How to Value a Blog for Sale
The common misconception is that a blog is based on a multiple of monthly earnings. Technically this is correct. However, a blog is a business that generates revenue and the traditional valuation method of a multiple of yearly earnings is the accepted valuation methodology from buyers when buying a blog. In this article we will explore what yearly multiple your blog might fetch and what factors increase or decrease that valuation.
What makes blogs valuable?
What makes a blog valuable is it’s ability for a buyer to make a return on investment. Buyers are looking for their money back (the amount they bought your blog for) in the shortest time possible. The challenge that we face when valuing blogs is blog owners think that just because they have invested say $50,000 into developing their blog, then it is valued at that amount they invested, aka $50,000.
The true value of that blog is its ability to produce profit. Let’s take the blog that had $50,000 invested into it. That blog in the last 12 months made $10,000 in profit. The value of that blog is a multiple of that profit. All assets (domain, design, traffic, list) combine to generate profit. It is the profit that gets valued, not the assets.
How website buyers perceive value?
The price a buyer pays will come down to the amount of risk in the investment. The higher the risk the lower the price paid and vice versa. The following factors will decrease the risk to a buyer when looking at buying your blog.
- Consistent stable profit
- Growing website
- Operational systems and processes
- Diversified income streams
- Diverse traffic sources
- Unique market positioning
- Great brand and following
- Low reliance on the blog owner as the brand
Who will likely buy my blog?
There are two types of buyers that will likely buy your blog if you are looking to sell
- Corporate Joe – This is a buyer that has worked a job most of their life and have a decent amount of savings and are looking to buy their first online business. They generally pay at market value because they are buying the entrepreneurial skillset that you had to develop the blog. They are a little less educated and require more training time after the sale.
- Internet Sam – This is a buyer that already owns other blogs or Internet businesses and wants to add another revenue stream to their income. They generally pay slightly below market value because they are looking for a good deal.
Traditional Valuation Methods
The following methods make up the standard valuation methodologies used by accountants when valuing a business.
- Asset Methodology – What the blog is worth if you sold it without revenue
- Multiple Earnings Methodology – a multiple of the past earnings
- Comparable Sales Methodology – what similar blogs have sold for
- Future Earnings Methodology– a projection of the future earnings of the business
Blog Valuation Methods
The generally accepted valuation method that is used to value blogs is a multiple of earnings (that is net profit of the business which is after expenses and before taxes). How this method works is the net profit of a business is determined for the last 12 months of operations. Then a multiple of earnings is applied to that profit (generally between 1.5 and 3 times) what that multiple is dependent on a number of factors that alter the valuation of the business. Let’s use the example of Jenny below to explain this.
Let’s use Jenny’s Blog as an example
Jenny (hypothetical real world example) has a blog called Healthy Habits Online. The blog is 5 years old and what started out, as a hobby is now a thriving successful business. The following financials are relevant to Jennys blog.
- Year 1– Sales of $12,234 and profit of $1,432
- Year 2– Sales of $29,631 and profit of $2,454
- Year 3– Sales of $105,698 and profit of $33,987
- Year 4– Sales of $150,128 and profit of $98,172
Jenny’s blog is reliant on a combination of traffic sources, namely 13% direct, 37% search, 50% referral websites. She sells advertising space on the website and also makes money from affiliate marketing.
Now because of the growth of the business, the diversification of traffic sources and stability of the revenue the multiple that would be applied to Jenny’s blog comes out at 2.8X. This means that his business is worth $274,881 ($98,172 multiplied by 2.8 = $274,881)
Where does your blog sit?
Figure 1 – past 3 years sales data
Each year we produce a website valuation report that analyses the years publically available transaction data (online businesses that have sold). We define blogs in the advertising category because that is the main monetization strategy that most blogs use. From the data you can see that the average selling multiple for advertising sites is decreasing over time. The sales data from 2014 shows that the average multiple paid was 1.87 times earnings. This data is sourced from 28 blog sales.
What decreases value?
Increased perceived risk generally decreases the valuation of a blog. The following factors buyers perceive to increase the risk of purchasing a blog.
- Traffic – a high reliance on SEO traffic, especially link building using private blog networks or shady link building tactics decreases the value of your site
- Revenue – a high reliance on one revenue source decreases the value of the site. For example if you use Google AdSense as your monetization strategy and you get banned from AdSense it is very hard to recover. Multiple income streams increase the value of your blog.
- Money Collection – one case where a client couldn’t transfer their merchant processor selling digital products on their blog because they chose the wrong solution and couldn’t transfer the account to a new LLC. This is also the case with recurring subscriptions on Paypal, which also can’t be transferred to another account.
- Age – An old website has a high value. Generally a site that is at least 4 years old has a decent enough history to prove stability.
Don’t use automated tools
While all of these valuation methods can be useful in specific circumstances, there are some tools that should never be used in the valuation of a website. Notably, these include automated calculators or other automated valuation tools that are typically free, easy to use, and do not require much, if any, work on your part. The problem with attempting to generate value from automated systems such as these is that these numbers rarely, if ever, correspond to actual value. Instead, they generate what are typically arbitrary numbers that are not useful for you or a potential buyer. Let’s use the following tools to calculate the value of www.facebook.com.
- Webvaluecheck.com – $3.2 B
- Worthofweb.com – $78 B
- Hypestat.com – $109 B
At the date of this report, the true market value of Facebook is $232 billion. A long way away from the automated tools predictions.
In conclusion as a blog owner you want to focus on generating as much profit as possible through your blog to achieve the highest valuation possible.
Below are a handful of resources that I suggest checking out if you are interested in learning about the valuation of blogs.