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How Much Is A Web Site Worth?
BluSkreen asks: "We've been approached by someone that is interested in buying our five-year-old site. Using the metrics from the Andover purchase of /. and Freshmeat (from the Andover 10Q filing), and scaled to our traffic level (about 1.5 million page/month), I've come up with a value of about US$250,000 or so. They were shocked when I mentioned this figure. We figure we have at least US$60,000 in costs over the last five years, (not counting hundreds, if not thousands, of hours of labor) and gross about US$20,000 in banner ads a year, though I've 'pitched' nearly US$100k in banner sales in the last year. How does one go about determining the value of a site?"
What is a web site worth?
I thought we were above this.
If you're doing web sites for the money, you're doing it all wrong, and you will fail.
You got to do it for the love, man, for the love.
I mean, a website isn't about your stock options or your new $500,000 house in San Francisco or venture capital. It's about the feel of the keyboard beneath your fingers as you fly over fields of Perl and HTML, the glow of your monitor at 4am as your new servlet takes its first, faltering, tentative steps into true, functional life, the music in your headphones as you grok Python. It's about the beauty of yet another dawn, the inner warmth that comes from a properly configured server, and the oneness with the smooth, cool curves of the mouse under your hand.
What is this compared to the crass concerns of money?
There's the whir of the power supply fan, the rich smell of coffee at 3am, and the camaraderie with your fellow developers, who are in it with you all the way. There's the moment when you know your design is perfect, the instant that your last method falls into line, and the second that you ferret out that stubborn little bug. And, most importantly, there's the all-encompassing, glowing warmth that comes from knowing you've done your part, done it well, and that there's nothing that can ever, ever take that away from you.
Money may feed you and clothe you and shelter you, but money as and end to itself is a destructive aim. It is a never-ending vicious circle, a spiral into greed and lust and wantonness. It will not nourish your spirit, or shelter your soul.
Sure, you can do it for the money. But you'll never make it.
Just remember: you got to do it for the love.
The figure was based on an industry standard multiple of yearly gross billing. In this case it was close to a factor of ten. In the larger American markets, the factor can exceed twenty. Buyers have little chance of recouping the purchase cost in under a decade and look at the investments as either long term ventures or as a way to make a quick buck by flipping them.
For a web site, as in radio, the value of the property far exceed the capital investment. Just because it's a new industry doesn't mean there aren't reasonable guidelines for assessing value.
Given the apparant majority view here on /. the value of a web site is nothing. How do I arrive at this figure?
Well, every time there's a story on the RIAA or MP3s, there's always a million posts saying, "It's not stealing because the author still has it". Therefore, it's not wrong to completely copy your web site. After all, both a web site and a piece of music in digital form are both nothing more than information, and both take a lot of hard work and talent to produce.
Since the parallels are clear anyone should be allowed to copy your site, and hence it's real value is zero in practical terms - after all, why pay a penny for a site when they can just copy it?
If you've got substantial banner revenue, make sure you let them know the site will pay for itself in a few years. As well, they need to understand that you *have* invested time and money in the site. If they don't compensate you for it, you're throwing it away.
æeee!
The most common formula I see managers using for the valuation of the site is (kinda) as follows:
Note: I'm not a financial guy, I'm just pulling this crap out of my memory
They take the average number of banner click-throughs and multiply it by the average cost of the stuff the banner advertises. They add this to the sum of the cost-savings of using electronic forms over using the staffing, manpower, and materials of achieving the same objective via paper. Finally, they add to this the cost of developing and maintaining the site per year.
I don't know if this will be any help, but, hopefully someone has something that makes more sense than this.
-Jer
Although many people here are offering you several rules of thumb, you should realize that rules of thumb do not take into consideration all of the unique qualities of your business. Call me biased if you must, but I, too, recommend engaging the services of a business appraisal firm. One common idea I see floating around here is correct...valuation is by no means an exact science.
