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l008com · Dec 6, 2007, 06:16 AM

Every once in a while someone offers to buy one of my web sites, but the amount they offer is super low, in my eyes. So the question is, as I've boiled it down to:
How many years of revenue should you add up to determine the selling price of a web site? For traditional businesses, 10 years is standard. That might be a long time for a web site, but on the other side, a web site can see exponential growth with very little increase in labor or expense. Thoughts?

MacosNerd · Dec 6, 2007, 09:40 AM

Well what's your definition of super low.

Its supply and demand, if they offered 1,000 bucks, I'd consider that extremely high, yet if you take your approach you might want 10,000 or more for the domain. Depending on the name it may be unlikely that you'll ever get it.

I think a lot of the domain resellers that push for 1,000 to 10,000 for a given domain generally don't get that. People will find a domain that they can register instead of dishing out 10,000 bucks.

Established medium to large businesses who want a better web presence may be the only ones with deep pockets to pay such exorbitant prices but in my opinion by 1,000 bucks for a domain is too much, heck 500 is too much.

l008com · Dec 6, 2007, 09:48 AM

I'm not talking about a domain name, I'm talking about a website. Your reasoning for prices seem based solely on buying and selling a domain name, and not buying and selling a whole website, and all the traffic and income / potential income that comes with the site. At my current monthly rate, 10 years of my website is about $80,000. The super low offer I got was $20,000. It would be foolish for me to sell when I could just keep the web site and make much more.

MacosNerd · Dec 6, 2007, 09:56 AM

Oh I misunderstood. In essence they want you to sell your business then.

And yes you would be foolish to sell at such a low price. I'm sure you told the buyer that.
Sorry about that

l008com · Dec 7, 2007, 10:26 PM

Sooooooo any chance someone else has an opinion on this topic? :-)

DeathMan · Dec 7, 2007, 10:32 PM

Its like you just asked us who you should marry. We have no idea what your business is, and all business and sites are no the same. the 10 year idea itself is only used for a very basic analysis, if at all, and I've never heard of it used for a website. Usually its way less than that, or way more, such as in the case of youtube. It has potential to make lots of money, but no track record.

Describe your business more. No one is going to give you formula for selling a business we know nothing about.

turtle777 · Dec 7, 2007, 10:36 PM

Yes, give us some more info.

You're looking for a financial valuation, so give us financials.

How much money is the website generating ?
What is the yearly cost to run it ?
How much did you invest ?
How much growth ?
What's the customer retention rate ?

-t

alligator · Dec 7, 2007, 10:38 PM

There are professional services that value items like this. Maybe you should retain one to see what they take into consideration?

l008com · Dec 7, 2007, 10:40 PM

How much money is the website generating ? ~$8,000/year & growing
What is the yearly cost to run it ? ~$610 spread over several sites including this
How much did you invest ? $35
How much growth ? Well like all sites I started with 0 traffic. Now I get about 14,000 visits per day (40-50K page views)
What's the customer retention rate ? I don't sell anything.

turtle777 · Dec 7, 2007, 10:51 PM

One thing that's important to know is how the growth occured over time.

Is it steady ?
Accelerating ?
Slowing down ?

The higher the potential future growth, the more it will be worth.
And it will still be highly subjective...

-t

turtle777 · Dec 7, 2007, 10:53 PM

Oh, and one more important thing to ask:

Do you have to provide new content on a regular basis ?
How do you keep the domain interesting and up-to-date ?
To what extent do you have to "work" to keep it alive ?

-t

l008com · Dec 7, 2007, 10:59 PM

I'm looking around the web and finding numbers like 2, 3 or 4 x the yearly income. Other than people that are in a financial pinch, I don't see why anyone would sell their website for so little. What I'm being offered seems on par with what I'm reading on the web, and I'd consider myself a fool to take it. The site is costing me next to nothing. These days I spend very little time working on it. And the money pours in. Totally illogical if you ask me. I'm definitely not selling anytime soon.

l008com · Dec 7, 2007, 10:59 PM

[ P.S. I'm talking about the 3rd site in my sig ]

turtle777 · Dec 8, 2007, 01:38 AM

I agree, in this case, 4x earning is far to low, because you really created a cash machine that doesn't cost you anything.

