A website's true selling value

[Dani]

I was talking to kub365 on Instant Messenger earlier tonight about the selling value of a website. We were talking about how I've received a couple of offers from some fairly large corporations to sell DaniWeb and I've always refused right off the bat. He asked me that if I did ever sell, what price would I sell for, and needless to say, it was much higher than he would have thought.

So then we got into a discussion, of course, of why that was. I have been continuously hearing that many website properties go for a rough estimate of 12 to 36X their monthly revenues. However, I couldn't disagree more. I think that a website should never ever be valued based on curent revenues but instead based on potential revenues.

For example, suppose I were to sell DaniWeb (which I have no plans of doing, BTW) to some large corporation. That corporation would of course have many more resources than lil ole me available to it to successfully market DaniWeb in terms of selling advertising - ie an experienced sales team. Therefore, they would be able to monetize my existing traffic MUCH MUCH better than I can (although I am learning and doing quite well, if I do say so myself)

Therefore, without any change to the website at all, and not even any money spent on promotion or site advertising, but just the addition of a 3 person experienced sales team, can literally increase revenue one hundred fold (no kidding).

What does everyone think of this? I'm actually surprised that my viewpoint seems to be quite unique from what I hear on so many other internet marketing forums and blogs.

[paulmarc]

Hi,

I agree with you to an extent. The potential of a website must surely play a big role in determining a specific value for it. At the same time, results speak volumes, and people want to know what they can get out of a website right away in determining value. You can say to an extent that most websites have potential, yet websites can't all be bought based on their potential. A website needs to prove what it can do, what it is doing. It's for the buyer, the dreamer or the visionary, however you like to call it, to determine to what extent the potential should add to a proposed value. Kind of like if someone wanted to buy a restaurant. You can consider potential, but you HAVE to look at current monthly revenue in determining value. Anyways, that's what I think-I think! It's a tough one!

Paul-Marc

[Dani]

I think that actual value should be reserved for turnkey sites and smaller hobby webmasters without big budgets. But when you're dealing with large corporations and hundreds of thousands or potentially millions 'n' billions of dollars, actual revenue goes right out the window. It's very possible there could be an amazingly great idea, and it's just not being properly monetized.

Suppose there is a crazy large website with an amazing following, but it doesn't sell advertising and therefore is non-profit and makes no revenue. Putting up ads could easily make $XXX,XXX a month. What value would you give that site?

The same would go for a site that IS selling advertising, but the current owner doesn't have excellent sales skills and is only able to sell 10% of the ad inventory they have available. Shouldn't the site be sold with the "current value" of the site equal to if 100% of impressions are sold? No where near that amount of money has ever been made before, but at the same time, no changes or any extra money need to be put into the site to make that kinda revenue, so it is more "actual" than "potential" in that respect.

[paulmarc]

Hi!

It's definetely a tricky one, determining the market value. I suppose that if someone wans to buy your site, you have to really ask yourself WHY they want it. It could possibly be to remove competition-or, as you say, perhaps they inquire because they see the potential to make a great long term or short term profit. I think it's really a case by case situation and that you have to consider both current revenue / use of the site and potential. The trouble lies in finding the right amount of each to come up with a fair market value!

Paul-Marc

[odtaa]

A friend of mine has quite a few car websites. He sold one a few years ago for around £10,000 ($15,000) and worked with the company to develop this and a numberr of websites. A year later he was made redundant.

All through this time he was working on developing his other sites. He turned down an offer for around £20,000 (£30,000) for his business , when he was struggling to make any real money. He was tempted, but turned it down. He now makes around £3,000 ($4,500) a month and is being wooed by the car companies, which includes flights to places, such as Portugal, to test drive a new car.

He makes his money from mostly Google Ads. I personally believe he could make 10 times what he does from the mainstream advertisers, but at present he is happy and in a way by retaining his independance he is increasing the value of site every month. At some point in the future he should be able to sell his domains for may times the offer or work out a deal with a marketing business to build a real income.

So I agree the value of a website should in many cases take into account its potential.

However if you are buying a website you should be arguing that this is not so.

[paulmarc]

You're right odtaa! You can argue both sides of this, and you should argue one of those points of view depending on where you are coming from-looking to buy or looking sell. If someone sees huge potential in a site, they will likely argue that current sales figures should be the main factor. The seller should always argue for potential! And if they have strong sales to back them up, even better.

Paul-Marc

[kub365]

Nice discussion.

[SiteTutor]

You're so right. And it shows how lazy some webmasters really are. They want to already have it figgured out to for them, where the ads have to be, what color etc. I think this is why some advanced webmasters get such great deals, too :)

[odtaa]

Another thought on the value of a website is the business plan. If you look at venture capitalists they often put up substantial more funding than the current value (by turnover) of a site.

However to get their money you have to be able to convince that your site will make them a fortune by rapid growth or some other added value, eg News Corporation buying MySpace.com to enhance its newspapers and to have access to people it wants to market its products to. eg in the the UK Sky, (owned by News Corporation), the dominent satellite broadcaster, is opening up a free broadband offer and one of its newspapers, the Sun, will link up to Myspace in the near future.

Therefore try and work out what the other person wants to do with the site, if you can, before you set the price.

Also make it clear that you have plans to make substantially more in the near futre. This is particularly true of a site that is growing reasonably quickly.

[etechsupport]

I think there are more sellers than buyers, thats the reason the real value get diluted. If you look at buyer's perspective you may consider to check the profit making ability of particular site before making any final deal.

[ProImpulse]

I fully agree!

It's not what the website is doing now but what it has the potential to do in the future.

I've had offers from people to buy my business, clients and website in the past and have looked at this the same way. We are a smaller company with about 5 people on staff but if a larger company had 10 people on staff they should be able to double the revenue.