By hiring a professional and experienced business valuation firm, you'll hopefully get a value based upon evidence and analysis which is comprehensive, unbiased and pertinent.
If you want to get into the "nitty gritty" of important considerations, I refer you to the following 8 salient points from Revenue Ruling 59-60, which set the groundwork for modern business valuation:
Depending upon the capital structure of your company (C-corp, S-corp, LLC, limited partnership, etc.), there may be some other considerations.
Let me point you in the direction of the American Society of Appraisers, the industry association to which I belong. There, you will find some helpful articles and info on business appraisers who may be able to help you. Email me at the address above (after removing the appropriate words) if you have any questions. Good luck!
Bill Clinton: Pimp we can believe in. - The Shirt!!!
All of the things mentioned here are important in determining your asking price for the page, and since it sounds like you did your research to reach a price of $250k, then this is what you should ask for.
But what the website is WORTH comes down to the basic laws of economics. No matter how much money it makes or doesn't make, how much time or money you have invested in it, etc., your website will only ever be worth what someone is willing to pay for it. Your task now is to find suitable figures and/or information to convince the potential buyer to purchase at your named price. If you can make them realize the value of the labor that you invested, actual capital expenditures, etc., you should have a good case.
Good luck!
Labour is not worth ANYTHING.
If you spend 2 years creating a site that's not use to anyone, then that site has little value. You past investment is, basically, your problem.
Your site is worth what someone is willing to pay. You might like to think that this will in turn be based on how much revenue your site can generate.
I can't imagine why anyone would pay 250,000 for someone else's web site, but then I'm not a VC guy. I can get a per annum return of 10 per cent by investing very basically in the stock market. So, unless that site generates 25,000 PROFIT (not revenue!!) AND there is a way to get the principle (i.e. original lump sum) back out fairly easily, then the price is wrong - because I'd make more money putting the same 250,000 in the stock market.
So, ask yourself how much PROFIT the site generates, whether it is readily re-sellable as a going concern, and figure out what its worth.
Or, if you prefer, decide that you have a cool brand, that your site represents valuable digital real estate on the wired e-market, and that your years of cool hacking just have to be worth loads of money to some loser suit, so hey, make me a dot.com millionaire baby!!
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$250k for a site that makes $20k a year in ad revenue? That's actually a pretty reasonable price, 12x earnings. It's even more reasonable if you consider growth potential.
/||\
Negotiate down a little, but not too much. If they can't see value in the investment, and you want to sell, find someone else to buy it. That shouldn't be too hard.
__
(oO)
Hand me that airplane glue and I'll tell you another story.
Ask yourself the following questons.
1. How much banner sales are you expection to make this year?
2. How much time will it take for your banner sales to touch 250K?
3. Do you have a predictable growth rate?
4. Are you still in love with your website? Or, after spending so much time you want to move on.
5. If you are going to handle the website (ala
6. If any company in the similar category has been sold, then how much was it sold for?
7. If you think that you are a bottleneck for expansion of the site (in terms of providing finance/hours for more content), then have you thought of financing.
8. If you are an ecommerce company, is your growth rate comparable to the industry?
I had some more stuff in mind; but can't recall it now. Meanwhile people can add questions to this list as appropriate.
Hope this helps.
CP
So I've worked on this web site, SkiIn, for a few years, until last year. Mostly a labor of love (duh!), I started it at a time where I did'nt even really know Perl, in those old ages MySQL did'nt exist yet, no Apache but the venerable and buggy NCSA server. Long time ago ... I had some experience with Linux, just fiddling around with that bloody slackware thing, but I was'nt a convert at that time. Actually, I remember that at this time I was waiting eagerly for the official release of NT4.0. (I was young and innocent!) Let me drift out of the topic for a minute.
I had been hired as a contractor to write some tools to generate the pages automatically from a FileMaker database. My tools were in Metrowerks C++, with some experimental object oriented GUI (what was the name of this funky framework again?). Oh and a few clumsy MacPerl scripts.
