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How do I decide how much a site is worth?

Discussion in 'Off Topic' started by JABRONI, Aug 27, 2012.

  1. JABRONI

    JABRONI Well-Known Member

    I've been looking at some sites that aren't really active anymore (but still get highish unique visitors) to buy & re build on XF. How do I determine how much a site is really worth? I'm still new to the whole process, and I don't want to get taken advantage of or ripped off.

    Thanks!
     
  2. Carlos

    Carlos Well-Known Member

    Let me put it this way so you understand.

    Let's suppose you're trying to buy CODForums. You know it's a powerful domain, right? When you start the negotiation, you need to ask "How much do you want for this domain?" Sometimes, you get a price that you're happy with, a price that you're comfortable with taking a risk on, and god forbid, a price that's out of your range.

    The price that's out of your range is that domain flipper. Often times, these flippers have too much ego, too much hot air in his head to make it easy not to do business with him.

    And often times, they want to make it hard for you to acquire that site.

    Whatever you do, use an e-mail address or sender name that's not recognizable to the seller. I can't stress this enough. Your competition might know who you are, and will want to inflate his price to a level where he feels he can make money out of you.
     
  3. petertdavis

    petertdavis Well-Known Member

    What a website is worth to you, when you're the buyer, is something that is specific to you. If you're buying it as an investment, it's fairly easy to figure out the right price to pay for it in the terms of getting a return on your investment. In other words, if you wanted to make all of your money back on it within three years, you figure out what it makes per year and pay three times that. It's always harder to figure out a value for a site when you can't look at it in an objective manner. For the most part, people who own forums will place values on them that are far, far higher than any reasonable person would pay.
     
    Brandon Sheley, Carlos and John like this.
  4. Carlos

    Carlos Well-Known Member

    I have found that niche sites are worse in this aspect because, the seller wants to make as much money as possible off that niche. For example, last year, I bought MW3Blog for $480 because Modern Warfare 3 was going to be popular. That risk turned a whopping 134,000 unique visitor number. The seller could have sold it for more, had the site been built. It was an undeveloped site when I bought it. You have to know the market size of the niche before taking that leap.

    Then you answer "How much is this site worth?"
     
  5. craigiri

    craigiri Well-Known Member

    This requires "fuzzy logic". There is no metric available to measure this.

    If you have a number of relatively worthless sites to look at, you could always try to start by lowballing and having them compete against each other.

    Example- let's say you are looking at 5 different sites which are worth $500 each to you, but their owners think they are worth 2K to 5K.

    Send them each an email saying that you are looking to buy only 2 sites because your capital is limited and that you may be able to spend up to 1K total on 2 of the "right" sites. Tell them to get back to you.

    You may not hear from 3 of them....but 2 may get back to you!

    Of course, that is just for illustration, but you do have work one against the other. This is effectively what is done with domain auctions and eBay domain sales...that is, folks are only going to pay the minimum needed to get the property.
     
  6. BlackJacket

    BlackJacket Well-Known Member

    Send them an e-mail saying you are the President of some foreign country and that you need their help to export some funds. Tell them that in exchange, you will hold their website while the money is being sent over. Works every time... :)
     
    Disrelation and ShadyX like this.
  7. kprojects

    kprojects Well-Known Member

    For something like a forum on a product or niche that is supposed to get hot, It all depends on who can tell the future best :)

    For a developed site, take the amount it makes, have the owner prove it to you.. and figure how much that is for 2-3yrs..

    For a domain name alone, do some google searches for it first - they may have had it listed somewhere already and didn't get what they were looking for.. this way you have a starting point of what they might want. If you can't find it listed anywhere, start at $20 and see what they say!
     
  8. wickedstangs

    wickedstangs Well-Known Member

  9. steven s

    steven s Well-Known Member

    I was offered about 3 times my annual revenue.
    Everything is worth what someone is willing to pay.
     
  10. Adam Howard

    Adam Howard Well-Known Member

    You're asking the wrong question....

    How must is this site worth? ---- Wrong question

    How much is this site worth to "me"? ---- Correct question
     
    kprojects, Disrelation and steven s like this.
  11. MGSteve

    MGSteve Well-Known Member

    As someone who's just sold his site, the way to value a website is a tricky business.

    As a rule of thumb, you find out what the incomings & outgoings are and then work that back for the past 12 months. Times this figure by between 3 (usual) and 5 (If you're feeling generous) and that's a pretty decent valuation.

    i.e. if a site is making $1000 a week, that's $52000 a year, minus say $1000 for hosting over the year, leaves $51000. Times that by 3 - $153000.

    As a seller you'd naturally want around 3-5 years income as compensation for selling - if you forsee the website income staying the same over that time. As a buyer, its a different story as the ROI is longer.

    But the above is how I would value a website.

    Just as a seller watch out for the Tax man! Check if your tax code has an Entrepreneur Relief scheme (as we do in the UK). In our case it lowers the tax liability from 28% to 10%! :) If you're in the UK, make sure you PERSONALLY own the domain name, even if the forum is managed by a company you setup.

