Valuing e-commerce site

[Denny]

I like people disagreeing with me. Too often they are reluctant to challenge the admin. But if I'm never challenged I'll never know where I've made a mistake.

OK, you want to know what tasks are being performed and what skill level is required. Why do you want to know this? Given two identical sites with identical profits etc., one requiring 10 hours/wk of low skill ($5 an hour) and the other requiring 10 hours/wk of more expensive skills (say $100 an hour), you'd prefer the former, wouldn't you? Why?

I want to know the tasks and skill level so I can evaluate and assign an hourly value to those variables myself. Why would I want to rely on the owner to assign a $5 or $100 value to the tasks and skill levels? If I know what tasks and skill level is involved, I may be able to perform those tasks in half the time of the present owner or I may think it'll take twice as long. But if the net profit has the owners salary, you would have no idea what that entailed. Personally, I would rather know that the net profit is 10K without the owners salary then have the net profit be zero with an owner salary included at 10K with no idea what he did for that 10K.

[Clinton]

Then it seems that we are in agreement for most part as you too want the cost of labour to be taken into account. I agree with you that owner's assignment of a value could be arbitrary and not a true reflection of the actual cost of the service. The owner typically plays down the amount of time/work required to run the site.

Where we differ is on the cost of labour being used in the profit calculation. Like you I would independently estimate how much that labour is going to cost me, but in principle I would require the seller to exclude a fair figure for labour if he wants to refer to his figure as net profit.

[benitez17]

I want to know the tasks and skill level so I can evaluate and assign an hourly value to those variables myself. Why would I want to rely on the owner to assign a $5 or $100 value to the tasks and skill levels? If I know what tasks and skill level is involved, I may be able to perform those tasks in half the time of the present owner or I may think it'll take twice as long. But if the net profit has the owners salary, you would have no idea what that entailed. Personally, I would rather know that the net profit is 10K without the owners salary then have the net profit be zero with an owner salary included at 10K with no idea what he did for that 10K.

To me, it's a sign of how honest and reasonable the owner is being.

If the site is a gardening blog that gets traffic because the owner/operator is an experienced horticulturist and frequently writes detailed posts sharing that experience, but they claim that blog posts are available for $0.01 per word and value their time accordingly, it's likely that they are leaving out other important information (intentionally or unintentionally).

If you're an experienced horticulturist and you plan to write content yourself, then it's probably a great fit and you don't need to concern yourself with that expense. For the 99.9% of us that would have to go out and hire someone to write that content, it's not that simple.

I have several dedicated servers that I manage myself because I have years of experience doing so, and have enough sites that the dedicated servers make financial sense. Because of that, the cost to me to host some random Adsense site is effectively $0. Does that mean that I can tell anyone that the cost to host any of my sites is $0, or should I include a reasonable amount of hosting expenses when I list a site for sale?

Why should owner labor be placed in some special category of expenses?

[Denny]

Everyone: I know that the work an owner does has monetary value. All I'm saying is that the value of that work is not a fixed number. If you want to include it in a P&L statement, I have no problem with it as long as I know what tasks are performed and what skill level and expertise is needed to perform them. I can't understand why you wouldn't want to know that information as well? Clinton's

-OK, you want to know what tasks are being performed and what skill level is required. Why do you want to know this?

Knowing both what the owner paid himself and what was done for that payment are important. I'm simply saying that knowing what was done is more important than knowing what he paid himself.

[KenW3]

I want to know the tasks and skill level so I can evaluate and assign an hourly value to those variables myself. Why would I want to rely on the owner to assign a $5 or $100 value to the tasks and skill levels? If I know what tasks and skill level is involved, I may be able to perform those tasks in half the time of the present owner or I may think it'll take twice as long. But if the net profit has the owners salary, you would have no idea what that entailed. Personally, I would rather know that the net profit is 10K without the owners salary then have the net profit be zero with an owner salary included at 10K with no idea what he did for that 10K.

