At What Revenue Multiple Do You Sell a Website? | DomainInvesting.com
101 Domain

At What Revenue Multiple Do You Sell a Website?

35

I wanted to write about this before, but the news of AOL’s acquisition of TechCrunch motivated me to post this general question: At approximately what revenue multiple do you sell a website that has a business operating on it?

Over the past few months, a number of individuals and companies have made inquires on a couple of my websites. I’ve always replied that I have no interest in selling, because for me, it’s silly to sell a revenue generating website that has nearly zero overhead. On the flip side of this is the fact that there should really be a point at which I would sell the website and domain name, since the ultimate goal is to make money.

Now I know there are LOTS of considerations to take into account when selling a website (like loss of revenue and tax considerations), but at what type of revenue multiple should a company be willing to sell a website? This is a very vague question because it would be a very different answer for a company with an operating loss, tiny profit margin, or 100% profit margin, but I look forward to seeing what you think.


About The Author: Elliot Silver is an Internet entrepreneur and his company earns revenue from domain names. Elliot is President of Top Notch Domains, LLC, a company that has sold seven figures worth of domain names in the last five years. Elliot is the publisher of DomainInvesting.com. Read this blog's disclaimer for information about the publisher, comment policy, disclosures, and conflicts.

Reach out to Elliot: Twitter | | Facebook | Email
Niche Websites

Comments (35)

    Tim

    I am under the impression that flippa websites sell for around 10 months revenue. I don’t have any proof to back that up thats just my opinion from watching several auctions and reading forum posts. For a fully operational aged website the 10 months would probably be a minimum as many of the websites on flippa are either built or bought to be flipped. JMO

    September 28th, 2010 at 2:53 pm

    Leonard Britt

    I have seen arguments of mid-single digit multiples which to me seems silly. Of course, if maintaining the site requires a considerable amount of effort then I suppose that is one reason why buyers don’t want to pay. Certainly there are all kinds of risks in acquiring an online business and those risks reduce the earnings multiple one would be willing to pay. But another factor one should consider is the future growth potential of the business. If the business is mature and merely a cash cow, that is one thing. If the business has considerable future growth potential, then a buyer probably isn’t willing to pay for the potential you know exists. How big is your market? What is a reasonable market share that your business could reasonably obtain over time? Where are you now?

    Note I did sell a .Net domain a few months ago which hosted a site which ranked on page one of Google, Yahoo, Bing for its keywords. The site really wasn’t making much but I suppose the buyer liked the domain name and search ranking and never inquired about site earnings. That sale was by far my largest .Net domain sale ever.

    September 28th, 2010 at 2:57 pm

    jb

    Through a legit broker – 3-5 times yearly revenue.

    You are losing tons of money by selling sites of value on Flippa.

    Premium domain names add on more value and can crank the price way up as well.

    September 28th, 2010 at 2:58 pm

    andrew

    The real question should be what earnings multiple.

    You suggest that your sites really have no costs, but have you considered your time? From your blog posts it seems that you’ve spent considerable time (and still do) marketing these sites and coming up with promotions, etc. Correct me if I’m wrong.

    That said, right now I’m seeing larger sites selling for about 2x-8x annual earnings. PPC content and junk sites will sell for less than a year.

    September 28th, 2010 at 3:24 pm

    Elliot

    @ Andrew

    Good point re: my time.

    The sites I have received the most inquiries about were unrelated to my blog and are far less time consuming now that they’re successfully launched and growing.

    September 28th, 2010 at 3:27 pm

    Joseph

    For a site that requires minimal upkeep and has low risk to its future earnings (and if I didn’t need the money), I’d look for at least 10 years earnings.

    These days, there are very few alternative investments that can give you a 10%/year earnings yield. (Yearly Earnings/Selling Price).

    September 28th, 2010 at 5:40 pm

    Duane

    Andrew and Leonard
    made some good points, but there are many multiples for evaluation of a website.
    Earnings per year, product, future trends, user growth, the language and country/ ‘s which are targeted and of course potential of end user earnings.

    Purely using a 3,5 or 8 year revenue multiple can’t always apply to a website/business.