I would think that your specific website's worth should be around 10-20x earnings, since you basically could look at the yearly income as if it was a regular interest payment of a let's say 5-10% yielding investment.

So, if someone offered you $ 160,000, you could invest that cash at 5% interest and still make $ 8,00 per year.
So to you, that's what it should be worth and actually IS WORTH !

Why would anybody be willing to pay that much ? Because they would have an idea how they could milk more out of it, making this a worthwile investment on their end.

Btw, I have been using your website in the past. Congratulations to a great idea

-t

olePigeon · Dec 8, 2007, 02:29 AM

I'll offer you $250,000. Will you take a personal cheque?

turtle777 · Dec 8, 2007, 02:33 AM

Originally Posted by olePigeon

I'll offer you $250,000. Will you take a personal cheque?

No Western Union ?

-t

l008com · Dec 8, 2007, 05:59 AM

Originally Posted by turtle777

I agree, in this case, 4x earning is far to low, because you really created a cash machine that doesn't cost you anything.

I would think that your specific website's worth should be around 10-20x earnings, since you basically could look at the yearly income as if it was a regular interest payment of a let's say 5-10% yielding investment.

So, if someone offered you $ 160,000, you could invest that cash at 5% interest and still make $ 8,00 per year.
So to you, that's what it should be worth and actually IS WORTH !

Why would anybody be willing to pay that much ? Because they would have an idea how they could milk more out of it, making this a worthwile investment on their end.

Btw, I have been using your website in the past. Congratulations to a great idea

-t

I like you're reasoning (obviously). The offer I got was $35,000. And one of the "web site valuators" online clocked me in at $37,000. All the others i tried were like $5000 or less. What a joke. But yeah I was thinking, I'd consider offers over $100,000 , but why even consider anything less than that.

peeb · Dec 8, 2007, 01:28 PM

Is there some reason you want to sell it? Looks to me like you would want to keep it.

Doofy · Dec 8, 2007, 01:41 PM

If I remember rightly, someone hit you up for selling that site before.
I'd let it go for no less than $250k - the Internet is still expanding and there's a lot of currency in that domain name.

Peter · Dec 8, 2007, 02:53 PM

I'd sell. $35K isn't bad - you'll have more ideas.

finboy · Dec 8, 2007, 02:55 PM

Originally Posted by turtle777

Yes, give us some more info.

You're looking for a financial valuation, so give us financials.

How much money is the website generating ?
What is the yearly cost to run it ?
How much did you invest ?
How much growth ?
What's the customer retention rate ?

-t

I'll be glad to look at it for you, for free. But I'll need some of that info. I'll also need total hits per month, and probably some other stuff. I'll have to think about what else I'd need.

Most folks who will buy websites will want more than one qualified opinion, and probably financials reviewed or generated by a CPA. If they're going to ever use the business to borrow money (good luck) they'll need complete audited financials from all the way back to the beginning (usually).

As for "standard" businesses, I've never seen anybody stop at 10 years. There are good arguments for using 20 or even more years.

turtle777 · Dec 8, 2007, 02:57 PM

Originally Posted by Peter

I'd sell. $35K isn't bad - you'll have more ideas.

Wow, I'm shocked. Don't you run a business yourself ?
$ 35k is a horrible deal.

Think about it: to come out even, he'd have to get an investment opportunity that would give him 23% interest per annum. Where would yo get that ?

-t

Chips G · Dec 9, 2007, 06:11 PM

As for "standard" businesses, I've never seen anybody stop at 10 years. There are good arguments for using 20 or even more years.

Revenue 10 years into the future is a lucky guess at best (ESPECIALLY for a website such as this), so looking 20 years into the future won't reveal much (in my opinion).

A Discounted Cash flow is one of many ways to try to value your company, here is an example of one I quickly made up (pulled the numbers out of the air in terms of growth rates).

The Net Present Value is basically if you had this much money now, and invested it at the discount rate, the cash flows you would get at each year. Notice how into the future the net present value of the income drops, because that money is worth less to you now because you don't have it now to invest.

turtle777 · Dec 9, 2007, 08:24 PM

Why do you use a discount rate of 15% ? That seems very high to me...

