Profit vs revenue for site valuation?
  • How does the portion of profit to revenue effect the value of a site?

    I don't think of course that a site that does $10k/mo and has zero profits (or small losses) would sell for 10 or 12x monthly revenues.

    So then, what percentage of revenues have to be profits for sites to sell at the standard 10-12x monthly revenues? 15%, 25%? Formulas anyone? I know it's never clear cut, but any known approximations would help.
    Post edited by Unknown User at 2011-05-03 13:38:33
  • It kind of depends on how the site is monetized. If it's all adsense, cpa, I think most sellers assume everything is pure profit. When I buy, I actually use profit (not revenue) in my calculations for the amount I'm willing to pay and I normally pay between 8x-14x monthly profit. Not all buyers are that savvy and many just go off of gross revenue. As a seller, if you have big costs (such as outsourcing) I feel the ethical thing to do is make buyers aware of that.
  • [quote="chrismyates"]
    It kind of depends on how the site is monetized. If it's all adsense, cpa, I think most sellers assume everything is pure profit. When I buy, I actually use profit (not revenue) in my calculations for the amount I'm willing to pay and I normally pay between 8x-14x monthly profit. Not all buyers are that savvy and many just go off of gross revenue. As a seller, if you have big costs (such as outsourcing) I feel the ethical thing to do is make buyers aware of that.


    Is more than pure profit factored into the mark up a drop ship ecommerce businesses?
  • Again it depends on your buyer, but I would say yes absolutely. You see with a drop ship business there is going to be a decent amount of work required to handle customer inquires, refunds, incorrect orders, etc. so a savvy buyer will factor that into their price. What I might recommend to you is to actually hire a virtual assistant (VA) and train them on all of that. Then when a buyer steps in, they don't have any work to do and you can potentially mark up your cost for the VA to generate passive income after the sale.
  • Profit (net) is the only number that means anything.
  • [quote="mrstealth"]
    Profit (net) is the only number that means anything.


    That may be true in some cases, we've actually found that search engine ranking/traffic is very important when you get into being acquired by larger competitors in your same niche. They may be looking at how much they currently pay to acquire customers and work backwards to value your business on that. So, to them how much net profit you are making doesn't really matter because they will change the monetization to fit their business.

    Chris
  • Chris, great point! The owner of a site we're currently looking to buy right now is asking for about 33x net monthly profits and roughly 8x gross monthly sales.

    I doubt we will offer them anything close to 33x the profits, but it's definitely worth more than 10 to 12x due to the site's current rankings, URL portfolio/age, access to new drop ship sources, customer lists, and more.

    It would take the equivalent of about 33x month profits and tons of time to get this site to where it is now starting from scratch...and I'm speaking from experience. It would be an excellent deal at 14 or 15x profits.

    It seems valuation should always be on a case by case basis, but the different types of sites definitely seem to require different valuation methods. Consider that part statement, part question. :)
  • When you are approaching an acquisition from a buyer's perspective, educating the seller that on average sites sell for around 10x monthly profits is to your benefit. That's especially true when you're willing to pay more. As long as I'm comfortable that I can easily make my investment back in under a year on a site, I might be willing to pay 33x. An example might be a site that has a great volume of traffic but really poor monetization. Obviously it's to your benefit as a buyer to not let the seller know how much potential you see in the site or what you might do after buying.

    So for your acquisition, figure out what the revenue would be after you take into account the changes/enhancements you might make to a site. Try to buy based on the "before picture", but be willing to pay more if the "after picture" looks promising.
  • You see it pays to read this forum. I just got a site for like $40 bucks he wanted $60 and the rev on the site is $3.00 a month through adsense. I want to see how a few cpa offers do for a week. Hopefully they'll boost the rev and get me into profit on the site itself. I like the idea of quick flipping, but I think I'll hold this one for some testing.
  • [quote="blillard"]
    You see it pays to read this forum. I just got a site for like $40 bucks he wanted $60 and the rev on the site is $3.00 a month through adsense. I want to see how a few cpa offers do for a week. Hopefully they'll boost the rev and get me into profit on the site itself. I like the idea of quick flipping, but I think I'll hold this one for some testing.


    I think that's a solid strategy. I'm also one of the types of people who learn best by actually "doing" so looking at your first purchase as a "guinea pig" for testing makes a lot of sense.