    Example:
    One of my website’s makes 60 k per year and has close to 7 % revenue growth. All it does is forward leads for a specific service. The website runs on the exact match domain name. My leads are bought by several different corporations which some are multimillion dollar companies.

    If such a website where to be soled, several things should be considered from the sellers perspective.

    1.) How much work would have to be applied to keep it running? 5 hours per day, per week or just 5 hours a month like in the case of one of my websites?

    2.) What is each lead worth (revenue per lead/sale) to a end user? $500, $5000 , 10 k or 20 k?

    3.) What is my own age? How many more years could I run the website and keep generating income? 10, 20, 30 years?

    4.) Future revenue growth? 0%, 3%, 5% , 8 , 15% or more?

    This would be my calculation in finding a price which I would consider:

    Amount of Leads X revenue per possible sale = sum / by actual sale percentage per lead = actual sale revenue.

    Actual sale revenue X %growth per year = sum X years until retirement.

    Like I mentioned, finding a price can get pretty complex.

    September 28th, 2010 at 5:41 pm

    andrew

    Duane, in that case I’d argue:

    1. Take revenue minus 5 hours time cost to pay someone to do that 5 hours of work

    2. Consider what the leads sell for right now. That’s how much they’re worth. If you’re selling them too cheap then you should raise the price.

    3. Your own age shouldn’t really matter. If you thought you’d die in a year, you wouldn’t lower your asking price for the site, right?

    4. Project out net profit if you’re site is growing

    5. Apply a discount rate to it. There’s risk, and your buyer is going to want a nice return.

    September 28th, 2010 at 5:52 pm

    Duane

    @ Andrew

    you make some valid points. I was just trying to get a point across. ” Don’t sell cheap” and actually consider all eventual possibilities.

    In my case example, I also took in consideration of buying out a smaller service provider and taking over a large part of that specific market. I just didn’t mention it. But this is also the unknown which should be considered. That is if you love building businesses, like in my personal case.

    Age should absolutely be in the math. If I can generate income on a website for the next 20 years? I will defiantly not sell for 5 years revenue.

    September 28th, 2010 at 6:15 pm

    Intangible Properties

    If you sold your site and invested your profit would you get back more than your currently making off of the sites annual income?

    Then that’s whats the site is worth.

    e.g.

    If my site is making $1200 a year with no work involved, then I would have to sell for at least $12,000

    Then I would have to make at least 10% a year on that $12,000

    How you plan to reinvest the profit, is just as important as the price itself.

    Eric

    September 28th, 2010 at 8:09 pm

    MarkP

    From Wikipedia under “Time Value of Money”:

    The time value of money is the value of money figuring in a given amount of interest earned over a given amount of time.

    For example, 100 dollars of today’s money invested for one year and earning 5 percent interest will be worth 105 dollars after one year. Therefore, 100 dollars paid now or 105 dollars paid exactly one year from now both have the same value to the recipient who assumes 5 percent interest; using time value of money terminology, 100 dollars invested for one year at 5 percent interest has a future value of 105 dollars.[1] This notion dates at least to Martín de Azpilcueta (1491-1586) of the School of Salamanca.

    The method also allows the valuation of a likely stream of income in the future, in such a way that the annual incomes are discounted and then added together, thus providing a lump-sum “present value” of the entire income stream.

    All of the standard calculations for time value of money derive from the most basic algebraic expression for the present value of a future sum, “discounted” to the present by an amount equal to the time value of money. For example, a sum of FV to be received in one year is discounted (at the rate of interest r) to give a sum of PV at present: PV = FV − r·PV = FV/(1+r).

    Some standard calculations based on the time value of money are:

    Present value The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations[2].
    Present value of an annuity An annuity is a series of equal payments or receipts that occur at evenly spaced intervals. Leases and rental payments are examples. The payments or receipts occur at the end of each period for an ordinary annuity while they occur at the beginning of each period for an annuity due[3].
    Present value of a perpetuity is an infinite and constant stream of identical cash flows[4].

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today[5].
    Future value of an annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest.

    September 28th, 2010 at 10:17 pm

    Ron

    @ Duane

    Would you mind sharing the URL of the site that makes you 60K per year? Thanks.