Then we bought a PC to run some piece of sh^Hoftware on it. I install that very first NT4.0, limited 30 day versions. Spent a whole day installing it (the bloody 3 floppies thing ...) I left late in the evening ... and when I came back the next day ... the bloody thing had BSOD'ed. Duh. So I reboot. It would'nt!! We thought of bringing it back to the shop, but before I wanted to try that funky RedHat distro (4.0?) I just got ahold of. Later I installed the first 2.0 kernel, then it stayed there as our inhouse testsite running 2.0.something up until now I think. It's probably rolled over the jiffies a couple of times. I was a convert. Anyway.
Back on topic: we did quite a good job on the site, had lots of good ideas, the graphic designer did a very good job, I did'nt do too bad, and we won an award or too.
Now at that time, finding paying customers (advertisers, etc ...) for a website in Europe was a real bitch. And we did'nt even really think of venture capital either to begin with. When we started, even with the CEO's connections, it was a real bitch too.
So now I'm back on topic ... what have I learned at that point? Well when the Internet actually hit France (2 years ago), we could actually start talking with investors. They would all praise our business plan, which was original and well thought out at the time. And the talks went quite far, as far as to the investors and potential buyers to talk seriously in the $10 million range maybe. However ... and that's the bottom line, none of the potential deals succeeded. It was all or nothing. They were interested in our business, would have put a lot of money, or nothing.
I left the company a bit more than a year ago, now they have merged with another one, so it's not lost; and I really don't know what to advise you, besides talking to as many people as possible. Investors might help you valuate it, but that value does'nt mean shit: it means that, if someone buys it, they will gladly pay that much, or not buy it at all. Cause there's no real point, I guess, in buying such a business too cheap (since they're likely to pay in overvaluated stock anyway).
How much greater is a matter of debate... depends on the site, what it is, how unique the model is, how much the content is driven by you generating it, etc.
A lot of internet companies have market caps on the order of 20-something-times-revenues (not EARNINGS, but REVENUES). Which would value your site at between $400-$600K. Your upside potential is higher than that, because at one ad per page (more is possible... MSNBC for example) and $30 CPM, your 18MM impressions a year represents $540K a year in inventory.
I wouldn't sell out for $250K, just because the first person to approach you about it has no idea what it's really worth, unless you have an overwhelming desire to "unload" it. Those 18 million page views a year are worth substantially more than that in-and-of-themselves. As far as cost justification, you figure you've had $60K in expenses, and put in "thousands" of hours... five people working on a site half-time for five years represents 12,500 hours: at a conservative labor rate of $100/hr. (remember, this is a "charge out" rate you're figuring, not payroll) that represents $1.25 million by itself. Or put another way -- for every thousand hours you figure were put into it, your site has added $100K to its cost base.
As a final thought: if you were doing production web development for a customer whose site received that much traffic, it wouldn't be unreasonable to be billing the customer $300K per year to maintain it -- they should be spending AT LEAST that much on upkeep for a site that busy.
This is my opinion and my opinion only. Incidentally, IANAL.
MOO;IANAL.
There used to be a picture linked here.
You could talk to an accountant or a lawyer, but if you want to swag a number, take yearly revenues (profits, after operating expenses have been paid) and multiply by 20. That'll give you a conservative estimate. If you want to get gutsy, multiply by 100.
Or, in the case of Yahoo...multiply by 1770!
Like a piece of art, a website is worth whatever someone is willing to pay for it. If they blanched at $250k, see if there is anyone ELSE interested in it for that price. If not, then maybe the price IS high....
-=Bob
Put it up for auction on ebay.
;-)
Then you will see what people
thinks it is worth
Knud
Let's see. Very little revenue. Small site. Room for growth. On the stock market, that's about one billion dollars.
