What I Look For When Buying A Website

written by BlogEx on March 31, 2008 in Buying Websites and Selling Websites with 54 comments

I’ve been getting all kinds of comments and questions about WHY we decided to buy BloggingExperiment.com. Some people think we are crazy, claiming the only reason Ben sold it was because “it was falling apart”. Others are excited because they can see our vision of breathing life back into the blog. There are all kinds of questions about how much a blog or website is worth, so in this post I’m going to share the way we look at buying a website (and how everyone I know does it also).

Let me start by going over some basics of buying and selling websites, then I’ll discuss our purchase of this blog.

Sales Price – This is the toughest part about buying a website. Website owners think their site is worth 20 times more than it is in reality (because they are emotionally attached to it). Website buyers think the site they are buying should be valued at 1/5th the asking price (to get a good deal). So how in the world can you come up with an agreeable asking price for a website?

The most common “formula” for calculating a website’s value is the profit the website makes each month. There is a MYTH out there that a website is only worth about 10 times the average monthly profit from the last 6 months of revenue history. This is absolutely false. Amateur sellers will sell their sites for this multiple because “that’s what they read is the norm” or “that’s what the seller tried to convince them their site is worth”.

The last site we sold (the one for $575,000) went for a multiple of 32 times the monthly net profit.

The site before that was making about $3,500 per month profit and it was sold for $100,000 (about 28x net).

So anytime I read a forum or blog post saying a website is worth 6, 8 or 10 times the net monthly profit, it cracks me up. When you learn how to sell a website the right way (ie – by NOT selling it on ebay or some forum like Sitepoint), then you will make a heck of a lot more money. I’ll share where/how you should sell on another day.

Even though site profits is a main criteria used to value a site, it’s not that simple. It just happens to be the only thing you can plug into a formula for calculating value.

- Side note: Blogs are not worth nearly as much as regular websites. I’ll discuss why below…

Other Assets – Even though the income of the website is typically used to come up with a sales price, there are many other parts of a site that are valuable to a buyer. The easiest way to picture this other value is this. With real estate, home prices are based on “comps”. If all the homes in your neighborhood are 2500sqft and are selling for $200k, then your 2500sqft home is worth $200k too. People like to use website profit as a “comp” so there is something to compare it to.
The other assets of a website (or in real estate terms, the house upgrades, curb appeal, etc) are the things that will make the website sell faster or for a premium asking price.

These can include search engine rankings, RSS subscribers, Opt in email subscribers, website traffic, amount of original content, number of inbound links, overall look of the site (graphics, layout, etc), “holes” in the site (things the new owner sees that could be fixed up or improved), age of site, type of revenue (recurring, e-commerce, affiliate, advertising), overall niche the site is in, amount of time involved in running the site, barrier to entry, and so on. Whew, there’s a lot to it!

All of these things have value, so even if your site doesn’t make a lot of money and you have a lot of these other things you can still do very well by selling your website or blog.

So, let’s look at the purchase of Blogging Experiment…

How much is this blog worth to you?

Well, based on the “formula” price, it would be worth about $15,000 if you average the last couple month’s income and multiply times 10 months (actual purchase price was a bit higher).

Why would we pay more than $15k?

Not all buyers will share this with you, but it’s definitely in the back on their minds when they are analyzing a site to buy…

Here are the things we look at (and place a “mental value” on) to justify whatever the asking price is:

  • Income - About $1500/month average for this site at time of purchase. If all things remained steady (ha, yea right!), the site will earn $18,000 over the next 12 months. If we were to buy the site for $15k as the “rule” says, we will have made a profit of $3,000 in 12 months. That’s about an 20% return on investment (ROI) in a year. Try to get that in a savings account! And once the site paid itself off, we would have a valuable asset owned free and clear that we can re-sell for 100% profit. Even if we sold it for the same price we paid, that’s a nice payday.So, just buying this site based on income alone would be a good deal, right?
  • Traffic - Site was getting about 15,000 unique visitors per month at time of purchase (about 180,000 visits per year). If we were to start a new site in the make money online niche and PAY for traffic via Google Adwords, our cost would be about $0.40 per click being conservative, probably much higher because it’s a competitive niche.Let’s run the numbers…180,000 visitors times $0.40 per click = $72,000! Wow, so by purchasing this website, we are getting over $70,000 worth of traffic for free. That’s pretty valuable stuff. Still think this site is worth $15k like the “formula” says?
  • Search engine rankings – Do a search in google for “make money blogging”. Looks like the 4th site down is BloggingExperiment (at the time of this writing anyway). How about “make money online”? (about #26). Maybe “make money”? (about #36). Are you kidding me? Do you know how much time, effort and money it would take to get these kinds of rankings for a new site?Granted I know SEO very well, so I wouldn’t have to hire an SEO company. If I did, the cost would be about $20,000 at the bare minimum to get these kinds of rankings. If I did the SEO myself, it would take me at least 5-6 months of full time effort to get rankings like these and probably about $6,000 in paid links. The rankings of this site are VERY valuable to us as a buyer.
  • Content - I believe there were about 240 posts on this blog at the time of purchase. Again, if we were starting a new site from scratch and if we hired someone to write 240 articles at $20 per article, it would cost us $4800. ($20/article is dirt cheap for the quality of posts on this blog. Sure you can get crappy articles written for much less by some non-native English speaker, but this blog would have never reached this level of success like that).
  • RSS Subscribers – I think this site hovered around 1,000 subscribers for the most part. How do you put a value on subscribers? To me, this has little to no value as a buyer, so for RSS subscribers it’s a little tricky. These subscribers join the feed because they are interested in what the author is talking about. When you buy a blog with RSS subscribers, many of these readers will unsubscribe because the person they signed up to read about is no longer there. Because this asset is so personal to the blog owner, you can’t really factor in the number of subscribers. If you are lucky, like I was, the subscribers will stick around for a bit to make sure you’re not some lunatic. You just can’t depend on keeping all those subscribers as a website buyer.
  • Inbound Links – Last I checked this site had about 22,000 inbound links according to Yahoo’s backlink query. I like to be conservative with my estimates when evaluating a website. Would it be fair to say you’d pay $3 for an inbound link if you didn’t have to do any work? I think so. I’ve paid as much as $200/month for 1 inbound link on an authority site on my last project. The “Best of the Web” directory charges $80 per year for one backlink. So using my ultra conservative $3 per link, that’s another $66,000 in value just in the backlinks alone!Don’t want to spend $3 on a link? Ok, what if you just got backlinks from other blogs on your own? It will probably take you 10 minutes to find a related blog and post a comment. Do that 22,000 times to get your 22,000 links and you will have wasted about 3,600 hours of your life…pretty boring.
  • Graphics/Theme – This site has a great theme that was professionally designed. I got a quote from the guys who made Shoemoney’s blog (UniqueBlogDesigns) and they came back at about $1800.
  • “Holes” in the site – By holes, I mean things that I see wrong or could be fixed up/optimized. I’ve already made a few changes to this site that fit into this category such as making the header graphic smaller, changing some ads around, etc. I saw lots of room to improve the revenue of the site which I’ll be working on over the next few months.
  • Age of site – This was a negative for me. Most sites we buy are at least one year old. That’s when most of the search engine optimization results kick in overdrive. Obviously it’s not a huge sticking point, but it’s not ideal either. Older, more established sites are more valuable.
  • Type of revenue – Again, this site is not so ideal with it’s current revenue model. Selling WordPress themes is nice, but you have to constantly add new themes to keep the inventory fresh. The advertising income hasn’t been too exciting, so I have my work cut out for me in this respect. I have some ideas I want to test, so hopefully these will pan out like I picture them in my mind.Blogs are especially difficult to monetize due to their format. The original purpose of blogs were to be more of a personal journal type software program. They are great for sharing information, building relationships with your readers, and keeping content organized. Not so great as a business model.
  • Niche of the website – The make money niche is a pretty healthy niche. Lots of people are spending money in this market, so that’s a good thing. Although I’ve not done much in the make money market, I think it’s one of the top 5 markets to be in. Here are my favorites (just FYI):- Health related (includes weight loss, diet, exercise)- Business opportunity (make money, internet marketing)
    - Small business (marketing, SEO, advertising, coaching, support services)
    - Children (babies, parenting, parents will spend anything on their kids)
    - Pets (training, supplies, people will spend anything on their pets)
  • Time Investment Required – Again, this is another downside to this type of website. Blogs are notorious for taking lots of time, especially if you want to build a large readership and provide tons of amazing content. Here I’ve spent the last 1 hour and 42 minutes writing this post. Sure, I could have slapped together any old article in less time just so I could post “something” to the blog, but I’m striving for extreme value and originality. It takes lots of time to put together quality posts.This one thing alone is why blogs are no where near as valuable as regular websites. In fact, this is only our second blog acquisition out of the 50+ deals we’ve done over the last 5 years. Buyers think of blogs as HARD WORK. And who wants to pay thousands of dollars so they can work hard?
  • Barrier to entry – Starting a new blog is pretty easy. All you need is $8 for a domain name and $5 for a month of hosting and you can have a blog setup and running within 2 hours. Since it is so easy to do, there is no barrier to entry against new competitors, which is a bad thing as a buyer. You can create barriers to entry using the things I’ve listed above such as the backlinks, search engine rankings, etc. Those are things that will keep competing sites from immediately destroying a business you buy, but those alone are not huge obstacles to overcome.Compare that with a unique weight loss cream you created and now have a patent on. That would be a huge barrier to entry since nobody can compete with a product like that, which makes that type of business much more valuable than a simple blog websites.

Hopefully that will help you see how a buyer thinks if you are thinking about selling your site one day.

So to recap the BloggingExperiment.com purchase…

Based on the numbers I’ve proven above:

- Income value – $18,000
- Traffic value – $72,000
- Search engine rankings value – $12,000
- Content value – $4,800
- Inbound links value – $66,000
- Theme value – $1,800

Total “mental value” = $174,600

Regardless of the actual purchase price, you can see there is an enormous amount of value in this website. This is ultimately why we decided to purchase it, even though the “profit” of the site wasn’t all that impressive.

So what’s this mean for you?

Easy, now you know exactly what buyers are looking for in a website. Your first job is to increase your website’s profit each month, and then ramp up all the “mental value” assets to support your premium asking price.

This is exactly how we are able to sell websites for 25+ times monthly earnings while most others settle for 10 times. If you like what you’ve seen so far, be sure to check out my other site that is totally dedicated to this topic: Visit Buying And Selling Websites. There’s several videos detailing how to successfully buy and sell a website.