    September 28th, 2010 at 11:05 pm

    cctld it

    In Italy 18-24 months revenue for a little needed working website is common. 12-16 months for p p c automatic website. Noone pays for 5+ yearseven for established brands. Yes I know…..domain industries is just started here……

    Just my contribute..

    September 29th, 2010 at 5:25 am

    Duane

    @ Intangible Properties

    “then I would have to sell for at least $12,000”

    Don’t forget a very important aspect, TAXES. If your lucky you might get to keep $8,000 out of your 12 k sale. Your return on reinvestment must then be calculated with a minimum of 15% interest and that is not counting inflation.

    @ Ron

    You will surely understand me, for not wanting to publicize my operations.

    I would like to pick up on Andrew’s comment.
    “5. Apply a discount rate to it. There’s risk, and your buyer is going to want a nice return.”

    Risk:
    If a company where to buy such website/business they would be in a position to take over a very large portion of market share. The risk would be, not being able to handle all the inquiry’s of customers. ( Not enough cash flow or credit to back up expenses, which would then be needed to adjust to the speed of company growth. Employees, business material, machinery etc.)

    Wanting a nice return:
    No further expenses in buying leads for thousands of dollars annually or in need of any other advertising expenses, not having to split all the customer leads with other competitors/service providers, constantly getting new customers and being the first and maybe the only one in line to make a sales offer.

    At last, all of these points can put a company in a position which could make them the market leader and finally exterminate a majority of competitors.

    What nicer ROI can anyone expect? This is also why I would consider revenue and not, the pure net profit calculation. If your not in a bind to sell? Your in a position to say “ Take a hike” and the seller makes the price. Not the buyer!

    Unfortunately very few domainers are in that position because there income relies purely on “penny parking” or flipping to make cash flow. That’s ok, but be sure to have at least one website/business providing constant income.

    September 29th, 2010 at 8:29 am

    leeM

    Ultimately a website is worth what someone will pay for it.

    And there are a lot of factors a buyer would have to consider. Has the developer been integral to the sites success? If so the buyer may want to pay but keep you on in an advisory or tech support role and even offering defered payments if large sum of money is involved.

    Some will even offer struuctured payments on performance. Depending on what industry the site is in and how it was developed.

    And buyers of sites will never give a price based on multiples of turnover, like some brokers say. It’s all about the net profit. For business on the up in terms of growth you could expect between 3 – 5 years net if done through a good broker. For sites going sideways.. expect 2 to 3 multiple.

    Again, all depends on what the buyer is prepared to pay. And I am not talking about flippa style sales of blog or community sites. I am talking in reference to established web companies who serve for a purpose and have a registered business.

    September 29th, 2010 at 9:53 am

    Ryan Colby

    I have found that each ecommerce valuation is normally subject to the specific objectives of the buyer. If the right acquisition fits nicely into a longer term strategy, multiples on revenue become rough indicators of the real value of the site.

    That being said, most of the deals I see for “average” sites range between 3 – 4 year multiples. Some of the variables that I pay attention to when considering brokering an ecommerce business would be:

    Low or no overhead
    High profit margin per sale
    Drop Shipping relationships in place and transferrable
    7 – 10 years of established sales revenue
    Solid SEO work done for keyword terms
    Lots of sales being generated from organic search
    Ability to expand the business

    September 29th, 2010 at 10:39 am

    Dan Megan

    You’re question is at what revenue multiple should owners be willing to sell a website. My firm, iMerge Advisors, we help clients sell web based businesses, I mention just to illustrate I’m speaking from some experience.

    Well, WHEN is it right to sell is a subjective question. If the site requires no work, no overhead and you see no future obstacles to a steady income stream I’d probably tell you to hold on to it unless you needed the cash to fund other ventures etc.. As others have mentioned, most often multiples are factored off of net as opposed to revenue. There are exceptions, hosting companies for one tend to use top line revenue as the guide. Affiliate advertising sites generally sell for lower multiples because of the low barriers to entry, 1-2x TTM. Ecommerce tends to be higher if you see sustained growth and solid SEO, 3-4x TTM. Content sites are all about the niche they serve, their dominance in that space, and how they generate traffic, range here is usually 3-5x adjusted net.

