikipedia.org]) has it's own meaning of course and, in the very strictest sense, denotes just liquidity. You can have negative cash flow and be making a lot of profit (and vice versa). Sometimes it is cash flow that determines deals ... when it should be profits. Though I don't think PoohBear88 meant it in that sense as it's often used as a synonym for profit, particularly in the US.

[joeduck]

... and then there is Facebook.com. It's a great website that has about $150,000,000 annual revenues and I assume minimal or no profit since they are growing the biz. Valuation for that site?

[La_Valette]

Valuation is simply the sum total of the cash you think you can get out of a business over its lifetime, discounted by an apporpriate interest rate to reflect the fact the time value of money.

It's not reasonable to apply multipliers like 5-7x earnings to web businesses though. The internet is too immature and unstable to make such predictions. 6-12 months is the maximum I'd pay personally; I'd try to get 3 months if possible.

[oddsod]

That's exactly what a valuation is. So, it doesn't matter if Facebook isn't making a profit - it has a value based on the future profit any prospective buyer expects to make. So, if there isn't anyone willing to bet that they can extract some sort of future profit from the site then the site is worth $0.

[La_Valette]

Except of course that it's pretty obvious that Facebook will be making much more than $0 profits. With all those millions of users, and many more on the way, they have created an extremely monetizable piece of internet real estate. I see a Yahoo!/Google-like valuation for them eventually (tens of billions). Rumor has it that they turned down a $1B buyout offer from Yahoo! at one point, which now seems like an extremely wise move...

[King_Fisher]

OddSod. It took me a little time to check out your reply to my post.
But I did check it out with " with a good account-or any accountant"
and found that by US standard accounting practice it is not necessary
or legally required that you list the "cost" of your time in running
your business.

This applies to solely owned and solely operated business. Not to the
cost of additional employees however as that must be stated.

This because most individuals draw their income out of earned profits,
However if he is set up with a W2 and draws a regular checks monthly
then of course that would show on the operating statement.

Also he stated that by no means would it be considered fraud if it was
not so stated.

Perhaps there are different rules in the UK...KF

PS I think my accountant could beat up your accountant. :o)

[oddsod]

It's the same in the US as it is in the UK. But I'm not going to bother proving it to you. Claim whatever you want to prospective buyers with regards your personal time input.

[King_Fisher]

OddSod

First off you have a wealth of knowledge in this area and it was gracious of you to share it with us. I think I have learned as much from this thread as
almost any other on this forum.

As far as the value of the owners management time I am still not convinced.
However I will take the time to Google both the IFRS and the GAPP and see if
I can research this question a little closer.

If you know page, chapter and verse of any of this it would be very helpful.

Whatever I find, pro or con, I will post verbatim to this thread so we can all
have a definitive answer...KF

[oddsod]

Thanks for your compliment. You don't need to put that much of effort into it. Read the statement you sign with your annual accounts, and that bit about "full and fair..."! ;) And if you want to do some research that should give you a lead.

[joeduck]

My point about Facebook is that obviously it is a site with considerable value, but it is difficult to establish a number even if you have extensive information and an army of accountants and analysts to help you.

In terms of using 3-6 months earnings as a valuation I'd sure like to see how often those come up for sale. Even in the unstable online world it's likely to be a great deal if you can recoup your investment in half a year!

I'll take 100 of those please, and buy everybody on the board a beer at PubCon.

[davidpaymer]

I learn very much here in this topic
thanks everybody for ideas :-)

[Kirby]

This conversation is funny. Way too much analysis IMO.

I've bought and sold hundreds of domains, none based on earnings. Some purchases were based on rankings, some were based on branding.

What I have experienced in selling domains is that my highest sales result from unsolicited inquiries, whereas the domains I marketed for sale resulted in less than desired prices.

The domain market is driven by buyers. If you have something they want, they'll set the value. Doesn't matter if its mom and pop or MySpace and Facebook.

[oddsod]

The conversation is funny because we're talking about websites and you're talking about domains ;)

The domain market is different because people aren't generally buying and selling businesses. When a domain sells on the basis of its earnings - like typos/squatting/direct navs that are parked/otherwise monetised - they often go for a multiple of earnings. I can show you thousands of those in places like DNF and NP. Other than that the domain market is closer to the market for car number plates than the market for businesses.

[Eamonn]

This is my first post here and a timely one at that as I am very close to buying a website for approx 240,000
Let me give some background:

1) Site is a tourism protal
2) Revenue based on links and hosting for B&B, hotels, Auctioneers hosting. About 350+ clients paying for links and hosting services -- most repeat.
3) Revenue from Links and hosting websites: 86,000
Google adsense 5,000
Total 91,000
4) Expenses approx 14,000 includes hosting, domain names wages etc.
5) business well established over 13 years targeted regionaly with expansion potential to neighbouring regions
6) Ranks 2nd or 3rd in google/yahoo searches
7) Seller retiring and trustworthy
8) I've never bought or sold a business i my life, but I'm an IT guy, so the webpages aspect will be no problem to me
9) Seller would finance note of only 2 years.

Am I crazy to seriously consider buying this?
Any comments very welcome for this inexperienced buyer.

[SitePurchaser]

Eamonn,

if you want my opinion, I would say you're being a little too generous. Though it sounds as if you have the possibility of purchasing a nice website, you are paying 2.5 years worth of revenue. Especially for the tourism sector, you have no guarantee you will be able to maintain the rankings your site has now because the tourism sector is extremely competitive. So paying for 2.5 years seems to be a very long time considering you will need some time to make that money back. Let's also not forget, for you to make that money back, you will be making 77,000 after expenses (taxes included or not?) which means it will take over 3 years to make that money back if everything stays the same and doesn't worsen which you cannot be sure of.

Of course, simply making a valuation based solely on a multiple of the revenue would be a bit too easy. What I always find important is to figure out the potential the site has. Have you figured out a strategy how you can increase your profit? Do you still see a lot of room for your site to grow in this sector?
How are the backlinks? Are they high quality or have they been bought? How much time will it take you to clean them up if that would be needed? If you take over the site, could you potentially loose any important backlinks (such as .edu links or wiki links for example)? I think this should also be included in your risk assessment and thus on your final valuation.

Lastly, just as a thought, I would like to see people start putting a number on the age of their sites. The older the site, the more it's worth but I never see that happening. Doesn't Google drool all over domains and sites older than 2000?

So, 240,000 seems a little steep but I dont think you are far of. I would put it under 200,000 though. Of course, this is just a very superficial assessment based on what you wrote.

[Eamonn]

That's great advice SitePurchaser. I came fairly close to making a deal here, but your advise corresponds to that of my accountant and other trusted parties.

Although potential for expansion is good, competition is fierce and barriers to entry are low. From what I can see on the Sitepoint, you valuations are much closer to 12X (months), although for well positioned and established sites with proven track record may command more.

Where do you look for established sited for sale?

Again, thanks for a solid analysis.

[SitePurchaser]

Concerning revenue, I stay between 1 and 2 years. If the site has really good rankings for your keywords and has a good age for example, then you go closer to 2 years. On the other hand, I have run into sites that were seriously underdeveloped in terms of monetisation, on purpose by the webmaster, and those kind of sites can command more than 2 years but they are becoming increasingly rare as most people are jumping on the ad sense (and affiliate) wagon and are getting the most out of their sites.

Regarding sitepoint, I don't look for sites that are for sale. I look at sites that would fit my criteria and approach them with an offer they cannot refuse :) There are many tools out there that can help you analyse a site and if you dig a while in the SERPS, you sometimes find some interesting prospects.

Good luck