-t

Chips G · Dec 9, 2007, 08:43 PM

Why do you use a discount rate of 15% ? That seems very high to me...

I chose this rate because revenues generated by a website such as this can be relatively unstable, so the person potentially interested in buying the site will want a higher return. (Risk vs. return: The 'riskier' the investment, the higher return the investor should expect)

Currently, the potential investor could get a "risk-free" rate of around 4% (assuming the government-issued debt is risk free, which hopefully is still a safe assumption to make about U.S. debt, but you never know...). So because the investor is taking a certain risk (competition comes, or for some reason revenues are lower than expected), he or she should be expecting a higher return.

turtle777 · Dec 9, 2007, 08:53 PM

Fair enough, but your valuation seems too conservative for me. It doesn't factor in ANY potential for expansion (e.g. more advertisement...)

Also, the argument about competition is true, but not a real threat in this case. The main value of this website is the easy to remember domain name, something that the competition can't just copy.

-t

Chips G · Dec 9, 2007, 09:07 PM

whatismyip.com, similar offering, easy to remember name.

And as I said, I pulled the numbers out of there air, and much more complexity can be added (and should, if using this tool). My rough version is not an accurate reflection of the value of the site, just an example of how you could try to value it.

turtle777 · Dec 9, 2007, 10:02 PM

Originally Posted by Chris Gilpin

whatismyip.com, similar offering, easy to remember name.

You are right, I thought his domain was .com. I didn't realize it was .org.

.com is, of course, worth more than .org, and more likely to be remembered.

-t

l008com · Dec 9, 2007, 10:09 PM

I would argue that these days, a good google ranking is more important than a good domain name. If someone wants to donate 3 years worth of domain registry to me, I'll buy something something completely random and see if I can't make it successful :-)

turtle777 · Dec 9, 2007, 11:32 PM

Originally Posted by l008com

I would argue that these days, a good google ranking is more important than a good domain name.

That is very true.

-t

mduell · Dec 10, 2007, 12:06 AM

10 years of profit in current dollars.

finboy · Dec 10, 2007, 02:08 AM

Originally Posted by turtle777

Why do you use a discount rate of 15% ? That seems very high to me...

-t

15 percent isn't out of line if you consider the opportunity cost of his money. In an all-equity deal, that's probably low.

As for NPV, whoever was right on the money when they said that it didn't take into account the opportunity to do more advertising, etc. Those are what we refer to as "real options" to expand, discontinue, etc. and all of that has to be built into the discounted cash flow analysis to make it worthwhile. It can be done with decision trees, not easily but it isn't rocket science either.

So the first part of this is figuring out what's coming out of it (the financial analysis), and the second part is determining how to value what's coming out and what could come out of it. Looking at similar deals is always a great way to do it, but looking at IPO multiples is one of the things that brought down the house in the late 1990s. DCF analysis is probably mandatory for a bank, or for someone planning on using a bank for financing down the road. With some cashflow or hitrate multiples to back that up.

freudling · Dec 10, 2007, 04:48 AM

Good on the NPV, and I would probably put the discount rate at 25% because nothing is guaranteed, particularly on the web. People are visiting your site today, but will they be in 3 years time? Will your site be completely irrelevant by then? Well, you probably can't answer these questions and here is where the risk is.

If you gave me a link to your site, it would help. But, if I were to bid on your site, I would not expect to just let it sit and earn $615 per month. This is not like sticking money an investment and sitting on it. I would have to do some work, understand what the website is all about, and change it with the times, etc.

I am sorry, $8000 a year is not much. I put up a website an in a few days it made $3000. It cost me nothing but about 1 day of my time. For $50,000+, I would not buy your website, I would buy property and flip it and make $25,000 in 1 year. Smart money is in real estate.

turtle777 · Dec 10, 2007, 10:39 AM

Originally Posted by freudling

I would buy property and flip it and make $25,000 in 1 year. Smart money is in real estate.

Dude, are you posting from 2006 ?

With this comment, I can hardly take anything you said seriously.

-t

Laminar · Dec 10, 2007, 10:41 AM

Originally Posted by freudling

If you gave me a link to your site, it would help.

