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Thread: How to Value a Website or Blog

  1. #1
    Administrator Clinton is a Premium Member
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    How to Value a Website or Blog

    Why Does a Site Have Value?

    To understand how to value a website it's important to appreciate just why websites have value - and it's quite simply because a buyer sees profit to be made.

    If the buyer cannot see a route to making profit with a site, the chances are he's not going to buy it.


    Should no buyer see profits to be made with a site the site is viturally worthless.

    Sellers often have trouble understanding this and believe that because they've spent a lot of time on the design, SEO, software or traffic their site somehow has a value. It doesn't. While their time, effort and design are all valuable inputs, what's important from a pricing point of view is what result all that effort has produced. A website, unlike a piece of art, has to generate something to be of value to a buyer. Usually that something is good, solid cash. In rare - very rare - instances it generates something else that they buyer believes he can convert to cash after acquisition, but it all boils down to profit for the buyer.

    Sellers sometimes provide examples of big sites such as Myspace or Facebook that had huge price tags even before they generated any profits and use that an an argument for why their site should have a certain value. And their sites would if, like MySpace, they found someone who had a huge chunk of money ($580 million in Rupert Murdoch's case) and, even more importantly, a deal up his sleeve for revenue generation (like Murdoch's $900 million agreement with Google for advertising). Murdoch knew he'd made a profit before he went and shelled out $580 million smackers for MySpace.

    But can you convince your buyer that he can recover his investment? In the type of non-million dollar world we inhabit - and knowing buyers the way I know them - I can assure you you'll find it very, very difficult indeed to convince them about "potential". The typical buyer wants to see proof of earnings and history of earnings and even that doesn't always convince him there's profit to be made from the acquisistion.


    I've covered some other site valuation myths here.


    Relationship Between Profit and Risk

    The more secure the expected future profit stream, the higher the multiple a buyer is usually willing to pay. That's why sites that don't boast an established history of profit tend to sell for lower multiples - buyers aren't confident of the future profit they can make. This is best illustrated by the image at the start of this post.

    Value is a function of the earnings and risk. The higher the risk the lower the multiple buyers are willing to pay.

    Value is measured as a multiple of monthly earnings. A site valued at 24x is worth 24 times its monthly earnings.

    In the image at the top of the page, the established nature of the site, minimal management input required, consistency of profit etc., serve to reassure the buyer and lower his perception of the risk.

    Note that site design, development costs and the seller's claimed potential are completely out of the equation. They really don't influence the price for 99.9% of established web businesses.

    Note also that earnings are "net" i.e. earnings after deducting all costs paid out and not paid out. An owner-website who spends a lot of time managing his site may not pay himself a salary but a fair salary needs to be deducted from the figures anyway if you are to arrive at net earnings/ net profit.


    What's A Quick Way To Value My Website?


    It's important to realise that site prices aren't set in stone unlike, say, interest rates. Nor do they have a precise measurement like the value of the dollar against the yen. They vary based on buyer, market sentiment, how the sale is presented, and more. There is no universal formula and there are no comprehensive and accepted "standards" for valuing sites. It's about individual buyer's perception of the future profit he can make and his perception of the risk involved.

    But there are ways you can get a pretty good idea of what multiple your site is likely to achieve at open auction. One good way is to take the "DNA" of your site and compare it against similar sites which have sold recently.


    How Easy Is It To Calculate The Value For My Site?

    The above value calculation is easier said than done. You'd have to trawl through thousands of Site-For-Sale listings and find enough sites similar to yours to make the comparison worthwhile. And there are numerous caveats any one of which could make your entire exercise worthless.

    The good news is that there's a shortcut. This tool does attempt to do just that algorithmically. You provide the domain name, gross earnings etc., and the tool matches your site against similar sites that achieved a successful sale and comes up with a ball park figure. But as long as it can't peek into buyers' heads, it will never be perfect.

    It's no substitute for testing the market by listing a site at auction, but it's the nearest you can get without the hassle of "going public".

