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What makes for an accurate valuation?


Question:

The way I'm thinking is that the price is determined not just by how much a site is making money, but also how stable it is. And the amount of traffic is usually a good measure of how stable a site is.

Put it this way, a site making a lot of money from a lot of traffic usually would be more expensive than a site making a lot of money from little traffic.

Same goes for the other optional items - while say, having 20 DMOZ listings doesn't actually make you any money, it says something about the site itself, how old and established and unique it is. And with old and established sites, you just cannot go wrong, which is why I think these old and established sites usually fetch much higher multiples.

There is also the idea of potential. Generally, sites making a lot of money from a lot of traffic also have a lot more potential to make even more money than a site with little traffic. Sites with little traffic and lots of earnings usually come off as "maxed out".

 

Answer:

You know, making $x from a lot of traffic should be better than making $x with a little traffic. But that's just not showing in the stats. I tried correlating prices vs number of DMOZ listings, number of pages indexed in Goog, number of IBLs from external sites, number of .gov/.edu links, traffic etc but no big pattern is emerging ...though it logically should. But then I've been learning a lot from these stats. You could have knocked me down with a feather when I saw the multiple forums were going for, it was completely unexpected. On several occasions I did not believe the results and took new samples to double check.

With respect site with little traffic and lots of earnings being "maxed out": Maybe it's being balanced out by some people seeing them as maxed out on eCPM but ideal opportunities to do some SEO/link building/PPC to raise the traffic.

Thanks for the question.

 

Question:

I just tried inputing some the data into the evaluation tool, changing some figures around, and I'm not sure exactly how does the optional data change anything.

Answer:

For the moment most of the optional data is not used in the valuation. Data provided here will trigger specific text: "The high level of skill required to run your site will result in less competition among buyers and is likely push the price down." All the explanatory text is considered part and parcel of the valuation. As further intelligence data is collected from actual sales, I expect the optional information to come into play some more in the calculation of the value itself.
 

Question:

If the buyer sees some potential in a site that nobody else sees won't he be willing to pay a higher price? How is that included in the value here?

Answer:

You're right in that a buyer may be willing to pay a premium for a certain opportunity he recognizes. But he is unlikely to disclose this opportunity to competing buyers and would bid at a level to just beat the competition. The seller can capitalize on buyers like this by taking a chance on a higher BIN in the hope that just such a buyer would close the auction at BIN.

 

Question:

Why sites that are not making a profit still sell for more than $0?

Answer:

Good question. The value of past earnings extends only to this: They provide a guide to future earnings. It's only the future profits that buyers are concerned with. When a site has not been making any profit it is difficult to convince buyers with cash flow projections. As a result the site doesn't reach the price it otherwise could reach.

 

Question:

Do you not think that the number of hours to run a site affects the value?

Answer:

If a value is deducted from earnings for the time cost then this site can be equalized with hands-free sites and treated on par with them for value calculations.

The cost of the labor to run the site is just another cost - like hosting fees or forum software license. In most cases the work can be outsourced.