What is my blog/business worth based on adsense earnings?

I have been contemplating how one would calculate the valuation of a business/blog/website based on its income received from adsense as a multiple of its yearly earnings.

There is an article on how to value a standard businesses using multiples of earnings here: http://www.businesstown.com/valuing/technique1.asp

Does anyone have any thoughts on what might be a reasonable multiple of earnings for this kind of business?

Has anyone sold a blog based on its adsense earnings before?

I'm guessing somewhere between 3 to 10 times yearly earnings might be reasonable depending on the history of stable or growing earnings, the growth rate of earnings, the industry, etc.

For example a blog that earnt $10,000US a year from adsense might be worth say $30,000 US. yes?

From a buyers point of view I guess the future of google adsense in terms of how much it will pay is a bit of a unknown quantity.

 

I don't think there is an easy answer to this. As a buyer I would look at a couple of things but the most important issue would be:

How stable is the traffic and where does it come from?

Another very important issue is what I can do with the site. If I could integrate it into my existing network(take and give traffic) I would be willing to pay more since I would see a jump in revenue when the site has been integrated. If I knew I could do some easy changes to the site that would raise the revenue it would motivate me to pay more. The list goes on...

If you earn $10,000 year and traffic is stable it's possible to find a buyer that would pay $30,000(unless the time to run it would eat up too much of the revenue?).

 

imho, it's be difficult to get 3 x yearly earnings. 8-12 months earnings would be more common.

also, the buyer may have issues that you will have to address - visitors go to your blog because they like you writing. who will continue blogging in the blog after the sale?

 

I'd pay upto 2 * annual income provided the site had good potential. It's very difficukt to give any kind of accurate figure as each site should be valued on a site by site basis.

 

In general for websites I use the rule of thumb that a fair price is 10xmontly earnings.
But indeed it depends on the type of site and of it is maintenance intensive... which a blog actually is... so that may reduce the price.

Cheers
Bas

 

Gross earnings are not relevant for a valuation. You have to use net profits. So you must factor in all the costs, including the time for someone to write blog articles, manage the ads. If the gross is 10K a year, I doubt you have any appreciable net.

 

I don't know how a blog would be sold which is let's say http://searchengineblog.blogspot.com instead of http://www.searchengineblog.net
It is a free site. I have never heard of a geocity site being sold for example. Would Google ( blogger ) allow ownership of a free blog to be transferred?

 

3-4 years ago it was common to pay 3-12 times the net profit per month. I've found it hard to get such prices anymore since the ups and downs are not that quick any longer and people calculate more long term for internet properties today. Normally I see calculations based on 12-60 times the net profit currently. This is for traffic stable sites of course.

 

You are right... I meant monthly profits

 

There is no way to magic formula for valuation because there are too many variables, but generally speaking, I would say 1 to 1.5 yearly net would be in the ballpark - although $10K net for a business that requires a lot of work may not be worth it (many people do NOT place a value on their own time when stating net).

A much larger net might be able to realize a higher multiple than 1.5 yearly net.

 

If it doesn't take much time to run, keep it, if you want to unload the blog, your going to take a chance trying to find the right buyer that doesn't mind the work.

 

Thanks for all the great replies. BTW I was just using $10K a year as an example.

One good point was to get your own domain name to increase the value should you ever want to sell your site. This got me thinking... Is there much benefit from having a site hosted on blogspot.com for example? How much traffic does one get from the "next" feature ? Also, does the PR ranking of blogspot.com help increase the ranking of posts on individual blogs in google?

Another great point was to consider the value of your own time! As it happens our company actually pays someone else to write a blog for our site.
We work on a system where we offer a minimum payment per month then a share of revenue once the minimum payment is met. We have been paying this person since November last year, and this was the first month that their blog adsense earnings exceeded the amount we agreed as a minimum payment. I put this down to the eye tracking information which I read on this forum a few weeks back. After applying the ideas suggested our adsense income has trippled!