    Whether you do it manually or use the above tool, the accuracy of the result relies a great deal on finding sites with the same DNA print. Your site could possess a sweetner - such as a killer domain name - that adds considerable value. This wouldn't be apparent from the above exercise.

    Is there another way?

    Yes. List your site in our forums here and have get multiple opinions from our experts for free. These are people who are regularly buying and selling sites and know the market inside out. Please read these rules before listing.



    Some Stats

    Here's my compilation of what multiples sites in certain sectors are selling for. The figures on the Y axis are multiples of monthly earnings

    Content Sites: These range in subject from technology and games to health, antiques and wedding related. The "content" ranges from text and articles to video and images.

    sales-multiple-chart-1.jpg
    The average multiple of just under two years’ worth of income is, in reality, probably skewed by the fact that sellers often quote gross revenue as net profit. If we remove the top and bottom two sales in the above chart, we find an average of just 16.35 months of claimed earnings.

    Blogs: The subject matter of the blogs analyzed below ranged from health and celebrities to relationships and technology.

    sales-multiple-chart-2.jpg

    The lower average for blogs (around 11.25 if we remove the two extremes) reflects that the earning figures sellers quote are usually gross rather than net, and that buyers factor in the extra work that blogs entail. Blogs are selling for about two-thirds of what they would realize if they were “pure” content sites.

    Forums and Communities: Forums and community-based sites analyzed below focus on topic areas as far apart as automobiles, pregnancy, and gaming.

    sales-multiple-chart-3.jpg
    The much higher multiples that forums go for is a surprising result till you realise that forums are difficult to monetize, and many sellers have zero to very little proof of earnings. Most forum buyers are site flippers or otherwise experienced at managing and monetizing communities and are therefore willing to pay a higher multiple of the unoptimized earnings. Removing the extremes in the above chart gives us a much more realistic average of 23.5, still higher than the multiples for blogs and content sites, but not by as much as first looks indicated.

    Service Sites: Sites providing free image sharing, site hosting and freebie services.

    sales-multiple-chart-4.jpg

    The much lower average of 9.86, compared with content sites and blogs, reflects that buyers are aware of the higher overheads (like bandwidth) which are often not deducted from the claimed earnings.

    There are other types of sites, of course, such as incentivized sites, proxies, sites selling digital products and sites requiring very specific skill sets/interests to manage. If you have one of those and would like a value, start a valuation request thread. Please read the forum rules on this first.

    Remember that for the site seller the only valuations that matter are those done by people who have both the desire and liquid funds to buy their site.
    Last edited by Clinton; 1 November 2010 at 3:59 pm. Reason: to fix link

  2. The Following 4 Users Say Thank You to Clinton For This Useful Post:

    drepac (29 March 2011), Kay (29 October 2010), Portgaz (11 May 2013), TheodoreK (30 May 2011)

  3. #2
    Administrator Clinton is a Premium Member
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    BackGround
    How the Valuation Guide Came About

    Not that long ago, Sitepoint owners asked me to put together a guide to valuing websites. This was partly because of a lack of any credible information on the 'net and partly because people were being fooled by "valuation tools" such as websiteoutlook, dnscoop, websitevaluecalculator, cubestat and others which purported to calcuate a website's value (when, in reality, they were using what could only be called random number generators).

    Those "valuation" sites aren't completely useless. In fact, many of them provide a valuable function in collecting data together for you. Scripts on these sites gather and compile information as diverse as your incoming links, main keywords, PPC costs of those keywords, Alexa ranking, (estimated) traffic figures, Google Page Rank etc., but they can't and don't estimate market value with any degree of accuracy.