    Happy to give more insight…

    September 29th, 2010 at 2:14 pm

    Clinton

    Interesting discussion here guys. And some great view points.

    There’s probably nobody who’s done more work on website valuations than I have. Over many years I’ve been tracking prices at places like Flippa and the brokers. I’ve written Flippa’s Guide to Valuing Websites (at Flippa’s “parent” company, Sitepoint). I’ve developed a valuation tool – the only one that takes earnings into account and compares the site against sites with a similar DNA that have sold recently. And the forum in my signature is dedicated to talk on buying and selling of websites. Discussion on valuation comes up often there.

    >>If my site is making $1200 a year with no work involved, then I would have to sell for at least $12,000
    Arguments like these completely ignore the inherent risk. Do you really think that in 2020 the web eco-structure is going to be exactly as it is now and your site will be getting exactly the same traffic and revenue even if you do no work on it in the interim? I can tell you categorically that’s not how most buyers see it.

    >>1. Take revenue minus 5 hours time cost to pay someone to do that 5 hours of work
    That doesn’t work. The buyer will price it at how much HE is worth per hour. If you want him to price it at employee cost, you’ll have to find, train and put that employee in place.

    But I do agree with you that owner’s age isn’t a factor and that profit projection is (the BUYER’s projection, not the biased projection by the seller). I also agree on the discount to be applied for risk. If I may drop a link, the shortest comprehensive piece I’ve written on valuation is here: http://experienced-people.net/forums/showthread.php/4-How-to-Value-a-Website-or-Blog

    September 29th, 2010 at 6:41 pm

    Kevin

    Get as much as you can. Every domain and site is unique and there are too many variables to have a standardized multiples system.

    I’ve seen sites sell for 1 year to 30 years. Much depends on the sophistication of the buyer and the selling skills of the seller or broker. One buyer may pay 1x while the next day you’ll find a buyer willing to pay 10 times as much for the same site.

    It also depends on how good you are at pitching and closing. Very few domainers have mastered the arts of selling and closing.

    September 29th, 2010 at 6:53 pm

    Michael Gravel

    Lively topic and great discussion points. As previously pointed out a business is worth what a buyer will pay for it. Kevin makes a valid point that the expertise of an advisor or broker plays a major role in defending value. Any broker that simply matches a buyer to its client and turns them loose is assuring the client does not capture top dollar for his/her business. In addition, you cannot force a buyer to acquire a business no mater how good of a salesperson you are. Defending that value is based on transaction expertise and evidenced knowledge of what buyers have paid for similar businesses. So we can use formulas until we are blue in the face. Keep in mind it is the business or economic environment that controls price for any asset. Today buyers are paying less than they did in 2006. The formulas have not changed. If the resulting calculation is not what any buyer is willing to pay then the business or domain does not get sold and either the seller has to pull it off the market or reduce the price.

    September 29th, 2010 at 10:38 pm

    Clinton

    Michael, I appreciate that a good broker can make a difference to the price. However, many brokers are better at convincing clients of their ability to get a higher multiple than in actually getting it. Over-valuing properties to land the customer is not uncommon among brokers. I make this allegation against no particular broker, but I just wanted to level the field a bit here.

    Sometimes a seller can do far better just handling the sale himself particularly if he has some good advice or has done a bit of research. I often advise such sellers, for free, at our (non-profit) forums.

    I’ve seen brokers compare the types of multiples they get against publicly available multiples in places like Flippa. The caveat they fail to add is that the properties brokers handle are carefully selected. Longer established, stable income properties are likely to command a higher multiple anyway and such higher multiple can’t be attributed entirely to the efforts of the broker. Further, brokers often fail to explain that the asking prices on their sites aren’t usually what the buyer pays. The real (undisclosed) selling price is often far lower. It is a bit disingenious of some brokers to give the impression of a connection between the asking prices and their ability to achieve a higher multiple for their clients.

    Please don’t take these as comments about your own business, they are not intended as such.