Yeah! Stop keeping your site top secret!

turtle777 · Dec 10, 2007, 11:05 AM

Originally Posted by freudling

If you gave me a link to your site, it would help.

Originally Posted by l008com

[ P.S. I'm talking about the 3rd site in my sig ]

You should read the whole threat. It gives a lot of information about the site and the business model.

-t

Laminar · Dec 10, 2007, 11:11 AM

Originally Posted by turtle777

You should read the whole threat.

turtle777 · Dec 10, 2007, 11:26 AM

Ahaha, typo.

-t

freudling · Dec 10, 2007, 12:23 PM

Real Estate in Canada is on the rise, and with the olympics in Vancouver, real estate is where it is at. People are buying apartments for instance at $300,000, and selling for $450,000 once the building is complete, which is about a 2 year ordeal.

Another thing too is the risk factor with buying a website like this. I can let my money sit in a checking account and earn 4.25% annually, paid daily. That rate increases per year by .015%. In Canada and the US anyway, this is literally a 0 risk option. You are asking someone to give up $50,000 or, really, $100,000 which is what you want, and then collect some $615 per month. If we take the $50,000 buy price, and we assume your site will average $10,000 per year, it will not be until 5 years later that the buyer will be at a 0 balance - breakeven point. With the checking account option, there is no breakeven point because we did not have to spend 1 cent to earn money on it. It is only after the 5 year point that a person will start making money on their investment. That is a long time given other investment options available to them.

Just by letting my $50,000 sit in a checking account described above, after 10 years, it would earn some $30,000, with no risk. And, my money is available should I need it.

So, what you are asking is someone give up a chunk of money to receive $615 a month with no guarantee that that income stream will continue. And you are selling presumably because you want that large chunk of money, not $615 per month. Why do you think someone would want to put themselves in your position who has $50,000 or $100,000?

Laminar · Dec 10, 2007, 12:25 PM

Originally Posted by freudling

Why do you think someone would want to put themselves in your position who has $50,000 or $100,000?

Perhaps they think they have an idea that could make them more than just $615 a month.

turtle777 · Dec 10, 2007, 12:26 PM

Originally Posted by freudling

Real Estate in Canada is on the rise, and with the olympics in Vancouver, real estate is where it is at. People are buying apartments for instance at $300,000, and selling for $450,000 once the building is complete, which is about a 2 year ordeal.

Sounds like a sure thing, just like Florida a year ago

Aren't we glad that the US mortgage and housing crisis is strictly confined to the US, not affecting any banks, investors and countries outside of the US.

-t

freudling · Dec 10, 2007, 01:31 PM

Laminar:

Understood, there is the possibility of making millions perhaps, but here is also a possibility of making $0 or being out your investment entirely.

olePigeon · Dec 10, 2007, 01:36 PM

Originally Posted by freudling

Real Estate in Canada is on the rise, and with the olympics in Vancouver, real estate is where it is at. People are buying apartments for instance at $300,000, and selling for $450,000 once the building is complete, which is about a 2 year ordeal.

Dang. Just looked at a 3-bedroom apartment in San Jose. $730,000. Don't think I'll even own a home unless I move out of the state, but I don't wanna move. I like it here.

l008com · Dec 10, 2007, 02:09 PM

Originally Posted by freudling

So, what you are asking is someone give up a chunk of money to receive $615 a month with no guarantee that that income stream will continue. And you are selling presumably because you want that large chunk of money, not $615 per month. Why do you think someone would want to put themselves in your position who has $50,000 or $100,000?

You must have missed the part about me not looking to sell the site, but getting approached from time to time by someone who to buy it. And yes, I would expect them to take that risk because like with any web site, there is always the potential for huge HUGE growth if you know what you are doing.

So for ME, this web site is the same zero risk investment that a checking account is to you. And if someone wants to take that away from me, they are going to have to pay dearly. Get it?

freudling · Dec 10, 2007, 02:13 PM

Right. It would be surprising if someone actually did cut you a check for even $30,000 for it. I also understand this is like a zero risk checking account for you. In this case, as you imply, you don't want to sell unless there is a large offer.