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Old 09-13-2005, 09:16 PM   #1
Rivux
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Default The value of members

Im interested in peoples feedback for when they are buying or selling a site, what kind of value do they put on the amount of members that site has? Also, if a site has a newsletter, what kind of value does that add to a site?

If a website generates say $1,000 a year in revenue but they have 15k members and a newsletter list of 4k, that has to add value beyond just the revenue. Does anyone use any type of formula for this extra value, or any guidelines they generally use?
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Old 09-14-2005, 02:41 PM   #2
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The amount of registered users on a site doesn't necessarily add to a higher selling price (Unless you're ebay with 2.6 billion burning a hole in your pocket for VoiP company with minimal revenue).

Buyers may look at that as a plus, but it doesn't mean much if you have 50,000 members but low monthly uniques or impressions.

It's all about how much profit can be generated with advertising or marketing to the viewers coming to the site. Providing it's a double opt-in and current mailing list that has been pruned that can add some value.

If you're averaging $1k a year, regarless of member stats or newletter stats, you're likely to only get a offer of $1k give or take a few hundred depending other other factors.

The current profit, quality, category, and unique content of your site will be primary factors.
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Old 09-16-2005, 12:48 PM   #3
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Thanks for the feedback fusionhosting, its interesting how you give them little value but others ive spoken to will put a value of $0.50 to $1.50 per member. I think its the same as say a dmoz listing where some people will pay $500-$700 for a dmoz listed site even if it has zero income or traffic. But others give absolutely zero extra value to a dmoz listed site.
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Old 09-16-2005, 01:38 PM   #4
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A VERY interesting topic GEEK Rivux

A few quick thoughts:

1. I'm not surprised that you have recieved mixed thoughts on this issue. At the end of the day, it's between the seller and buyer and a lot of folks offer advice which is well intended but just how many deals have they been involved with and at what price points?

2. I generally agree with the comments of my fellow geek fusionhosting but lets take one aspect of your question, pretend I'm the buyer, and REALLY get serious.

Seller says: I'm also including my email list of 4K or 10K or 300K.

Buyer performs due dilligence to see if their is any value in the list and or to determine if in fact it's a contingent liability which means new owner sends email blast, host gets numerous complaints, site is shut down and black listed.

Begin due dillegence:

- Double opt in (ditto to fh)
- CAN SPAM compliant if commercial in nature
- Frequency of mailings
- Review of content in the emails for the last 12 months
- Buyer silently joins list to see
- Buyer searches IA for sub form and opt out
- Buyer searches "black lists" and SE for complaints
- Buyer examines the list for free email domains verses ISP and or domain name emails
- Buyer asks and verifies source of subs and related TOS. Direct subs or passed around lists. Exactly WHAT motivated folks to opt in which must be present on the site which is for sale?
Edit: - Buyer performs a historical review of the list. Issues that may or may not send up red flags are: the age of the list, sellers maintenance, purging of bounces, opt out is automatic or manuall, computation of average number of subs per month over a given period of time, and the quality and reputation of the script which handles this along with licensing issues with respect to the script.

Conclusions: Iv'e seen this issue actually dilute the sale since a smart buyer performs the due dillegence, does not recieve "make sence" answers and or facts, and then starts to think about the rest of the deal and how many other issues are questionable. It's normally a deal breaker and the louder the "pitch" for the list, the more I investigate.

Iv'e also seen lists which are in fact legit, compliant, have already been monetized, pass the due dillegence exam, and thus they added lots of value to the deal.

Edit: I didn't cover "Membership" deals and the due dillegence or liability of same. To some exstent your due dillegence is driven by the specific type of membership. Again, FH hit the nail on the head with his make sence thoughts but I would be happy to post more on this issue if you tell me the specific type of membership we are discussing. Forums, chat, hot or not, blog, CMS, you name it and we can share thoughts.

HTH

Last edited by Steve_S; 09-16-2005 at 02:00 PM.
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Old 09-16-2005, 02:33 PM   #5
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Great post Steve, as usual. You brought up some points about the email list which I hadnt thought of before and is information that Im going to make sure I ask for or supply when dealing with this type of sale.

As for the member type, I would be interested in discussing specifically career/job site memberships. The numbers I quoted above were from discussions with some recruiters and job site owners and what they felt an established member database was worth to them. Ive been part of companies in the past that have sold career sites and a large portion of the sale price was based on the membership, which is something I assumed was normal for all types of sites. But from this discussion so far, it seems that some niches don't value members in the same way.
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Old 09-16-2005, 03:17 PM   #6
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Quote:
Originally posted by Rivux
Thanks for the feedback fusionhosting, its interesting how you give them little value but others ive spoken to will put a value of $0.50 to $1.50 per member. I think its the same as say a dmoz listing where some people will pay $500-$700 for a dmoz listed site even if it has zero income or traffic. But others give absolutely zero extra value to a dmoz listed site.
Without knowing the specifics it's tough to exactly say how the site may be valued, and it's going to vary greatly between buyers as many have their own preference for due diligence and valuation of sites.