    September 30th, 2010 at 4:54 am

    Michael Gravel

    Clinton,

    Certainly from my firms approach I would have to disagree. However, having been doing this for a decade we have come to the “rescue” of sellers who were given the treatment you mention. Its important for sellers to be thorough with brokers they are thinking about engaging. In addition to the points you make many brokers just simply send the seller a buyer and periodically check in. A good broker should be handling all phases of the process even after the closing. On the other point regarding pricing obtained. We have seen so many deals in which a seller going it alone has accepted (based on 100s of our comps) a price that is too low. Furthermore, we have seen sellers allow themselves to get raked over the coals because they didn’t understand how a deal should be allocated for tax purposes. Lastly, we have worked with clients whose previous deals blew up near the finish line because of buyer tactics. Such as the minority shareholder with voting rights who comes in at the last minute to tell the sellers he has told his partners that the price is too high and if they want to close the deal next week price must be lowered. A good broker would have vetted out all the participants and prevented this and many other tactics.

    If you need a knee replaced, a cavity fixed, a will drawn up most people would see an experienced professional within that niche. We would hope those looking to sell what could be their most valuable asset, in our case a successfully operating internet businesses, would seek out an expert too.

    September 30th, 2010 at 12:38 pm

    Clinton

    Michael, I agree those are all things that a broker CAN do or SHOULD do, but I’m not as sure as you are about any of them.

    On the claimed higher multiples: I’ve seen cases where brokers got sellers to reduce the asking price because of th broker’s inability to source buyers at the original (fair) price. Or because the broker wanted to meet a monthly target. The difficulty in proving that brokers get higher multiples does mean that sellers have to take the broker’s word for it. I’ve known many sellers who’ve done a darn good job of marketing their sites themselves, identifying synergystic buyers and completing the transaction safely. Nobody knows the business like the seller, nobody has as big a stake in a successful sale as the seller.

    You may offer some additional assistance by way of accounting advice but I would suggest that the seller’s own accountants are best placed to advise him. You can hardly be an expert on all tax ranging from the UK’s Enterprise Investment Scheme to the Australian CGT concessions (buyers and sellers don’t restrict their transactions to in-country).

    I’ve seen sales handled by some of the most reputatble brokers where the presentation of the sales doc/sales memorandum was absolutely pathetic. Fourth graders could have done better. These were docs that showed no appreciation of the buyer buttons to push or even the vaguest idea of what data is essential and what isn’t.

    About handling the process to the closing: If I had a dollar for every time a broker recommended escrow.com (highly inadvisable for website sales), I’d be a rich man.
    http://experienced-people.net/forums/showthread.php/1472
    http://experienced-people.net/forums/showthread.php/230

    Very few sellers know how to hold their broker to account, but I’ll admit those that do can extract some value from being represented particularly with pre-screening of buyers, structuring of the deal / credit terms and with some of the documentation. There are some good brokers around, but there are also a lot of charlatans particularly when you realise that regulation of brokers varies significantly across borders and in some reputed first world countries there’s no regulation whatsoever and any idiot can become a broker.

    But there are some very good brokers as well. And I’ll wholeheartedly agree that a good broker can be a valuable ally in selling your site.

    September 30th, 2010 at 2:01 pm

    David Fairley

    I was just told about Elliot’s blog from a comment on dnjournal and I am happy to engage in this dialogue as well. It’s interesting and predictable to see and read the comments from certain self proclaimed experts that loiter in the forums.

    It is also refreshing to hear balanced and knowledgeable comments that are based on real experience and market feedback. I agree with Michael’s perspective because I have found the same things in my 10 years of brokering internet businesses. Deals get done when both parties feel the deal is fair. This is easily accomplished when buyers and sellers have educated themselves about valuations other similar sites or domain names are selling for. The marketplace is very efficient at establishing average values.

    Sites like flippa that rely on auction based bidding and quick closes are like the wild west and are full of bottom feeders and scammers. They also offer great opportunities to acquire excellent sites from naive sellers that don’t know the value of their businesses.

