Selling Your Website - Price Formula

[schmeg007]

I was recently approached by someone that was offering to sell my website. Of course I'm not going to do it, as I expect my site to be worth a great deal more than it is now in a year to come.

However, I was wondering how you all would evaluate the value of your website. If I was forced to do so I would say that a website's worth could be estimated with the forumula:
18 Months of Average Site Revenue + Goodwill = Asking Price.

Where Goodwill is just the price that your buyer would have to pay for the brand recognition and other uncountable/undefinable parts of a website that a dollar value cannot easily be assigned.

[aawebmaster]

Originally Posted by schmeg007

18 Months of Average Site Revenue + Goodwill = Asking Price.

Where Goodwill is just the price that your buyer would have to pay for the brand recognition and other uncountable/undefinable parts of a website that a dollar value cannot easily be assigned.

It's a good rule of thumb. If you have consistent revenue growth though, project your increased revenues for the next 18 months and base the price on that instead of the average. There are a few or more variables to consider such as current operating expenses (expenses you are currently paying to maintain the site - hosting fees, vBulletin licensing fees, etc.) and opportunity costs (if you sell the website, could you be making more money by spending more time developing and maintaining a different website).

Finally, assess the needs of the buyer. If he's anxious and you can afford to risk killing the deal, hike the price.

[compar]

In the end anyone who is buying a web site is making an investment. The criteria when making an investment is ROI.

The riskier the investment the higher the potential ROI needs to be. You would want a higher interest rate if you invested in second mortgages than you would if you invested in first mortgages.

So the first thing you have to do is figure out the buyers return on investment criteria. It wouldn't hurt to ask him/her. Then project your income (revenue minus expenses) over then next 12 months.

If the buyer is looking for a 10% ROI then the value of the investment to him is 10 times the projected 12 month income. If he is looking for a 20% ROI then the value of the investment is 5 times the projected income etc.

[burgi82]

Not to burst anybodies bubble, but the average sale price for websites is between 6 and 9 times monthly earnings, with some sites even selling for as low as 3 times monthly earnings.

[robpicken]

Hi,

Yeh i've been dealing with buying and selling sites during the past 6 months as a rule of thumb, I pay no more than 10 times your monthly profit.

So if your making £1000 per month i'll buy it off you for £10,000, thats if i like it of course

The other thing to consider is how much you've spent on setting the site up (if its a new site), if you've splashed out £3000 on setting the site up, then you'll want to look to recoup that plus in the region of 3% - 5% to cover any interest you could have made having that money sat in a decent savings account.

The biggest problem from a sellers point of view is that buyers will not pay for potential earnings and thats what causes a few problems.

[tigermann]

<<<<<<<<<<<
So if your making £1000 per month i'll buy it off you for £10,000, thats if i like it of course
<<<<<<<<<<<
I would pay more attention to profit than total revenue. In the above example, if the revenue is £1000 a month and the "one-man operator" spends 40 hours a week working on his site (seo, getting links etc) - it is, in my view a loss making site and it isn't worth a penny. Unless of course, you think that there is great unrealised potential in there - and you wouldn't mind being an ex-dot com entrepreneur!

[robpicken]

tigermann,

Read the line above the one you quoted, where it says

"as a rule of thumb, I pay no more than 10 times your monthly profit. "

I wouldn't pay £10k for a site that had an income of £1k per month, unless nearly 100% of that income turned out to be profit.

It also depends on the type of site, and the market it is in.

[johnegood]

A few thoughts for sellers on pricing....

"Consider what you spent setting up the site" - Forget it. Buyers don't care whether you spent a fortune or well clever as can be. There is nothing sillier to me as a buyer than listening to some developer talk about how hard they've worked it. It's a sunk cost. Forget it. There is some merit in thinking about price in terms of how much effort it might take the buyer to set up a similiar site.

"Expect x time revenue" - Forget it. It's only about profit.


Expect 6-9x profit. Now this realistic. The great question of course is about what relation historical profit has to future profit. Sellers always claim that with a little effort, profits could be increased which is always hard to believe. If it was so simple, why wouldn't the seller have done it? Then sellers try to explain that they are developers and not interested in revenue. Right. Then why are they spending time trying to sell a site and talk some buyer into a higher number?

Buyers are often looking out for fraud since a simple way for sellers to make money is to make a site's financials look good and then sell it to someone and then, use the same resources to make another site look good. It's buyers beware. So buyers, make an effort to do great due diligence for buying websites....

Most buyers expect that the reason that it's being sold is that revenue has peaked and will be heading down shortly. Otherwise, the buyer would keep it. Still, buyers are looking to buy so many of us are willing to suspend disbelief and write checks.


So keep those sites and stories coming.....

[erthy01]

Smartpagerank.com give an estimate of the value of websites in their pagerank checker.

Don't know what you guys think of it?

[bylla]

I have to say that I find smartpagerank.com really interesting. I guess you have to take the estimated value as simply just an estimate, but I found it both fun and valuable

I think the goodwill part is the hardest thing to valuate when you buy a site.

/Andreas

[johnegood]

Smartpagerank.com is one of the more clever pieces of linkbait. Very fun. It reminds me of the carnival games which, when you look into a mirror, it tells you beautiful you are. Or the gypsy tells you your future. Obviously, mostly silly but still, it's fun!

[backgammonnn123]

I would say that it depends on how hard that site owner has to work to make that money and how much money comes out of his pocket to make that money.


For example if that person makes their monthly income from adsense ads and their site is placed high in the natural results of google and yahoo then the site owner should ask for even more than the X18 month income. If the person has to put 1000 bucks out of his pocket for adwords then the new site owner has to keep testing new things on adwords, therefore its a bigger headache in many ways and that site should sell at a lower premium.

[Aussie]

Smartpagerank.com looks good, although I agree the price isn't really that useful. BUT I do like the way the rest of information is laid out. A good at-a-glance external stats page of sorts that can help you see where your site isn't listed.

[Red_Virus]

Originally Posted by Aussie

Smartpagerank.com looks good, although I agree the price isn't really that useful. BUT I do like the way the rest of information is laid out. A good at-a-glance external stats page of sorts that can help you see where your site isn't listed.

I like smartpagerank, It is a very nice tool & my site is around $1.2K

So I really love this tool.

[Aussie]

Hehe - well it MUST be a good tool then

[Grumps]

Revenue based estimation doesnt work on site with extreme potential. I have seen some site with traffic but no revenue sold for $10k

[Aussie]

Originally Posted by Grumps

Revenue based estimation doesnt work on site with extreme potential. I have seen some site with traffic but no revenue sold for $10k

... or on the perceived potential.
i.e. if I produce a widget I think will sell internationally, then widget.com etc will be of a high perceived value to me as a buyer. Something I will be hoping that the seller is not aware of.

It's obviously a valid point Grumps, but wouldn't that 'extreme potential' come under the banner of good will as it is so hard to quantify and justify?

[ToddW]

There is no formula.

You can't put a formulate on potential, design, visitors, income, etc, etc..