“I didn’t want ‘my baby’ to shrivel up and die but also knew that my heart was tugging me in a new direction,” says Tara Reed about her decision to sell www.artlicensinginfo.com, the website she’d been building for seven years. “I was already pretty overloaded with creating my own art for licensing and teaching about it. When I decided I wanted to shift my focus to helping people navigate the journey of a loved one with dementia and Alzheimer’s, I knew something had to give.”
Reed sold the site to her clients, John Mavrakis and Melissa Schulz. The pair was looking to expand their offerings and Reed’s entry-level content for new artists was just what they were looking for.
“John and Melissa were doing high end consulting and didn’t have any options for newbies or lower cost options in the market. I was able to hand that to them so they had a ready built audience, lots of products and good SEO,” Reed says.
Instead of letting a site she’d poured her expertise into for so many years stagnate or disappear, Reed was able to cash out when she was ready to move on, and the site gave Mavrakis and Shulz the opportunity to take their business in a new direction without starting from scratch. Selling or buying a website can be a beneficial business opportunity, but it’s one that we often assume is too complicated or expensive to consider.
Mark Daoust, the founder of Quiet Light Brokerage, a firm that helps people buy and sell websites, explains the four factors that make a website valuable: growth, risk, verifiability and transferability. These are factors that website owners can work to improve while getting their site ready to sell and factors that potential buyers should carefully consider before making an offer.
When looking at the value of a website Daoust says it’s first important to consider its growth prospects. He’s careful to use the word “prospects” and not “potential.”
“Potential is a bad word,” Daoust explains. “We don’t use that word because everybody says, ‘My website has tons of potential. All it needs is,’ and then fill in the blank. A $100,000 marketing budget or traffic, right?”
“We use ‘growth prospects,’ which is basically how clear or how easy will it be for somebody to grow the business beyond what it is right now. It doesn’t have to be just exploding growth. 10 percent growth, 15 percent growth, those things are really good signs of growth prospects,” he said.
For business strategist Tara Gentile, growth prospects were key in her decision to buy a website in 2009. Having left her job at Borders in 2009, Gentile got a taste of website building when she started HandmadeInPA.net.
“It was very niche, but it was successful,” Gentile says of the HandmadeInPA site.
One day she received an email from a stranger.
“She asked me where I lived,” Gentile recalls. “The banner image on HandmadeinPA was a photo of a street three blocks away from me. It turned out it was her street!”
When the two began talking, the neighbor explained that she owned a lifestyle website called Scoutie Girl but was ready to move on.
“We met for coffee a few times,” Gentile says. “She could tell that I wanted to make a name for myself and she wanted to get out and do fabric design. She offered to sell the site to me because she wanted someone who would take care of it.”
Gentile sold HandmadeinPa and took her up on the offer because she could see Scoutie Girl’s growth prospects.
“I knew it was the perfect opportunity. It had enough traction and I could grow it,” she explains.” She worked on the site for four years increasing the traffic and earnings substantially, and eventually sold Scoutie Girl in 2013 for significantly more money than she’d bought it for.
According to Daoust, risk is another factor to consider when determining whether a website has value.
“Risk is any element of your business, which could destroy or significantly hurt the business quickly,” he explains. “We look for things such as single points of failure. These are the reliance on Google rankings would be a single point of failure. The other element that we would look at would be dependency. If I started a blog completely revolving around Twitter and how to do all in Twitter, if Twitter all of a sudden becomes a nonexistent entity then I really don’t have much to go on … Lack of barriers to entry, this is something that we look at as well. How easy would it be to replicate what you built? The last thing would be key man risk (the effect of losing an important member of the team).”
Daoust points out that, if your business currently has some of these risk factors, it’s still possible to put contingency plans in place to reduce their likelihood of actually hurting the website.
Verifiability is a third key factor. Daoust explains that verifiability is “simply keeping good records, having a really good financial statements, having your analytics set up properly.”
He advises business owners to “keep contracts on record. Keep documents on record. … If it’s messy, let’s say that you have a business bank account but that business bank account gets used for your trips to lunch and for that family vacation or to fill up your car with gas or to help launch another website that you’re playing with.
“All of these things create a muddiness with your financial records and make it much harder for a buyer to really assess how strong is this business, how good is this business. They’ll take you at your word only so far,” Daoust said.
For Reed, having everything documented meant that getting more cash in the sale than she would have otherwise.
“A key factor in being able to sell an online business is having documented systems in place. If how everything works is in your head, the value will be much less,” Reed says. “I have kept written records of how I did things — from creating and promoting blog posts and calls to newsletters, etc. I was able to hand them a user’s manual, basically — so they could figure it out and then adjust where they wanted.”
Transferability is the final factor in determining a website’s value. How smoothly can a new owner take control of a site without jeopardizing the trust of the readership?
Reed says her site was very tied to her personality, which meant the new owners would need to do significant work building a new brand identity. It also meant that she couldn’t ask a premium sales price.
“Since the site was so associated with me and my name, we used a lower multiplier. They have significant work to do to rebrand and build the awareness that I don’t still own it,” Reed explains.
Daoust finds that this is often the case when trying to sell a blog.
“I often advise people [who] own blogs: If you’re looking to possibly sell a blog one, two, three years down the road, start to work yourself out of the picture gradually to see how the blog reacts to that, how your readers react to that,” Daoust says. “Start bringing other people into the blog and see how different personalities can influence a blog. It should, in most cases, hum along just fine. When you do that, then you can gradually work yourself out in a way that [the blog] no longer [relies on just you].”
Daoust adds: “What some people find when they do this is they don’t want to sell because now they aren’t working on the blog anymore.”
Gentile says that thinking about how you might sell your website can actually be good for the health of your business — even if you never plan to sell.
“Having an exit strategy is a way to make better decisions period,” Gentile says.
Assigning a value to a website is typically done with an earnings multiplier. The annual profits of the company are multiplied by a factor to arrive at a selling price. The multiplier might be anywhere from 2 to 4.5, depending on circumstances, including how the site fares with each of the four factors, as well as the state of the economy.
When it comes time to actually transfer the funds from the seller to the buyer, it’s best to set up an escrow account. This is a temporary holding account that locks the funds down, protecting them until the seller has completed the transfer to the buyer. Although you can work through a brokerage like Daoust’s Quiet Light, you also may wish to find a buyer on your own. Reed sold to current clients and Gentile found a buyer by posting that the site was for sale on her Facebook page.
For Gentile, the experience of buying and selling a website was a positive one.
“Buying a website is an opportunity that people don’t know is available to them,” she says. “There’s a lot of talk now about bootstrapping a business and being lean and mean, but it’s OK to invest in yourself right from the beginning.”
“I think people would be shocked at how little it takes for a site to be valuable. Keep in mind that it’s possible to sell your site,” Gentile adds. “Weigh what it’s going to take to sell it in both time and energy. Your site deserves to go on. People have such shame around quitting things that they care about. Don’t kill it. Set it up for its next opportunity.