    Contrary to Clinton’s assessment about DIY, most sellers don’t have the knowledge, and experience to put together a compelling listing and get it in front of a lot of highly qualified buyers. Fewer buyers means less competiton and lower multiples. In addition, as Micheal points out, there are a lot of pitfalls that can occur that cost the buyer 10′s or even 100′s of thousands in a deal. Saving a $100K brokers fee on a $1M sale may end up costing you $250k-$500K because you didn’t get the true market value!

    Most businesses we represent have to have solid fundamentals and a track record – at least 2-3 years because that is what our buyers want to see and expect if they are going to pay higher multiples. They also don’t close in 5 days but can take 3-8 weeks on average.

    We are currently experiencing closing cash deals on several 6 & 7 figure deals between 3 – 3.5 X with no owner or outside financing. If you have a great opportunity there are buyers paying these higher end multiples in cash still.

    As for holding out for 10X values because the business will perpetually throw off cash flow year after year with little or no effort? I have personally worked with many sellers who believed this as well only to find later that their once robust business that would have commanded a 7 figure exit at one point a few years back – 2007 or prior to the 2008 meltdown and before that the 2000 tech bust – found themselves with businesses worth a fraction because of some unexpected change in the greater market/economy or because of a paradigm shift(aka Google slap/myspace scenario/ obsolescence forces.

    I personaly like to sell sites for 3x ish and reinvest in other deals with a portion of the proceeds – 30-50% – and ramp up another deal and do it all over again every 12 months and get the capital gains tax of only 15%. We have clients that sell a website business every year with us making huge windfalls, reducing their exposure, risk and have fun creating and developing new websites.

    October 1st, 2010 at 12:25 pm

    Clinton

    A broker agreeing with another broker that sellers should use brokers. Now what’s the chance of that? :-)

    David, a good broker can make a difference, but you know as well as I do that a large number of them are useless. I won’t name names.

    You’re probably aware about the due diligence I did on behalf of a client/s for websites sold at your company (about $1.5 – $2 million’s worth) earlier this year. I’ve done DD on one or two other sales that were handled by your company and have experience doing DD on sites at other brokers as well.

    I’ve also dealt with sellers who were handling the sale themselves. I can assure you that some do bloody good jobs.

    I agree with some of what you say about Flippa. But I’d like to point out one thing here to level the field: You can’t really compare multiples that you get with average multiples at Flippa. Flippa properties are largely template sites less than a week old whereas, as you say, yours are pre-selected to be the kind that are going to sell for higher multiples anyway. Besides, 3x, 4x and 5x are not unseen of in Flippa when a quality property is listed.

    For confidentiality reasons brokers can’t publicly disclose the real multiples they are getting and so all the seller has is the broker’s own assurances that he’s getting higher multiples than equivalent properties in other marketplaces. I’m not so sure this is true.

    October 2nd, 2010 at 10:43 am

    Clinton

    … contd

    I would contest your claim of great opportunities to acquire under-priced sites at Flippa. Do you know of some? I’m well known for not being a Flippa fan but even I would agree that for the under $50K sites Flippa is still the best place to sell – competitive bidding in public does marvels for pushing the price up. And there are a lot of buyers in that sub $50K space so it’s *very* competitive. Above $100K it’s definitely not a venue I’d recommend but I think it’s a bt of scaremongering to suggest that great opporunities exist at Flippa for underpriced sites.

    As one very experienced buyer pointed out in my forum’s discussion about brokers yesterday, brokers’ main motivation is to get the deal done. At, say, 6% there’s small difference to them whether a site sells for $250K or $260K, but it’s a big difference for the seller.

    I have no bone to pick with any broker, but feel that the information here really does need to be balanced. There are some sites that are best *not* handled by a broker and even when a site is suited to broker assistance, one needs to be careful who they pick and be pro-active in getting maximum value from the arrangement.

    October 2nd, 2010 at 10:46 am

    DomainsHeat.com

    Can somebody recommend experienced broker? We are thinking to sell Zikbay.com, it is a big project and not sure about the price as there is almost no revenue now….

    October 2nd, 2010 at 3:04 pm

    Clinton

    DomainsHeat.com, I would recommend both David and Michael above.

    However, if the site isn’t generating any revenue yet it joins the millions of sites out there that are stronger in that etheral “potential” than they are in proven business model.

