Question on Earnings Multiples

Bobbles · May 15, 2009

I am brand new to Domaining - I am still reading as much as possible about it before actually doing it.

I have seen several domains offered on this site where the suggested price is a tiny multiple of the stated earnings.

e.g. one chap recently asked for about £450 for a site
"earning £300+ per annum with zero input".
Surely if a site is parked with adverts gaining a passive revenue, a much higher multiple is realistic, say 10 times. A website earning £300 per year which sells for £3,000 is equivalent to 10% interest - where else can you get that rate? No doubt I have got totally the wrong idea, but can someone explain, Please?
Bob

Edwin · May 15, 2009

It's almost impossible to get 10x annual multiples for websites. Problem is that Google might dump the site tomorrow, and then the value drops to zero. But of course, the older the site, the more backlinks and diversified sources of traffic, the higher the multiple can go...

Quite often too, the sites you see for sale are what I would call "junk" in that it's a bit of content thrown up just to put Adsense on, or they're in an industry that's seen as shady (such as file hosting sites that accept basically any uploads, or proxy list sites) and again there the multiple will be slashed to ribbons because of the risks (legal risk in the case of the shady industries, revenue loss risk in the case of the made-for-adsense sites). I've seen people try and fail to get 6 months revenue for a proxy site, for example.

The flipside of all this is that the people sitting on the really old, really well established, really popular sites will almost never sell, simply because the multiples in general are so low that nobody's going to be willing to reach high enough to justify them selling. That's when your discussion of the 10% annual return comes in...

crabfoot · May 16, 2009

Uncle Edwin never talks rubbish - you should be grateful for his advice, that would cost PLENTY if you got it elsewhere.

My two pennyworth is that, if you have a good idea, and put up a site that is making money, you should be able to realise a price of 15 months income with proof of the income from the first 3 months. So if it makes $50 in the first 3 months, you can try to sell it for $250 and not be ashamed to take the money.

But if you are doing it right, that site is worth much more ...