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Why Similar Blogs Sell for Different Prices

This guest post is by Jock Purtle of brokercorp.com.

If you are selling your blog, the first thing you will want to know is how much it is worth. You type into Google is something like “what is my website worth?” What you will get is a whole lot of free website valuation tools. If you use something like www.mywebsiteworth.com and type in “google.com” you get an arbitrary value of 1 billion dollars.

Now we all know these tools are can’t be right. So we might then type into Google “what factors determine a website’s value?” and when we collate all the information. we are going to get a long list of different things to look for when valuing a website. Things like domain age, PageRank, Google rankings, and so on.

But what these articles fail to identify is the single most important factor in valuing a website, and that is the future maintainable earnings of the site.

What needs to be understood is that the assets of the business are only indicators of future maintainable earnings, and do not add any extra value to the site. Value is determined by whether the site will make money in the future, and what level of risk the potential buyer is willing to take.

Let’s take the example of company A and company B. Each company has the same income and same net profit for the year. However, as we will find, their value differs completely.

How values can differ

  Company A Company B
Business Type Advertising Advertising
Annual Sales $200,000 $200,000
Annual Profit $100,000 $100,000
Trends Flat Room for growth
High Margins No Yes
Recurring Clients No No
Largest Customer List No Yes
Traffic

 

Heavily reliant on SEO Multiple Source
Income Source 1 Source 3 Sources
Complex To Operate Yes No
Low Barrier To Entry Yes No
Business Level Mature Growth Stage
Staff High Turnover Stable
Accounts Messy Neat
Owner Help after Sale No Yes
Owner Financing No Yes
Owner Non-compete No Yes
Brandable Domain No Yes
Old Site with unbroken Whois         No Yes
Quality and diverse Links No Yes
Repeat & Direct Traffic No Yes
Solid Page Rank  No Yes
High Levels of Traffic No Yes
Commercial Target Audience  No Yes
Quality Content   No Yes
Partnerships and JV’s No Yes
Solid Sales Presentation No Yes
Directories (Yahoo and DMOZ) No Yes
Strong Alexa and Compete rank No Yes
Easily Transferable        No Yes
Press Coverage No Yes
Affiliate Program No Yes
Synergistic Purchase No Yes
FINAL SALE PRICE: $100,000   $400,0000

How value differs

The market has a strong opinion on what a site is worth. Buyers are looking for a good return on investment and the value is based on what they are willing to pay. That is why valuation is really only educated guess-work about what a site will sell for.

From the above example you may think that your blog meets all the criteria of company B, but that doesn’t mean that you are going to sell it for that amount.

The reason company B is deemed more valuable is because, from the information available, the site looks like it will continue to increase in revenue every year and there is a lower risk that the site will fail. Thus there is less risk for a potential buyer, and they would be willing to pay more to acquire it.

The table represents a rule of thumb that you can apply to any website. The factors listed represent the variables that should be considered in any valuation. There may be some outlying factors that skew the data if either site were to be purchased and that is why true valuation is only represented by the final sale price and the money has been exchanged.

An explanation of valuation: How to determine risk

The risk a buyer is willing to take in purchasing a website will determine the multiple of earnings that they’re willing to pay.

The general rule you will find in valuation follows something like this:

Net Income x Some Multiplier = Your Website Value

Here is a breakdown of those two factors.

Net Income

Net income is represented by a company’s total profit for the year and is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses, or in accounting speak, EBITDA (earning before interest tax, depreciation, and amortization).

A web business normally doesn’t have the usual expenses that an offline business has, like rent, office space, and so on, and this is reflected in the financials.

A multiplier

A simple multiplier will be based on an expected Rate of Return. This is used to calculate the final sale price and is reflective of the risk that the purchaser is willing to take.

Consider these multipliers:

  • 12 times Monthly Multiple = 100% return (your money back in one year)
  • 24 time Monthly Multiple = 50% return (your money back in two years)
  • 36 times Monthly Multiple = 33% return (your money back in three years).