    But no revenue doesn’t necessarily mean no sale. If you (or a broker) can convince buyers on the profit projection you’ve drawn up you may yet achieve a sale. Because of the higher risk involved with startups don’t expect the kind of multiples discussed earlier in this thread.

    When it comes to startups buyers are particularly cautious about the founder bailing before BE. They’ll likely want you to continue and will want to tie their investment to actual delivery.

    October 2nd, 2010 at 4:08 pm

    Michael Gravel

    Thanks Clinton! Heat when it comes to startups they are a entirely different animal “Blue Sky” pays far less then proof of concept profits. An analogy we use often is to imagine you are in the market to buy a $400k home. The real estate agent takes you to two identical homes side by side built in 1985, one remains in that dated condition, the other has been updated to today’s standards. The seller of the dated home is asking $400k because it has huge potential. The seller of the updated home is asking $400k too. Which one would you buy? As Clinton points out, you need to share in the risk of a buyer realizing that possible potential. That means accepting a deal structure where if the potential is realized you are rewarded.

    October 2nd, 2010 at 9:11 pm

    David Fairley

    Clinton,
    there is no doubt some individuals are savvy enough to sell on their own. It’s the same thing with for sale by owner in real estate. The fact is though, that the mean values of selling prices historically in the for sale by owner market are 15% less than with the MLS and by realtors. In essence, the person that chooses this route ultimately does all the work, spends the money on their own marketing and ends up with 8% less on average than someone having a real estate company represent them.

    Not all brokers are competant and experienced with internet businesses. I suppose it is the same in any niche – that’s why malpractice lawyers are so busy!

    If a seller does some research on the broker or brokerage and checks out their references and can easily see a track record of experience and deals completed, they are going to find a broker that can represent them well and successfully sell their business.

    As for flippa, I agree with you it is a great place to sell sites under the $50K range and ultimately, most brokers, myself included, usually only work with clients who are selling sites typically from $75K-$100K and above.
    The vast majority of sites sold on flippa tend to be sold at 10 -18 months because they have limited history and stability, however because of that though, most buyers and sellers assume that this multiple applies across the board. I ‘shop’ there regularly and have found sites at with great fundamentals that I prevailed as highest bidder for 1/2 of what I would have sold them for in our marketplace.

    Finally, as for seller’s perception that a broker’s sole motive is to sell the site at any price to get paid – while I am sure that is the mentality of some unwise individuals that are desperate – I can assure you that any broker worth their salt and reputation wouldn’t be able to sustain in the longterm without serious fallout. That is why sellers should request lots of references to communicate with directly, check out others testimonials and ultimately look at the archives of sites sold to gauge whether a firm or a broker is committed to their clients success first and foremost.

    Personally, I have found that serving our clients needs and aspirations first has lead to our own long term success.

    Heat – as Michael points out, a buyer given several choices to purchase a business with a finite amount of capital, will tend to go for the website business that is proven and already throwing of cash flow that they can acquire. That tends to be where the market is now because of the risks and uncertainty in the economy and lack of credit availability. If your site has a ton of traffic and or members, or some cuting edge technology or proprietary platform, there are some buyers that may find value and leverage in an acquisition that is not currently monetized.

    October 3rd, 2010 at 3:03 pm

    Clinton

    David, figures from the real estate and used car markets aren’t the best comparisons. I’m glad you now accept that some individuals are savvy enough to sell on their own, but my experience has been that these savvy individuals typically get a higher multiple than brokers do – and I’m talking even those sellers who haven’t asked for help in our forums.

    Just as I’ve urged sellers to investigate the broker carefully before signing on the dotted line, I’d also urge them to look at the possibility of selling their site themselves. It’s not that hard and there are a lot of previous sellers at places like our (non-profit) forums who are delighted to offer advice and support. There’s indepedent advice outside of my forums too on the drawing up of the sales memorandum, what information to include in there, how buyers do due diligence, how to complete the transaction safely etc. For the lower value sites there are also free documents to be had for both buyer and seller such as Draft Non Disclosure Agreements and Sales Contracts. (For higher value sites I advise people not to rely on free docs or broker docs anyway and to use an attorney instead.)

