Valuing a website for a possible purchase

ValuationWhen discussing website valuations there are a two distinctly different thought processes as far as I am concerned, namely whether you are looking to buy a site or looking to sell a site. For me these have two completely different criteria and today I am continuing the developing online posts that I have done previously and will explain how I come to a rough valuation in my head when I am looking to purchase a website. It’s handy to have a rough upper limit when negotiating a price.

Normally I am trying to find & buy a normal information website with some age & traffic, this doesn’t apply to an ecommerce site or forum, an ecommerce site would have sales & profit already whereas ideally if you find a nice information site to buy it preferably has not had Adsense on it at all and there could be bought as a bargain. So on the basis that a nice information site has been found and contact made I would then look to:

Get some stats
Get traffic stats, when I say traffic stats I mean unique visitor numbers for the last 6 months, get an average per day.

So for example 200 visitors per day.

Hobby or Product related
Work out if its product based or just info/hobby, if there would be products related to the topic that pushes up value (i.e. gadgets) if not then if its hobby/non product related (i.e. tattoos) that pushes down value.

Take a simple monetisation method like Adsense and an achievable click through rate like 15%

Take an average cost per click of say $0.10 for non product related and something like $0.25 for product related (again these figures can change upon further research but make a good conservative basis)

So in my example of 200 visitors per day on average:

200 visitors @ 15% CTR = potential 30 clicks per day
30 clicks x $0.10 = $3 per day (non product related) …or
30 clicks x $0.25 = $7.50 per day (product related)

My goal would usually be to achieve my money back within 12 month (if you can improve the site you should be able to more than half this and in some cases I have had sites pay themselves back in 3 months)

Work out the return
Therefore to find out what the site could be worth you can take
$3 per day x 365 days in a year = $1095 (non product related)…or
$7.50 per day x 365 = $2737 (product related)

ProfitThere are then some variables like age, backlink quality, pagerank and potential/other earning opportunities that can add to this but it makes for a nice quick calculation as to a possible base value, you should of course look to get it much cheaper than this if possible.

In saying all of that some sites just don’t work to the above formula, if you can improve the site and monetise it you could pay for potential income rather than likely income, that takes your own expertise & experience in the subject matter or research to help justify the cost, then again sometimes it simply boils down to what you can afford to offer!

Sellers expectations are often incredibly high, I’ll quote again one site I enquired about I was told was for sale for $20,000, 3 emails later he accepted $2000 for it. Often it is wise in your opening approach to waterproof the potential seller by getting figures in their head, shouldn’t be an outright offer but it could be something along the lines of –  I have a budget of low $xxx to mid $xxx and am looking for a new project, I would love to build on what you have already done with {domain} etc etc,

That at least lets them come back with stats for you and possibly a rebuff like “I wouldn’t consider selling for less than $x,xxx”.

I have been buying again recently and found & bought one gem which I bought today for $1500, a 7 year old ecommerce computer store that stopped trading last year – for $1500 it will come with domains & script & database for the store so that I can put the full site back up and I would then look to disable the cart and get some stats.

There is no right or wrong or exact how to.. when it comes down to buying websites, after all why would anyone sell a website for a multiple of anything? The internet is still very young and I am sure some purchases now will seem like very wise investments in time to come.

It is my opinion that older sites with established rankings and backlinks will rise sharply in value over the new few years as it grows harder to start from scratch without a large budget. It is not the same level playing field it was a few years ago.

About Scott Jones

Scott hails from the north east of Scotland and started earning online at the end of 2000 building websites for local businesses during which time he won an award from Lord Alan Sugar for Excellence in Enterprise. After having quite a bit of success with domaining Scott mainly runs educational evergreen websites which generate over 3 million visitors per month but is always on the lookout for a fresh thinking out of the box way to turn a buck. Follow on Twitter.

Comments

  1. Valuations can be difficult but at the end of the day its all about what somebody is prepared to pay

  2. Good idea, I’ve only bought 1 site and that didn’t have any ads on it, so I kinda guessed at the value of it…I got it for a decent price, but if I’d thought about it then that would have been a perfect formula for this site.

  3. Thanks this is just the kind of advice/reminder that I needed as I’m pretty much bought out on new sites & trying to find decent link’s. As I have commited to re invest all profits & some for the next few years “and now know its ok to lay out the money cause it comes back :) ” buying older sites is probably the way to go as it will also give me some solid backlinks for my newer sites.

  4. I bought a phone site last year for £250 and made £600 in the first month. The secret is buying sites outside the UK and shifting them into the UK where everything costs more.

    • Thats a pretty nifty idea, and I guess once you move it to a UK hosting aswell that the UK google rankings should go up.

    • does the UK has higher conversion rates thank the US? google pays more on websites based from the uk or with a .co.uk extension?

      • No Google don’t pay more based on the extension, the price you get is in relation to the advertising budget on those words – geo location can have an effect as certain things are more expensive in the UK so you can at times get paid better dependant on the topic.

  5. Thanks for the tips. I keep seeing sites for sale that seem too high priced. This will help in my evaluations.

  6. Nice insight on how the market is beginning to mature. I have felt this would happen but nice to see someone put the words in writing.

  7. Website valuations can be tricky especially when a site does not have any revenue. Looking at factors like you suggested is a great way to go. Naturally, one needs to also look at many different additional factors as well. I wrote an article about the subject of website valuations back in the late ’90. I recently updated the article and interestingly not much has changed in terms of valuing a website. Many of the same principles still hold and a few new ones have been added. I have also put together most of the information into a free online website valuation tool at http://websitebroker.com/valuation.php for anyone that is interested.

  8. I agree with Glen. People will pay what they want to pay based on perceived value. For me I’ve been checking out flippa lately and I would check site age, PR, number of rss subscribers, email list subscribers, established affiliate programs, how many articles are indexed and in good spots on google.

    Ian

Trackbacks

  1. rob says:

    rob…

    Really like the info, thanks….

  2. […] to make more commission from affiliate marketing. This post was inspired by a comment I made at Self Made Minds today. Last year I bought a site based on the money it was making outside the UK and transferred it to UK […]

  3. […] that’s a year older with older links is easier to rank). Scott has written before about valuing websites but I’m going to keep this really simple and base business growth on how revenue has […]

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