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Resources & articles for website buying and valuation?

Discussion in 'General Business' started by Ikaruga, Sep 25, 2008.

  1. #1
    I am looking into acquiring websites for the general purpose of increasing personal revenue, but I honestly don't know very much about the art of buying & selling websites. I've hung around Sitepoint a bit and have been paying attention to the questions asked by potential buyers, and I've read a few good valuation articles linked by Barefootsies on here...

    Any other good resources on the art of buying websites? How to properly valuate different types of websites, what questions to ask the seller, legal issues & contracts I should be aware of, etc. I'll be doing my own research, but help from you guys would be much appreciated! I'll throw in reps for whoever helps me! :D
     
    Ikaruga, Sep 25, 2008 IP
  2. mentos

    mentos Prominent Member

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    #2
    Its common sense.You can determine the website value by looking into the revenue/PR/backlink/link popularity etc.
     
    mentos, Sep 25, 2008 IP
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  3. Foggy

    Foggy Link and Site Buyer

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    #3
    It's a little trickier than that for somebody new to valuing websites, mentos ;)

    For example, what exact dollar value do you put to PR or backlinks? In fact how do you compare one site with 10 PR6 pages to another site with one PR7 and only 5 other pages, all PR4? How do you differentiate between quality of backlinks? 600 edu backlinks are worth more than 600 social bookmarking links you could buy for $10 but how do you analyse the quality of backlinks?

    The solution that professional valuers use is that they don't calculate the value of individual assets except if they are dormant assets not making a full contribution to the business of business. For all other assets, there's one brilliant way of calculating their combined worth: basing it on the money they are going to generate.

    Purchase of a site is, after all, a business decision for most. The money + time you invest has to be repaid. For some, the repayment is fun. For the majority the repayment takes the form of dollars. It is therefore entirely appropriate to measure the value of a site in terms of the profit it's going to make you. But risk also plays a part. The less secure the future profit the less you want to pay for it.

    There is a lot of nonsense about on the subject of valuing websites. Incredible amount of nonsense. There are a few wise men in the wild but they tend to get ignored with ignorant shouts of "All sites are worth 12x" or "It's worth $x if it's a PR6". That completely ignores the fact that there are sites and there are sites. Some will comfortably sell for 4x annual profit, others would struggle to raise 0.5x annual profit. Probably the best article on valuing sites is what you may have already seen at sitepoint (valuing sites) and the best valuation tool is the related site valuation tool.

    As the maxim goes, a site is worth only what someone is willing to pay for it. And the valuation tool above is the only one based on what people are actually paying for sites similar to yours.

    What questions to ask the seller? There isn't a rule book on this, I'm afraid. It depends very much on the type of site you're buying and it depends more on gut feeling/instinct born of experience than any fixed questions. For example, if you're buying a site for its PR (and you want to make money by selling links) you're more concerned with how genuine the PR is, how easily it's affected by links on other sites the seller owns, has it recently lost any important links etc. You wouldn't spend much time trawling through the traffic logs. If, OTOH, you are buying a content site making money from Adsense, you're going to want to check the traffic with a fine tooth comb. If you specialise in a certain type of site you'll develop your own questions.

    Legal issues: Hmm. There aren't any, this is the wild west. Unless you're spending $50K or more buying the site, you're unlikely to ever sue the other party. So have a contract but don't get too excited about your ability to enforce it. And use an appropriate escrow agency to handle the transaction. Only ever invest in one site an amount you can afford to lose should things go wrong.
     
    Foggy, Sep 26, 2008 IP
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  4. Ikaruga

    Ikaruga Active Member

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    #4
    Yes, exactly...appraisal of a $100-$1,000 website may be particularly easy to do when there's only 2 or 3 factors to consider, but it gets more complicated with the $X,XXX-$XXX,XXX websites. I didn't even consider the "quality" of backlinks other than just their numeric PR ranking prior to Foggy's post. Things like that along with other variables that come into play is what I want to get down pat.

    Foggy's on the ball with evaluating the "bread and butter" of a website's income when looking over a site. I regularly see some people only questioning the numeric legitimacy of revenue figures (if the revenue figures are real or not) when they should be asking the reasons behind rises & falls in revenue levels.

    Also, determining the exact source of where money is coming from through a ad program / affiliate program is important too. For example...I can tell you with a straight face that I have a website that made $X,XXX in a month under a particular affiliate program -- but not all the sales may have been made through my website, and maybe I hustled a couple hundred dollars worth of affiliate offers through personal friends or even Digitalpoint members :)D). You don't want to buy an affiliate marketing website that magically ceases to produce any sales at all when the revenue figures showed it making $2k a month, now do you?

    Well, that was a little tangent there...but yeah, if we could all cover different things to look for within different niches then maybe this thread has some potential. :)
     
    Ikaruga, Sep 26, 2008 IP
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  5. Foggy

    Foggy Link and Site Buyer

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    #5
    Yes, reasons behind variations could be very revealing if you can get under the skin.

    Another important factor often overlooked is the webmaster time. Most of the sites that come up for sale are listed by webmasters who don't seem to realise that time has a value. Just because they don't pay themselves for the time they spend building the site up they believe that no salary needs to be deducted from the earnings. They often end up claiming a profit figure that is, to put it bluntly, fraudulent.
     
    Foggy, Sep 26, 2008 IP
  6. Ikaruga

    Ikaruga Active Member

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    #6
    Question -- what are ways one can differentiate legitimate traffic statistics as opposed to traffic that was received by bots/scripts? Other than asking for sources of traffic, what are some metrics you guys would pay attention to?
     
    Ikaruga, Sep 27, 2008 IP
  7. Foggy

    Foggy Link and Site Buyer

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    #7
    That's a puzzle that a lot of people would like solved. With flash and AJAX and the decline of page views as a measure of stickiness, things are only getting more complicated. Google Analytics is considered a more reliable measure than most on-site analytics but it isn't infallible. I'd suggest using multiple approaches and even downloading raw logs for an analysis using a something like 123LogAnalyzer.
     
    Foggy, Sep 29, 2008 IP