How to Value a Website for Purchase

Status
Not open for further replies.
Rob_TID

Rob_TID

New member
Jun 24, 2006
1,368
16
0
There are a lot of people in this forum who are well qualified to comment on this and I would love to hear from them.

The basic formula as I understand it is that a site is worth about 10x its monthly net profit.

If I make $1500 in October from my site, I should be able to get around the $15,000 mark for it.

Now, there are obviously going to be a lot of variables in that formula like accounting for unusual traffic patterns, under-monetised layout etc etc but that is the basic forumla as I understand it.

Am I totally wrong there?

The reason I ask, is that I sometimes see sites that have an asking price of significantly more than that foruma would allow for (like Tyler asking 100k for a site that barely makes 10k per year). I don't mean to pick on him personally, but I am obviously missing something here.
 


I'm no expert, but with the two sites I've bought in the past, I paid roughly 12x monthly revenues and that's usually what I'm willing to pay.

Of course there is no formula, but you have to factor in other things like potential, domain name, growth etc. and also on the buyers end, opportunity cost, present value, etc. Bottom line.. a site is worth what someone's willing to pay.

I doubt anybody would be willing to pay 5 years revenues unless the site has tremendous potential and is growing on its own or can grow with a little bit of work. It really depends on the site and the buyer.. but in your case with Tyler, I highly doubt anybody would be willing to pay what he's asking...
 
Fixed numbers are pretty much worthless. The reason why is because there are so many variables. Here are some examples:

1. Brand new website making $10,000 a month from MSN, probably worth 1-1.5 months revenue.

2. Website relying on shady methods, such as images next to YPN ads, could cut potential value down 90%.

3. Website that has a large community built around it, value could be around 2 years revenue.

4. Website built on a premium domain name, could be 8-10 years of revenue.

5. Website that relys on paid advertising, value unknown

6. Website thats been around years. High pagerank or not, older domains are percieved as more valuable.

7. Website that is a market leader and has the interest of big companies like Google. An example would be Youtube or Myspace. Throw all the rules out the window.

There are two different positions here -- one you are the buyer, the other as the seller. If you are a buyer you should be looking at the value of a website much differently than as a seller.

As a buyer I want a site that is contributing something which I can't easily recreate myself. Preferably there are still areas that could be improved one so that following the purchase I can lower that earnings multiple by increasing the income. If you know how to add value, 5 times earnings might not sound too silly.

Thats one of the reasons why big corporations shell out massive amounts for websites. Google has a market capitalization of 145 billion dollars, in 2005 they had a net income of 1.4 billion dollars. The value of YouTube goes beyond its earnings or presumed potential earnings. That purchase suddenly made Google the biggest player in online video advertising.

So how is that relevent to you? Lets say you have several sites in one niche. You may be able to outbid someone else on a site for sale in your niche because of what you can do with it. For example, you could use the site to drive traffic to you older sites, or integrate backlinks to push your other sites up in the search engines. To you, that site may be worth twice as much as it is to everyone else.

Pretty long post but the point is there are tons of variables, and some of those variables include you.
 
  • Like
Reactions: illusion and Rob_TID
Status
Not open for further replies.
Top Bottom