    If anyone is interested in learning about this from someone who has just gone through it, drop me a PM.
     
    kprojects likes this.
  12. MGSteve

    MGSteve Well-Known Member

    That is very true, but equally you need to have a dose of reality - especially if you're making quite a bit of money with the site as it can cause drastic differences in the valuation.

    When I was first approached about the sale, I thought - yeah, I'd sell for £1 million! When I worked out how long it would take for the purchaser to earn that back, let alone make any money on it, it turned out to be over 20 years! Not practical. My case was simple in the end, we needed enough to be debt free as it would take away my main income. Eventually we got to a level that achieved that - helped in no small way by the above Entrepreneur's Relief as the difference in tax was very, very large, well into 5 figures.

    Quite eye opening as it happens.

    - Sale as a normal business transaction & then withdrawn from the company as normal - worked out at around 70% tax
    - Sale as a Captial Gain (i.e. money paid to you personally - see note above owning the domain name personally above) - around 38% tax
    - Sale as a Captial Gain under Entreprenure's relief 10% tax

    to give an example of a sale value of £100,000
    - 70,000 tax
    - 38,000 tax
    - 10,000 tax.

    As you can see, quite a difference.

    This obviously applies to the UK only.

    So, back to the quoted post - you need to have realistic expectations. No one is going to buy a site if the ROI is too long. 3 years is the norm, 5 years if you're lucky. Expect anything out of that and you'll be pricing yourself out of the market. Forums are volatile things at the end of the day, all it takes is one argument or so forth on the site and the membership can splinter off onto a new forum. Buyers obviously know this and won't tolerate long ROI periods.
     
  13. dutchbb

    dutchbb Well-Known Member

    The same way as a stock. You have to look at yearly earnings and then calculate the P/E ratio. The lower the better. Then find out the average P/E ratio for similar sites and compare.

    Then other things may add value to the price. Do you really like the domain name? Is the site unique, does it offer some great possibilities (that perhaps only you can see), etc. So you start with a general approach and then look if the site has something of value to you specific.
     
  14. DRE

    DRE Well-Known Member

    I use hypestat.com
     
  15. MGSteve

    MGSteve Well-Known Member

    Websites like this are useless for generating a value - you need to know what the website is generating in income and no-one outside of the people running the site will know that.
     
    steven s likes this.
  16. craigiri

    craigiri Well-Known Member

    I'd say there are a couple various metrics that need to be all added together. Current income, and ROI based on it, is too limited........as an example, I have purposely allowed my revenue to fall - because I wanted to spend less time collecting money, sending invoices, etc. (semi-retirement age!).

    So a buyer must take in account not only current income, but a reasonable figure as to the income if they push a little harder.

    A very important part is the actual value of the content on the forums/site. A lot of content can get dated quickly - that is, it has a short shelf life. That kind of site loses value very quickly unless it is kept updated.

    As a site owner, why in heck should I take 3 times revenue when I could do almost nothing....and collect that in the three years (with better tax treatment, in most cases) and then STILL HAVE the site which is worth something? So the 3X revenue might be OK for a forced sale, but not for one where the new buyer seeks to develop the site for growth.

    Just for an exercise, I laid out a spreadsheet detailing the cash flow for a buyer who would pay me 5X or more currently yearly revenue. It works out this way - said person would make a very decent living for the first 7-8 years while they paid off the loan (loan payments would be well less than 1/2 of revenue), and then would make a GREAT living. Moreover, they would then own the site outright - an equity which could be worth as much as a million US Dollars.

    I think we need to separate out the "short termer" - those being people who want to buy and sell or just make some revenue and then let the site languish....or stay stable...and those who may want to choose an actual career. 10 Years is nothing in terms of a total plan...I'm 17 years into running my site!

    Examples of "timeless" sites include home improvement, older cars, boats, history, etc.
    Examples of "gotta keep up" sites are anything based on the news, politics, games, technology, etc.

    If you want to work less and make more, the first type seems better to me...
     
  17. Fred Sherman

    Fred Sherman Well-Known Member

    The general rule of thumb used to be based on a 3-year ROI. Revenue at its current growth rate over three years - expected expenses over the same time period. Expenses aren't just your current expenses, but also what the buyer feels they need to invest to realize their vision for the site.

    But in a bad economy, that has been trending more towards and 18 mo to 2 yr ROI, which means the value of everyone's website has decreased 33 to 50% based solely on economics.
     
  18. Anthony Parsons

    Anthony Parsons Well-Known Member

    Like above, it is very difficult. If the site makes money, then like Fred said, it is usually taken on 2 - 3 years of the profit. That would be your cost to buy.

    Personal sites, hobby sites, etc.... usually not worth a great deal if there is no established income, especially if the site is no longer maintained, and then you have to factor in if your rebuilding the site, anything it has is lost due to how Google will interpret a site rebuild. Most of those sites just close, even if they have hundreds of thousands of visitors, as pricing them is near impossible.
     

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