Agreed. If I can hire help or outsource work at a lower rate, my assessment of value will differ from evaluation of a simple P&L statement from a current business owner. The current owner may not have anywhere near the same costs as I would for the exact same jobs. These analytics are what causes buyers to be willing to pay a differing multiples of revenue.

Contacts in business, ability to source qualified assistance, skill levels, all are assets and valid argument for analytics that are beyond simple spreadsheet evaluation. If a website business purchase is from or to another country, costs for performance of those variables can differ considerably. I do need to know a line item cost structure that includes all employee work, including any work (paid or unpaid) by the business. When the owner is the only employee, evaluation can be more difficult.

If the owner of HandbagFairy is able to manage the company in two hours, and the new owner requires four times as much do to a different skill set, the £20 an hour earned by the current owner turns into an unacceptable £5 an hour. Of course, the inverse would make the business more valuable to a buyer.

For a given site structure and monetisation model, experienced buyers will instinctively assign their known costs to business profitability evaluation. For example: If I am looking at buying a site that has an article a day added to the site, I know my costs. The current owner may be paying £25 per article for content, when my writers charge £10. The difference is quite substantial at an article a day.

After a certain amount of experience, much of this becomes almost instinctual. Experienced buyers can look at traffic, monetisation, and site, and have a good idea of costs versus expected revenue. Accounting statements may only be providing validation of expectations or a DD warning.

[squeezywheezy]

Hi there

Wow thank you so much for all of your posts, I really appreciate the time taken and the knowledge passed on. Well from your comments I am sad to say that Clinton I agree with you regarding the net profit / salary situation. In fact I take £500 per month so the net profit is actually only £4000. Quite depressing when I see it like that!! I work quite long hours in my day job so in terms of the work I do on the site I spend on avg 10 hours per week on it and that tends to be 4 hours on a mon night (no particular reason i just seem to have the get up and go on a Mon after work!: ) Then usually 2 hours one other week night and 4 hours at the weekend. I always have the best of intentions to work more at the weekends but usually am wiped out when it comes to Sunday so end up not doing a great deal.

In terms of the work involved it is certainly not rocket science. Mainly it is responding to customer queries - all through email, ordering new stock, doing the odd newsletter and trying to do seo. I know everyone probably says this but I genuinely belive there is some good potential in the site for someone who has more time to devote and more knowledge than I. I have set up dropshipping agreements with Irregular Choice and just recently a foreign brand. We also have dropshipping agreements with Red or Dead and Zandra Rhodes (owned by the same company). I stopped using them though as they were not sending me through regular stock updates, However this was just as much my fault as theirs as I wasn't requesting them on a daily basis - again due to lack of time. The only non dropshipper we have is an london based italian leather supplier we have allows orders in small quantities and can usually deliver to us within 2-5 days depending on stock as they order from italy on a weekly basis. I have it set up on line that it takes 7-10 days for stock to reach customers as it comes from italy to cover ourselves and ppl have been fine with that - they have told us they love knowing that their bag is coming directly from Italy. The Italian bags are particularly popular as people are searching for these styles online. Our prices are very competitive. The dropshipping and small order quantities are good as we don't require much space for stock (we used to have it in two wardrobes in a spare bedroom) and the business is pretty much debt free. Sometimes I order a few extra italian leather bags just to have in stock and that would be the only monetary debt we have (although obviously the asset is still there in stock ) We did a photoshoot a few months ago and we have about 30 Irregular Choice bags from that and a few of our own unbranded bags - I actually didnt factor that in to the figures above and not sure if it makes much of a difference but in terms of stock sitting now we have approx £1000 at cost in stock with a retail value of approx £2500.

We also have the stock we do hold in a fulfillment and distribution centre (this has been since Sept) so we just send an email through and they fulfill the order. Again this is an unneccessary expense and it could easily be done by someone at home.