    I’m afraid you do buyers an injustice with your suggestion of their blind adherence to some arbitary 10-18 months’ multiple. The buyers at our forums, who collectively spend more time in Flippa on the average day than you likely spend in the year, are a very savvy lot and very shrewd at recognising value. One of them, Justin, runs a site at flipfilter.com that tracks metrics of sites being sold in the main marketplaces. He has some fantastic stats. Another one, Travis, runs regular snapshots of the market, highest prices/multiples achieved for the week etc., at flipwebsites.com. Another member, Keith Mander, created a tool for part-automating the recognition of underpriced sites and John took that a step further – all discussed in some depth at our forums. There are other tools around that use APIs from marketplaces, feeds from elsewhere, Twitter, other socialnetworking tools and various other clever stuff that we discuss regularly. Savvy brokers are tapping into all of this as they don’t believe it’s best service to simply use the old model of listing a sale on their site and sending an email out to a relatively small database (some of whom signed up only for the data from his email rather than any interest in buying sites).

    I’m a bit puzzled by your comment about malpractice lawyers being so busy. Are you suggesting that if a broker doesn’t have multiple malpractice claims running against him then he must be good at his job? I’ve seen broker contracts. It’s pretty much a “best efforts” deal with no guarantees of getting a buyer, achieving a particular price or anything. So there’s very little a seller can sue a broker for.

    Broker best effort is not quantifiable and who’s to say whether a broker has worked hard enough to sell a client’s site? When our group started our forums I invited you to join. We’ve got sellers there. We’ve got buyers there, many specializing in your $75K+ market. We’ve got marketplace owners and managers there (Flippa, the biggest marketplace, has multiple representations – from the owner to the marketing manager). I’ve got other brokers there, including Michael above, Michael from WeSellYourSite brokers and those I discussed in a previous para – the cream of knowledge and activity in this market. They all take advantage of this one-of-a-kind, free, non-profit platform to discuss matters related to website buying and selling and a lot of business happens via PMs. There’s never been anyone from your company, AFAIK. Some sellers could argue that you’re missing a trick by not being there, it’s to their disadvantage, and you are NOT best serving your “clients’ needs and aspirations”. At the same time, you could argue that it’s a small, irrelevant forum that you don’t feel can be any benefit to your client. Your clients can’t sue you for believing that ;) and I’ll be the first one to defend your right to your opinion.

    October 4th, 2010 at 5:49 am

    David Fairley

    Clinton,
    let’s just say that sellers have options. Both can be well served by utilizing services of a competent experienced broker as well as go it alone – personal choice and comfort. That is why we are relaunching a new MLS version of our websiteproperties.com site that will allow individuals and other brokers to list their sites for sale exclusive of our representation. I will check out your forum and join in the discussion when I have anything poignant to add.

    October 4th, 2010 at 1:18 pm

    Clinton

    David, I agree.

    All the best with the new listing site (that you were starting one did come up in one of our threads). New marketplaces fire up all the time. Sadly many of them die by the wayside. I’m sure yours will go onward and upward and become a very popular destination. I certainly hope it does. We have some interesting threads where Flippa sounded our members out on what makes for a good marketplace. I don’t know if any of that feedback is useful to you at this point …but many of Flippa’s recent improvements were as a result of suggestions they got in those threads.

    If there’s any way I can help, I’d be delighted. I’d love to see a new marketplace (and, preferably, with an average listing of higher quality than Flippa sites).

    October 4th, 2010 at 2:10 pm

    Scott Bateman

    Stock valuations of publicly traded companies provide plenty of guidance on what a business is worth.

    Two important valuations are revenue and earnings multiples. Others include cash flow and price to book value.

    Among Internet companies, I’ve seen valuations at 2-5x revenue and 5-20x earnings. But plenty of other factors play into it.

    These numbers often come close to some well-established sites I’ve seen on Flippa and other brokerage sites.

    That said, Flippa is high risk because many of those sites don’t have accounting statements from third-party sources.

    A good valuation puts all of the numbers and credible sources of information together into a complete picture.

    September 21st, 2013 at 5:58 pm

Leave a Reply

Name *

Mail *

Website