When people refer to the "times monthly revenue" figure (i.e. the owner is asking 10 x monthly revenue), is it based on the gross revenues or net revenues?
Travis
When people refer to the "times monthly revenue" figure (i.e. the owner is asking 10 x monthly revenue), is it based on the gross revenues or net revenues?
Travis
It depends. Any reasonable buyer would base their purchase price on the income that they can generate with the site, but I have seen people claim that this "rule" applies to gross revenue. Unsurprisingly, these people are usually trying to sell an e-commerce site with low margins.Originally Posted by tvanslooten
Thanks. I'm not necessarily asking what a buyer should base this figure on...I'm wondering what the general rule of thumb is. You are saying you heard it is based on gross revenues, which is what I thought, but I wanted to confirm because the figure can be dramatically different depending on what you base it on.
Travis
That's not what I said at all. I said that I have heard people base it on both values, but the only one that makes any sense at all is basing it on profit, not gross revenues.
Is a site that loses $5,000 a month but has $100,000 a month in revenues worth $1,000,000? It could be if the site is grossly mismanaged or is growing at a very rapid rate and has a plan to make the site profitable, but assuming that's not the case, I'd probably be better off buying a site making $1,000 a month for $10,000.
What about a site where the owner is making $0.10 CPM because of poor ad selection or a lack of effort on their part, and I know that I can make $3 CPM? Should I bow out of the auction if the high bid is 11x their ridiculously low profit, or should I base my bid on what I know I can do with the site and bid accordingly?
My real point is that rules like that don't really exist, and are only pulled out by someone to make their asking price (or offered price) look better than it really is. You need to decide for yourself what you can do with a site before you bid, rather than trying to determine some sort of fixed rule that can be applied to every sale. I personally have bought a site that was losing $500 a month for $1000 and turned it into a site making over $1000 a month within a couple months of the purchase because I could see that the site was poorly managed (and I got a little lucky), and I have bought sites that were making $200 a month for $800 because the owner was looking to dump them off.
This probably doesn't help, but I don't believe there's a general rule of thumb.I'm wondering what the general rule of thumb is
The people who tend to make posts in SP, DP etc., saying the standard multiple is 10x / 12x / some other x ...are idiots.
Ha... good ole e-commerce. There seems to be an abundance of these sites for sale, especially on biz broker type listing sites with unusually high multiples.
Although there is no standard rule, I don't have any problem with people saying 10x-12x monthly revenue is "standard"...
I wish I could get a few sellers I'm talking to, to sell for that!
O.K., let me try this from a different angle - and perhaps this is how I should have asked in the first place, but here is the deal - on my site I report on various website sales that happen on Flippa and other marketplaces. In my reporting, I like to say a site sold for "X times monthly revenue." Should I be basing the figure on the websites NET profits or gross revenues? Example: a site's gross is $2,000/month but it's net profits are $1,500/month and it sells for $15,000. Should I say this site sold for 7 1/2 times monthly revenue (based on gross) or 10 times monthly revenue (based no net)?
I'm just trying to figure out what is the "standard" way of reporting website sales. And even if there isn't a standard, what do most people assume that figure is based on - gross or net?? In other words, if you were a business person reading a report on a website sale and you heard that figure, would you assume it was based on gross or net?
I realize it's probably not a big deal either way for my purposes, but I was just curious.
Travis
I just want to clear something up here for you guys that kind of annoys me when some people talk about net and gross revenue. The term, for those who have made the mistake here you are looking for is net profit and not net revenue.
Net revenue is not the same as profit. Net revenues is merely revenues less any returns or negative revenues. Therefore it does not differ much to Gross revenue in most circumstances.
So to rephrase your question you want to know whether the rule of thumb is to base it on Revenue or Net profit.
Excellent point, nEquity!
Travis, why not report both? It could be interesting to see how people value the two.
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