Personally I've bought sites between $200-$50,000 before.

I'm probably biased about mailing lists as the sites I had purchased on the top end for around $50k have included lists as high as 100,000 double opt-in subscribers but other than driving a good amount of traffic back to the site, they performed below expectations for direct advertising income.

Which is why I personally would base my valuation on a list based on it's current and past income and many of the great line items that Steve posted when performing due diligence.

Other buyers may just offer a flat fee per member, as they're figuring in what their cost of acquisition per member is, and how much revenue they can bring in per subscriber within a year or so to recoup the investment. In fact there are many individuals or companies willing to buy just your mailing list.

You also mention another great example. Valueing a site higher due to a DMOZ listing. Same goes for listings in msn, yahoo, google, and your google PR ratings. Some buyers place a higher value for an established site with things like a DMOZ listing which they believe enhances a sites SEO, and drives traffic. So even if that site has no traffic, they can build a new site on that domain or redirect traffic and extract value from that.

Personally, I don't see significant traffic from my sites listed in DMOZ, nor do I feel it significantly affects my sites' SEO vs quality backlinks on other established sites. Plus there's no guarantee that your site will not be de-listed from DMOZ either.

Overall, if I'm not buying a site primarily for it's assets, I feel that it's value will be reflected in it's revenue if it's been properly optimized by it's owner.

Edit:

Just saw your reply.

For a Career/Job category site, I would feel a higher valuation would be justified as that is a hot category and cost to acquire members or subscribers for a mailing list can be higher than other categories of websites where they're generally easier and cheaper.

Last edited by fusionhosting; 09-16-2005 at 03:29 PM.
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Old 09-16-2005, 08:43 PM   #7
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Quote:
Originally posted by Rivux
... As for the member type, I would be interested in discussing specifically career/job site memberships. The numbers I quoted above were from discussions with some recruiters and job site owners and what they felt an established member database was worth to them. Ive been part of companies in the past that have sold career sites and a large portion of the sale price was based on the membership, which is something I assumed was normal for all types of sites. But from this discussion so far, it seems that some niches don't value members in the same way.
1. I agree with smart geek FH about this type of site.

2. The additional value (beyond RPV) in members definetly does not apply to all types of sites. For example, lets look at Forums: full of dormant members, sometimes the owner trades memberships and posts with other Forums which is not organic and of little value if any value long term, sometimes the seller manipulates the membership numbers to pump the sale, and in the case of Forums, non members/lurkers generate revenue for the seller.

3. On the specific type of sites you mentioned: yep, like FH said, the high end of the scale, a rather steep barrier of entry/acquisition cost, supported by a site with quality content/listings which is original and not stolen so if it pases the due dillegence test then it in fact does increase the value above and beyond the rather typicall annual pre tax net times 1 or 2.

4. Due Dilligence from the buyer:

- TOS for membership and can I monetize and or cross promote under these terms
- The script that runs the joint Can I use Admin to see frequency of visits from a given number of members.
- If the mailings to members promote content on the site, do I see a "spike" in real traffic from these mailings.
- Natch, I'm going to silently sub to the membership and see what happens.
- I'm going to spend time in G (including Newsgroups), IA, metacrawler.com etc and see if I can independently verify a normal growth pattern and the longer the site has been on line (we start at over 2 years) the more value I'm going to place in certain parts of the deal and the more "comfort" level I will have.
- I will definetly place Alexa,ODP (cough), and PR at the very bottom of my list. These metrics are easily manipulated, and in a real deal they just normally snap into place. If one metrics like Alexa is way better than the real traffic and source of same annalysis from real logs, then we have fraud and thats a deal breaker and quite common in smaller deals.
- Their has to be some demonstrated and legit revenue generated from the sellers membership traffic. As a buyer, I may see much more revenue potential than the seller does and those are the kind of deals a lot of folks like me like very much
- Income that a seller may state is often false, inflated, understated, overstatred, fraudulent, or they keep lousy records. Their are numerous cross checks on this. Just a few: deposit slips, copy of checks, making sure I'm viewing a "revenue report" which only includes numbers for the site I'm buying, certified copys of tax returns with the SS number redacted, copy of the refund check from the IRS or the money due check to the IRS, and a few more things which my tired old brain can't remeber.
- And many of the procedures I mentioned in my first post in this thread.

