Recoup Investment In One Year

[hooperman]

I'm assessing at a site I might buy and I'm trying to come up with a price I'd be comfortable buying at. The site has a long history of consistent earnings (Adsense + ebook sales, call it half and half). Regular content is published every day by a regular hired writer who writes very well, and I'm assured she will stay if the site is sold. She wrote the ebook and has a vested interest in making more sales as she gets 10%. So far, it seems more or less a hands-free operation. This is a high traffic site and has been since at least since January, when Google Analytics was put on.

84% of the traffic is from organic searches in Google.

The subject of the site is evergreen and will never become outdated.

Would I be mercenary if I base my valuation on the desire to get my money back after only one year? i.e. if the site is making $1,000/month profit I offer $12,000.

Does anyone else give out advice to other people on valuation and then quickly go to pieces when they're valuing a site for themselves?

[benitez17]

That's about where I would start with an offer, but I'd be willing to go higher for a site like the one you described given the very limited supply of quality sites available recently. It sounds like a very nice opportunity.

What advice would you give someone else about the site?

[hooperman]

What advice would you give someone else about the site?

Good question. I tend to lose all objectivity when I'm involved. What I'm in the process of doing is creating a checklist for me to follow strictly so I don't get too distracted with the impressive traffic/revenue numbers and actually investigate the risks properly.

My gut feel is to offer between one year and two year's profit.

I don't like the fact that so much traffic is coming from organic search (this reminds me of the is it safe for businesses to rely on free Google traffic thread!). Some of the inbound links are from other sites the owner runs, so although he assures me they will stay, there's a risk that they won't (if he sells the other sites, for example, not because he's unscrupulous). I might be able to diversify the traffic sources, but that would be my time and money I'd be investing, not the seller's.

That's about where I would start with an offer

Thanks, that helps. I didn't know whether I was being a bit miserly there.

[benitez17]

I have the opposite problem. I focus too much on the potential problems a site could have and allow them to outweigh the potential opportunity.

It sounds like it might be tough for you to come to an agreement with this owner since he has a passive, low risk stream of income, but he's not including everything you need to ensure that the business will continue without interruption, so there is some risk for you there.

[Clinton]

Would I be mercenary if I base my valuation on the desire to get my money back after only one year? i.e. if the site is making $1,000/month profit I offer $12,000.

Does anyone else give out advice to other people on valuation and then quickly go to pieces when they're valuing a site for themselves?

My position on this is that when you're spending your own money whatever value you arrive at is the right one.

Given your first para I was tempted to say I'd have paid 24x for the site. Then I saw the 84% from Google bit. Value is a function of the buyer's expected income adjusted for risk. My adjustment for risk in this case would be huge because it's so reliant on Google. In fact, if I were in a place where I was looking to reduce my portfolio's overall reliance on organic traffic - like some people are - I'd walk away from this site whatever the price.