20x earnings is an absurdly high multiple for any business. The problem with this discussion is that you are comparing this web site to the market valuation of public web sites - also absurdly high. Typical valuations are at 3 to 5 times earnings. Given that this site is grossing $20,000 yearly, I'd say an asking price of $650,000 is off by a factor of ten at least. Think about this logically. Any buyer is in this as an investment. If they aren't getting a good rate of return, why not invest in a mutual fund? 'Potential' for huge future earnings is all very well, but you have to consider where those earnings will come from - probably their financial investment in the site - and whether or not your website has any more potential than the 100s of other similar websites.
You might be able to get more money by structuring some kind of earnout, where your compensation is linked to some specific performance index.
That 3 to 5 number is a rough rule of thumb. Usually things just work out that way. The problem with 'normal' multiples such as Yahoo's, is that they aren't normal. The valuation a company has on the stock market has little or no connection to the valuation process a prospective buyer goes through when considering the purchase of a company (that is, a buyer who knows what he/she is doing).
In calculating the value of a small business especially, you have to remember one thing: the buyer, any buyer, is in it for the money and they will consider primarily the return they will get on that money when deciding how much to offer for a business. Leaving aside synergies, etc. let me lay this out very simply, lord knows it took me a while to understand it: A buyer has, say $500,000 to invest. He has several options on what to do with it. He could invest it in the stock market - pretty good investment, these days. He might expect to get 15% to 25% back on that money every year depending on what stocks he picks. Or he could invest in bonds and get 10% a year. Now why would any choose to get 10% a year instead of 15%? Because bonds are much safer than stocks. You invest in the stock market, you risk all sorts of nasty things happening to your money. For whatever reason, our hypothetical buyer is considering buying a business with his money instead of stocks and bonds. Buying a business is extremely risky. Businesses fail all the time. For that reason, a buyer demands a very high rate of return. They will expect to get around %17 back yearly on their money.
How is this calculated? It involves a lot of fiddling with financial statements and predictions about the future. But let's assume for the sake of this example that the web site cited above had earnings of $20,000 last year. Let's assume that profits grow 15% a year over the next five years. That means in 2000 it will make $23,000, in 2001 it will make c. $26,450, in 2002 it will make $30,417, in 2003 c. $35,000, in 2004 $40,000. Total earnings over the next three years: $134,150.
Return to the 3-to-5 times earnings multiple. Consider the high end - 5 times earnings. If our buyer invested $100,000 in the stock market and got an ROI (return on investment) of 15%, he would earn $152,000 in the next three years. So why should he pay $100,000 for your company and lose $17,000? He'd probably want to pay a good deal less for it.
There are always strategic fits, synergies, and 'potential' that might induce a bueyr to pay more than the strictly financial value of a company. But don't count on it. If it's a publicly held company, you might think they have tons of $$ to throw around, but if they pay you 20 times the value of your business, they will have to explain it to their shareholders. And sure, maybe your website has tons of 'potential'; but how much money are they going to have to spend to realize that potential? They need to spend a ton of money on advertising and expanding the site? That will affect their ROI significantly. Your users might call you a sell-out and desert you? High rate of risk - they will want a higher ROI.
That was a lot more complicated than I wanted it to be, but you get the picture - it's a complicated scenario, there are a lot of factors, but anybody with enough money to want to buy your company is going to know what's up and they will not want to over-pay.
There really isn't a standardized way to assign value to a web site, unlike things like cars which have "blue book" values.
The thing about a website is it is worth whatever somebody wants to pay for it. The trick is convincing somebody to pay a lot.
You have to evaluate many things when coming up with an asking price. The number of hits, etc isn't as relevant often as the user base (i.e. slashdot == geeks == people with buying power == geeks that hit other sites == high value) and the amount of "impression" time your site generates.
Banner Ads as a source of revenue should not be taken seriously by a buyer who is in this for the long run. This is because the revenue stream is potentially unstable in the future.
What revenue/value does your page bring? Is there an intrinsic need for it?
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Do daemons dream of electric sleep()?