<wew>

HTH

Last edited by Steve_S; 09-16-2005 at 08:43 PM.
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Old 09-16-2005, 09:15 PM   #8
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After reading your post several times Steve, it became clear to me how much the legitimacy of a member makes up the value you assign to that member and the amount of work you put into researching a site. As an aside, I think its unfortunate that we have to spend so much time making sure we aren't being cheated when buying websites, I agree with all your points though, its important to do your homework.

If we set aside legitimacy for a moment and assume the site is well known and has a good reputation within the industry. What other factors do you look at when acquiring a site with a member base? Do you request (or prefer) sites that can provide demographic information either in general or for each user? Is this something that adds value to you?

For career sites its important to look at resumes and jobs posted since having a member is useless unless the actually post their resume or a job. But that is industry specific and I am interested in some comments from people in what kind of general information they look for when buying a member based site. How does activity and freshness of the database factor into your value? With a forum for example, how much more is someone who posts 10 times a week worth compared to someone who posts twice a week? Do you guys do this kind of precise member value calculations when purchasing a site, or supply it when selling a site?

Edit: Thought I would add why Ive been thinking about this topic to maybe give it some context. A company that I do consulting work for recently acquired a competitor. A good portion of my work prior to the sale was coming up with a value for the company, and though Ive done this process on a number of occasions with different companies I am always looking for new ways to view and value what a member is worth. Though revenue/costs etc are a big part of a sale price, I leave most of that up to the accountants to worry about . I prefer to focus on more of the intangible web related items and trying to find the best way to define and value those is what I get the most enjoyment out of (yes im a geek lol)

Last edited by Rivux; 09-16-2005 at 09:48 PM.
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Old 09-17-2005, 01:07 PM   #9
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WOW! More thought provoking questions. This thread should definetly go in the Archives. Great stuff

Assumptions: We are talking about mid 5 figure or 6 figure deals for developed sites. We have placed the "due dilligence" issues off to the side with the assumptions that the basic numbers and data are valid. We are dealing with known sites which in fact have a "brand" and occupy a leadership position in a given niche. I'm not a CPA "bean counter"

My thoughts in no special order:

1. This is not a scientific calculation. Inside every one of these deals you will find a monetary payment for "good will" which often relates to just how anxious a given buyer is to enter a given niche, the synergy that a given property may provide their current portfollio of services and or properties, the current state of the net economy, the cost to the buyer if they were to attempt to start from a zero base and hope to reach the same level as the site for sale, and a subjective calculation down stream (say 5 years) as to the monetary impact that a given property may provide the buyers current holdings and anticipated holdings.

2. As smart geek FH pointed out, you need specific cases and details on a specific site to really drill down further but the principals which all of us are talking about have great value. The best I can do is talk about the public stuff you can see about a given firm and hopefully this will help illustrate some of my subjective thoughts:

Carefully study the acquasitions of: http://www.inetinteractive.com/

It's reasonable to assume that early in the acquasition phase of inet they would infact pay more for "good will" than they would when their portfollio was already filled with sites. Along comes a new firm who wants to acquire a similar niche, and they pay more for "good will".

3. The membership issue with respect to Forums: I think it's a secondary consideration and I would never use it as a primary metrix. We start with and pay attention to uniques, pageviews, and a RPV calculation and a multiyear pre tax net revenue average. Why? Lurkers (non members) click banners and join your advertisers programs, lurkers, generate PageViews, lurkers spread the word to others. Quality Communities in a desirable niche normally produce this stat: only about 1 out of 8 uniques ever join and post. I see no benifit in drilling down to a given member who posts a lot verses another type of member and or lurker. They all generate uniques and page views which equates to RPV. I just lump them together when I try and compute the Communities "sticky factor" which starts with the average number of PageViews a given unique generates. Quality Communities in a desirable niche generate an average of about 12 pageviews per unique. Please remember I have my buyers hat on when you read my thoughts.

4. The membership issue with respect to the career/job sites and many other types of desirable niches including those very very very rare Quality Forums:

My comments could be taken as "harsh" and or insulting. Thats not my intent. This is a brass tacks pragmatic evaluation and I'm NOT referring to "you" or anyone else who cares to read this thread. My appolagies in advance if you find my comments insulting

a. ALL active members have what I call a "usefull life" <gulp> They join and are active and then they go away for perfectly understandable reasons. They stop generating uniques and pageviews. They still spread the word and thus provide viral growth and enhance the "brand", and produce new active members which some would say, replace them.

b. Given the transitional/temp nature of active members, it makes using them as a primary metrix for a sites value of questionable value. On the other hand, if I given site is able to effectively sustain the acqusitioin of new active members then you have value but IMHO, it's not in the members cat but goes back to a reasonable growth pattern which is reflected in a multi year evaluation of uniques and page views. <wew>

HTH
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