How to value a site

cg-value.jpgThe other day I received an email from David of WW Success, saying that he had added me to the Millionaire Bloggers Hall of Fame, although very flattering it was pretty surprising on two counts. One, I ain’t a millionaire (yet) and two he’d valued my main blog at $2,308,000 😮 .

I was somewhat intrigued to know how they came to such a high value and it was all down to the PE:

To calculate the value of a blog, we assumed a price multiple similar to the way stocks are valued. The average price multiple of the S&P 500 stocks (also known as the Price / Earnings or PE ratio) is currently about 15. We will use this same PE ratio to valuate these blogs. You could argue that this value should be higher or lower. Some people might say that a blog should be valued at a higher PE because of its growth potential. Others may argue that it should be lower because a blog is not as liquid as an S&P 500 stock. We feel that for the purposes of this exercise a PE of 15 is a reasonable value.

I find it a bit crazy basing a sites value on revenue (not even profit), I’ve bought a few sites in my time and these are the criteria I use at deciding the value.

  • Traffic, to me this is the big factor the more traffic the better
  • Traffic source, if a site gets the majorty of it’s traffic from search engines you have no control over it and that traffic source code abruptly stop, a wide number of traffic sources adds more value. Having said that search engine traffic can be the easiest to monetise so this one’s a bit of a double edged sword
  • RSS Subscribers, these readers are the most difficult to monetise but they are one of the most reliable traffic sources, so again higher the better
  • Monthly profit, the amount of revenue a site generates after all expenses have been deducted. I find many sites are advertised purely on revenue, always ask what is the profit
  • History, an old and established site with a proven track record is worth more than a launched last week MySpace clone. New sites can be valuable but if they don’t have a history that should be reflected in the price
  • Time commitment. This is another one that is often missed out of valuations, how much time do you need to commit every month to keep the site at the level it is now. Define an hourly rate of what it would cost for somebody else to update the site and deduct that from the monthly profit
  • Google Page Rank and Alex rankings, I don’t generally give diddly squat about these two but everything else being equal a PR6 site is worth more than a PR2

You should use those points to answer the most important question ofhow much is the site worth to you?, it doesn’t matter how much the seller spent on the site (coding, design or whatever) it’s what the site is worth to you that counts. At the end of the day a site is worth what somebody is willing to pay for it.

I do reckon $2,308,000 is a bloody massive slight over estimate for CG but if anybody is interested I’d give a $308,000 discount for cash 🙂 . Thanks again Worldwide Success for the inclusion in your Hall of Fame.

About Al Carlton

Al quit the 9 to 5 rat race in January of 2007, before then he was a software engineer and systems architect of financial system. Nowadays Al spends the days running his various businesses and experimenting with different ideas and opportunities.
Al can be found on twitter at AlCarlton.

Comments

  1. I bet you wouldnt complain at a 2M offer for CG 🙂 Unfortunatly I am 1.99M short though…. sorry.

    I completly agree that there is a ton of questions that need to be asked. When I was involved in selling a site for 5 figures a few years back it took a fair few discussions over it and the process took a few months to complete. The buyer wanted to know everything and I dont blame him.

    • Yeah I’d probably force my self to accept 2 mill.

      I’d love to hear more about the site you sold, five figures is a tidy sum

    • It is just amazing how traffic just keep building to your site. 2 Million is good money to do some other cool stuff. Cheers.

  2. Good analysis … but since you are from the UK Al, hold out for two million pounds sterling! 😉

    P.S. Matthew: If you can share, be interesting to hear your story about selling a site for 5 figures – wow!

  3. Starting with a 15x base point is absolutely ridiculous – there are very few people who would be willing to pay this much $$$ for a blog.

    Overall your criteria make sense, but I would add a few elements to it. First, what niche is it in? I have a fantastic website on home brewing – it has solid traffic, a reliable user base, and a diverse group of people generating content for it. Unfortunately, the site is extremely difficult to monetize because the people who would make natural advertisers are not as savvy online as people in other niches.

    The other thing I would take into consideration is the fact that a blog is often associated with an owner. I read your blog because you are writing it. If you sold this blog, I may not read what the new owner has to say. For that reason, I think blogs make terrible sites to sell…

    That’s all for now. 🙂

    • Thanks for the feedback Mark, a home brewing site would be right up my street, though I generally buy it ready to drink than brew my own nowadays (oh the good old student days).

      I know what you mean about certain blogs being what they are based around who writes there. I do think that is the case with SMM, however with CG I have many different writers and if I’m honest my posts English wise are probably the worst so that is a blog that could change ownership without losing readers I’d of thought.

      • You wanna buy the home brewing site? I’m sure if we used the P/E ratio format we could come to a price that I would be very happy with. 😉

        Yes, a blog that has a lot of contributing writers would be a lot easier to sell, I did not think about that scenario…

        • I’m always on the lookout for new sites, but some how I don’t think I’ll be basing price on a P/E ration any time soon 🙂

  4. I completely agree with you that a site is only worth what someone is willing to pay for it.

    I really don’t like all the standard PE calculations that seem to be considered the right and only way of valuing a site.

    – Martin Reed

  5. I dislike the idea of an across the board valueation model as well, there is no forumla as yet that can measure a sites worth as they are all too diverse in nature and so many different factors need to be calculated, I did almost sell my tattoo website a few years ago for £30k, thankfully it didn’t work out!

  6. Off topic here. Just wanted to let you know that this post is rendering funny in IE6.

  7. Hi Al,

    Businesses are valued on their earnings, and the assumption in the article was that blogs only have negligible expenses, so most of the revenue becomes profit. The model also did not account for taxes since most blogs are not incorporated and taxes are often taken at the personal income level. Of course doing a more precise evaluation would require reviewing an income statement which is something most bloggers do not post.

    I think the biggest difficulty in assigning a dollar value to a blog is the fact that it is almost impossible to separate the blog from its author, so as an income generating asset it is not as liquid as a S&P 500 stock. Still, to generate an annual income stream in the same order of magnitude as your blog, an investor would need more than $2MM with a 7% yield.

    Regardless of what your blog is really worth, this was a fun exercise and this kind of revenue definetely puts you in the pro league.

    • Thanks for the follow up David. I agree with you that blogs are very difficult to value and even blogs with negligible outgoings still require a fair amount of time to maintain or update which should also be reflected in any valuation IMO.
      I’m not meaning to put a downer on your post as I enjoyed reading it and was honored to be on your hall of fame.

  8. Standard PE calculations are worthless. Valuing a blog is probably one of the most difficult things to do. Loads of hard work and time has been put in to develop it. So you just can not buy it away for a few pounds…

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