You are beginning to see why Internet businesses are a good investment. With low staff and expenses and less hassle than a traditional business, they can offer much better value than putting your money in the bank and getting 1-5% interest.

What doesn’t count as value?

“But what about the value of my domain, and the rankings in Google, and the cost of the web development? Why isn’t that included in the site?” you may be thinking.

Unfortunately, the market doesn’t look at your site as a sum of all its parts. So even if you site cost you $15k to develop, and the domain cost $12k, if it only makes $10k per year, you are only likely to get $10k—$30k for the site, even though it cost you $27k to develop.

The assets of the business (content, rankings, domain, and so on) add no more value than what has already been calculated. The assets of the business simply form the structure for its revenue-generating capabilities.

It is important to understand this principle when valuing your site. Even though it might have cost you $27k to get the site up and running, your blog is no more valuable than the income a potential buyer can see the site making in the future.

Have you had your blog valued? Tell us about your experiences in the comments.

Jock Purtle is a Senior Broker at Brokercorp.com. They are a full-service website brokerage specializing in website sales and acquisitions. Jock is currently offering a free website valuation at http://brokercorp.com/sell/.

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Comments

  1. I completely agree with you when you say that ‘quality content’ is one of the key differentiators and factors while selling a blog.

    A couple of other factors that I feel will affect a blog’s valuation are -
    1> A blog’s social influence (which may not necessarily be compared with traffic)
    2> Design and navigation
    3> Security

    Lastly, what ever the reasons may be, I strongly believe you shouldn’t sell your blog, unless absolutely necessary, because the very reason you started blogging in your niche was because you were passionate about it. Selling your blog would be equivalent to killing your passion.

  2. Ardorm says:

    Wow, it was really interesting to read. It’s not like I want to sell my blog one day, just wondered how you can measure the cost of a site.

    It turned out there are so many categories that I had never thought about before. It’s also interesting how many people lose money on selling a website just because they didn’t do enough research?

  3. Faizan Elahi says:

    Very informative post. I think the email list of any blog is its most important asset.

  4. Steve Scott says:

    The thing is with all the growth potential for #2 it almost seems like it would be foolish to sell, even at that price

  5. This is a very good analysis. Even i also think that these useless internet worth test websites on google are not reliable at all. There need to be a concrete analysis

  6. Mark Aylward says:

    Jock
    I’ve sold a couple of offline companies and the due diligence process is similar, but you’ve identified a couple of significant differences. Thanks for the detail
    Mark

  7. it’s important to understand that valuation has a lot to do with the buyer’s perceived value of your business and their intended use of it. this is no different than corporates. i.e. a soft drink maker will pay much more for an existing small drink company because it can leverage it’s existing network to channel the drink out, compared to an investor who is simply looking at ROI.

  8. James Greg says:

    I am amazed to see how many factors are involved to evaluate a site. I thought the best name was the most that mattered. Site valuation is a tricky thing and keeping track of all these factors would certainly rule out many sites having good names but poor turnovers.

  9. naijadotcom says:

    Quality and contents are definitely the stuffs to look out for,Another lesson learnt,Thanks for this great post.

  10. Jock,

    Very interesting post. Free website valuation tools are useless to measure website real value. Thanks for your good analysis.

    ~Mir Imran Elahi

  11. Constantine says:

    Another factor most people ignore is the value of writing content. Most of us write for our blogs free of charge. Any one buying a site will need to estimate how much it will cost him/her to keep writing content. That cost brings down the price of site.

  12. Julian says:

    Content seems less valuable because something happen everyday and old blog post became worthless

  13. It was really interesting to read. It’s not like I want to sell my blog one day, just wondered how you can measure the cost of a site.

    It turned out there are so many categories that I had never thought about before. It’s also interesting how many people lose money on selling a website just because they didn’t do enough research?

    I like your forum.