    When Sitepoint requested the Ultimate Guide To Valuing Websites, I got together a few other regular buyers, experienced business brokers, accountants and other professionals - pretty much the best talent around as advisors. The regular buyers were people who'd bought sites in USD, in Pounds Sterling, in Yen, Yuan, Australian and Canadian dollars, in Euros, in Pesos and in Rs and paisas. They've bought blogs; affiliate sites; content sites; scrapers and MFA sites; blackhat, whitehat and greyhat sites; sites selling physical products and sites selling ebooks; search engines; proxies; social networking sites to myspace trinket sellers; incentivised and reward sites; directories and link farms; ezines and forums; ringtone to pharmaceutical sites; even databases, portfolios of parked domains, scripts, ebooks and adware - pretty much the whole spectrum! Some of them have acted as paid advisors to businesses making acquisitions, others have been business brokers and business transfer agents themselves before deciding to start buying sites for their own portfolios.

    And we put together an ebook sized, pretty technical guide on the valuation on Internet Businesses which was eventually published at Sitepoint.

    This post is an updated version of that article and without all the detailed accounting and maths. If you do wish to immerse yourself in the calculation of Net Present Value, wallow in Discounted Cash Flow or flounder around in Internal Rate of Return calculations, you could read the article here, get the spreadsheet downloads here and use the tool created for Sitepoint here.

    What are YOUR thoughts on site valuation? Or the above post?

  4. The Following User Says Thank You to Clinton For This Useful Post:

    Portgaz (11 May 2013)

  5. #3
    Administrator Clinton is a Premium Member
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    Recommended reading on valuations:

    Diomo Corporation: How to Value a Business
    Practical ecommerce: Setting a Value for an E-Commerce Business

    Any others? Start a thread. I'll pick out your best suggestions and links and update this post/sticky.

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    stuntdubl (Todd) has a post he wrote about it: http://www.stuntdubl.com/2006/02/20/website-valuation/
    powerhomebiz has one here: http://www.powerhomebiz.com/vol151/selling.htm
    and Yaro Starek has one here: http://www.entrepreneurs-journey.com...website-worth/

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    Love the Balloon graph! Did you design that yourself?

  8. #6
    Administrator Clinton is a Premium Member
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    No Michael, I paid someone to do it for me. I'm not that hot on Photoshop. Glad you liked it
    Find the right business brokers to maximise the value you extract from your business and improve the chances of selling your business.

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    Very nice post Clinton. It was interesting to read your compilation of multiples paid for different types of sites.

    One comment on forums. Even though I agree they are hard to monetize, I have seen successful cases in the gambling segment where forums came out ahead in terms of monetization.

    Also, we see a trend in SEO towards more "natural following" as a sign of authority so I think there is significant SEO value in an active forum. However, we have not been able to successfully put a value on that yet in terms of future projected earnings. We just know it will be valuable 2 years earnings doesn't sound too bad on unoptimized income then.

  10. #8
    Administrator Clinton is a Premium Member
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    Yes, forums work for some. Petertdavis, a member here, makes most/all of his money from forums. I can see it working well in gambling.

    we see a trend in SEO towards more "natural following" as a sign of authority
    Could you explain, please?
    Find the right business brokers to maximise the value you extract from your business and improve the chances of selling your business.

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    Well, for anyone looking to improve their earnings of a site, SEO plays a very big part in achieving that higher revenue by getting more traffic.

    So you should try to identify what it is the search engines find valuable. With so much spamming going on, you have to try and find the things you cannot replicate very easily (like natural following), things that would indicate relevance for search queries and that basically make you "trusted". If you are trusted, you rank more easily for whatever it is you want to rank for.

    Natural following is when people regularly visit your site, participate in the site (forum posts, comments on articles, social media things etc) because they find it relevant for the info they need and think the site is useful. This in turn will make the search engines start listing you better because they see other people participating which is a sign the site is trusted.

    Of course, a lot of other factors play a role as well, but I hope my point is clear.

  12. #10
    Administrator Clinton is a Premium Member
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    Ah, I see.

    SEO is a two edged sword. I've always preferred to buy sites that didn't have a great deal of SE traffic. Sellers often tout their SERPs rankings as a key selling point. For me, those rankings serve to put me off buying a site.
    Find the right business brokers to maximise the value you extract from your business and improve the chances of selling your business.

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