Multiples on purchasing.
  • I wanted to ask what is a fairly basic question but with what now seems to be a more complex answer.. what is the current thought on website valuations relating to their income?

    And secondly, does it change with the price of the site?

    All the education I've done so far (both here in Australia and from the tutorial videos on this website) indicated that 10-12x monthly was normallish, 14-16 was pricy and anything over that etc was very expensive.

    However, having read the latest Centurica annual report, they seem to indicate not only are valuation this low a myth, but that for the first time in history it is now more expensive to buy an online business than a B&M one, with online business' averaging around 2.8x annual profit. And it doesn't seem like Centurica was just rambling, as one of the main contributors to that report was David Gass himself (he's quoted in there regarding this topic)

    Does this basically means that for websites under 20K the multiples should still be lower (ie 10-16x) but that once the price goes above 50K you pay usual business B & M prices? Or is the 10-16x annual thing just a complete myth alltogether?
  • Hi Mark,

    Great question. My biggest recommendation when looking at reports like Centurica's is to look at where they are getting their data.

    In general, most of these types of reports are limited only to what's readily available in the public marketplaces and brokered listings. They typically make assumptions on what closing price actually was for a portion of the data set. In general, it paints a pretty good picture of what you might pay for relatively well established online businesses that are listed with brokers (i.e. 2.8x annual).

    Sub 20k sites are more complicated but the trend we are seeing is that website owners who are ready to sell are now more easily able to get a sense of what their site might be worth. In my opinion, this is mainly due to the transparency of comparable sales that Flippa reveals and website brokers who negotiate exclusive listing agreements with site owners.

    My general feeling (without the data to back it up) is that well established smaller sites (if there is such a thing) on marketplaces tend to sell for around 1-2X annual. It's the riskier sites that are selling for what used to be considered the average (6-12X Monthly) on marketplaces.

    So, to tie this together, I have two pieces of advice.

    1.) Stop buying on public marketplaces and find off-market deals using the "cold call technique". These "averages" are pretty much thrown out the window when you do this. Be ready to move quickly so you have more control over the seller's decision on valuation. 

    2.) Start basing your valuations on the revenue of the site 7 days after closing. If you can double revenue in 7 days by quickly improving monetization, your 24X monthly purchase just became a 12X purchase.

    Hope that helps.