The most effective tips I had was to put blog post titles in columns on the front page of the site in small font so readers take the time to read the post titles rather than skim read as they do when you have large font. This results in much higher readership of each post. It also seems to help google spider our blog posts. Put the google adlinks box in the top left hand corner of the page. And place adsense ads at the bottom of each post without any separation such as a line between them and the content.

 

It depends on the content of the site. If you are selling a bustling web community that sells memberships, than the resell value would be higher than a cookie cutter site. Or a site tat has a unique program/product that no other site has.

 

Each industry has their own guidelines but the idea is still the same. The value of your business/asset/site is the present value of future income.

The general multiple in the web market is 8-12 times monthly revenue.

But if you're site is huge (pulling in a consistent $xx,xxx monthly revenue) then the multiple will be much higher than 8-12.

It is all about the quality, stability and growth potential of earnings. As a buyer you need to find a site that has consistently been delivering growing monthly earnings and pay 8-12 times earnings.

If you're a seller, you need to demonstrate that your site has great development and growth potential and try to sell your site for more than 12 times earnings.

 

What if you were a millionaire and you bought a thousand dell computers for 1,500 and decided to sell them online for $800 each. You would make xx,xxx monthly revenue, but would the business be worth 20x sales because of all the money being lost through the sale of computers?

 

Wow. And I mean wow.

These multiples are a business buyers dream.

For businesses with as little in the way of overhead cost as your average website, and with as light maintenance requirements as your average website -- it seems to me that 3x annual revenue would be a more reasonable metric.

I don't know much about buying and selling websites, but I do know quite a bit about general business.

Perhaps when I achieve more liquidity I will setup a business that buys websites!

 

If i had a site using adsense that steadily ranked in yahoo and made $1,000/month with extremely little maintenance (only getting more links) and costs (only $10/month host) what would be a good price to sell that site for? It's also about 8 months old and makes a few affiliate sales per month ($20-25 commission per sale). If someone were to offer me $12k for it I would deffinently take that into serious consideration.

But also given the potential to rank for more kw's and double or triple the monthly earnings, it would be a tough decision to sell. Not to mention the older the domain gets the more valuable it becomes as well. BTW if any of you are serious buyers PM me

 

Growth rates and potential earnings play a huge role in this.

Obviously, if the most the site could realistically ever make were $15k per year and it's already making $10k per year, it wouldn't get a high multiple.

On the other hand, if the site went from $0 to $10k in one year and has shown consistent month to month growth, it could get a high multiple. I don't think $30k would be out of the question.

 

Keeping very good records of income and expenses is also a good idea if you plan to sell your business at any time in the future. You should never consider trying to avoid paying tax for example as the tax statements are what proves your business has value.

It is a shame that its against the TOS of google adsense to show a prospective buyer your adsense account as this would be an excellent way to demonstrate the sites income, traffic and growth rate over time.

I guess a bank statement showing the google cheques being deposited would be just as good although it doesn't show the correlation between traffic growth and earnings growth.

 

Clearly the margins in your computer example are no where near the margins on a website. You depicted a negative profit business.

Running a website, for the most part, generates positive profits.

But you're right, I should've made it clear that there needs to be an assumption of low over head (minimal hosting costs). The 8-12 times monthly revenue figure is just an industry average based on a website whose only expense is hosting.

If there are greater expenses like advertising, maintenence, and the likes then you've got to adjust the multiple accordingly. Others have also mentioned that the growth rate of the revenue needs to be factored in along with the value of the domain name. Branding. Time spent maintaining/writing new content.

All of this plays a part and one could write several pages worth of a detailed valuation model.

However, the industry average for the sites we deal with are between 8-12 times monthly revenue. You can argue with that (and I personally think that the valuation is undervalued) but that's how it is.

Yep. Here's a little secret: returns from web site development and publishing are higher than the average stock market return (11%). So guess where my money is headed?