The blog is pretty self sufficient. I had until three weeks ago a girl working on it two hours a week until she went on holiday and she will be back this week. We have a pool of over 150 writers that write free of charge. Some of these girls are fashion students who are looking for experience but the majority are girls around 20-35 who just love fashion and write for fun and want to blog about their favourite designers etc, so we have regular articles being uploaded each week on a scheduled basis. Last month the readership went up to 7000 per month which I was v pleased with as there is minimal seo done (seopressor for wordpress) and no paid seo. We have no forum which I think woudl increase the value. I also believe there is a lot of potential for an experienced affiliate marketer there.

In terms of the wholesale it would be easy for this to be worked abroad as there is the ability for wholesale logins for the site.

In terms of the reps we have a couple active here in NI and a few in England. We provide training manuals but I think it would benefit from someone being able to work it properly. However to be honest it doesnt being in much revenue as it is an entire business model in itself as it is very time heavy in terms of walking reps through the process and being available for them. Agian if someone had the time to devote to it I see no reason why it wouldn't work We were doing home parties ourselves (myself and a friend) for the first year and we sold easily. However as one of the previous posters said with these type of schemes some people take to selling like a duck to water others don't.

All in all I do think there is real potential in the site especially for someone with strong internet marketing background and as one of the previous posters said access to the right sources to carry out good marketing. However I understand that for the work involved many people just wouldnt want to take this on. I think for now I will have to carry on, I will do so anyway until after the Christmas rush. After that I will see what i can get for it. I would be sad to see it go for nothing as I put a lot of work in at the beginning to give it a solid grounding. However we shall see!

Again many many thanks for your comments. I welcome any advice you may have going forward. I did try to "thank" a few ppl in their postes but could not see whare the button was to thank them - apologies - having a silly moment!

Louise

Ps one last question if I am not going to sell this site I would like to try and make the blog more profitable. Last month I purchased datafeedr and had lots of fun playing with it and for a few weeks it worked great and I couldnt believe it when after three weeks we earned £35! I can hear you guys laughing! lol, but for me i thought it was great! Then the datafeedr just took up far too much menory. I increased our memory capacity but it was seriously taking about 2 mins to load the pages. i finished with it and then set up amazon affiliates as it was free - not a penny as yet though! Any help you can give me in that respect would be appreciated.

many thanks

Louise

[crabfoot]

So you've decided to keep it and improve on it? Probably a good idea when you've put so much work into it.

One of the hardest things about this "site query" is that every aspect of the business is intertwined. You have to separate those aspects into individual functions, then you can see the best ways to expand and go forward. What I'm suggesting could stand alone from the start, if you're careful how you lay it out.

My thoughts were about hands-off ways of monetising the site using affiliate programs to supplement the other offerings.

After thinking, I went to look at the similar domain names available, and found that you own the .com and have it redirected to the .co.uk domain.

I'm not sure of the best way forward. I was thinking that you could set up an affiliate site with a similar name. Apart from the setting-up work, that would be a low-maintenance way to attack a much wider market and build on your established reputation.

I think you could re-use a lot of the content you already have - I don't think duplicate content would be a big issue if you use the right tags to show that the UK site is the original source.

But how to go forward - should you build on the .com, or buy the .net for such a project?

Somebody tell me if I'm spouting rubbish. If I'm not spouting rubbish, what is the best way to implement the idea?

[Clinton]

Louise, my intention wasn't to get you down, of course, but to lay out how a buyer would view your business.

In terms of the work involved it is certainly not rocket science. Mainly it is responding to customer queries - all through email, ordering new stock, doing the odd newsletter and trying to do seo

You know ... all of that can be outsourced. OK, it takes a bit of time to find the right person and to get them up to speed. And it takes some money out of the business. But it frees you to do the smart stuff like expansion! It appears you've already got some experience with outsourcing some work - build on that.

Sorry about the thank you button. That, like other privileges on this board, comes with post count and you'll get it after a few more posts.

[squeezywheezy]

Hi Clinton

many thanks.

Louise