The temptation of selling one’s site frequently comes up and I’d like to make an argument for why you probably should not sell your site in this environment.
It’s safe to say from a financial perspective, anybody who sold any type of asset from 2008-2011 probably wishes they had held on. Stocks have rebounded by over 130% since the S&P 500 hit 666. Real estate is roaring back in the major cities and is now spreading its fever back into speculative cities such as Las Vegas and Phoenix Even gold, which produces nothing is up over 50% since 2008.
The one thing that hasn’t increased is interest rates. The 10-year bond yield (risk free rate) has fallen to under 1.7%, the best 7-year CDs are at 2%, and money market funds are around 0.2%. With interest rates so low, people have been saying 10+ years that interest rates must go up. Yet, one look at the historical 10-year bond yield chart shows that interest rates have been going down for 30 consecutive years!
Savers and retirees on fixed incomes have really been the victims of such a low interest rate environment. At the end of the day, the value of an asset is a function of its earnings. If your asset’s earnings are on the decline, then the present value of your asset is also in decline.
IN SEARCH FOR YIELD AND INCOME
Back in 2000, it used to only take $500,000 to produce $30,000 in risk free income via a 10-year US Treasury bond. It now takes roughly $1,750,000 to generate the same amount of income! I don’t know about you, but the need to try and accumulate 3X more in assets seems quite daunting.
As a result of such yield compression, investors have turned to buying dividend yielding stocks, higher risk bonds, emerging markets, and real estate again to generate income. What’s more relevant to us is the move by small investors and listed companies alike in buying revenue generating websites.
There is currently a tremendous valuation discount for buying websites. Paying 1-3X annual operating earnings, 1-2X annual revenue, or 3X net profits is the norm. Meanwhile, the earnings multiple of the S&P 500 is now 17.5X. Let’s discuss the reasons why sellers are willing to sell for such low multiples.
UNDERSTANDING WHY SELLERS SELL SO CHEAP
* Dependency on Google. Everybody has been positively or negatively affected by Google if they’ve been around for at least a year. If you derive a majority of your traffic from Google and Google’s algorithms decide they no longer like your site, there goes the majority of traffic and income. There is HUGE paranoia about the overdependency of search engines which I think is overblown. If you rank well with some search terms, you will probably continue to rank well over the long term given you will have more content linking back to such relevant posts. Google has helped way more websites than it has hurt, and there is often a reason or two why a website has been punished. Furthermore, there are many cases where websites have regained their status after cleaning things up.
* Quality of earnings. Private advertising is considered the lowest quality of earnings because there is a risk if you do too much, even if it’s with a client you know or is a product you use, you may get hurt by Google. Private advertising also takes a lot of maintenance and negotiating which isn’t great for those who seek to generate passive income. Once in a while is fine, but every other post is a sure fire way to never grow. Meanwhile, affiliate advertising and your own products are the best form of advertising because they are generally always products you endorse, and they are also links where Google specifically says they are fine. The higher your dependency on direct advertising, the lower the multiple a buyer is willing to pay. I would put a 90% discount on direct advertising income for example.
* Burnout. Given blogging is a highly involved activity, it’s easy to see bloggers burnout after several years. If you’re tired of blogging, and someone dangles six figures or seven figures in front of you, even if it is only 1-2X annual revenue, you might just cash in your chips. Just be careful if blogging is your only income source. Once you sell, you have no income, which means you’ll have a tougher time getting a loan to buy a house, car, or anything you like.
* Belief we can just recreate. It’s easy to believe we can replicate the success of our blogs with a new blog given we have experience. If I have to write as much as I have to recreate the same amount of traffic for the next four years in a row, I’d probably give up early because I didn’t start my blog for money. Everything was new and exciting for the first several years as I made new friends and discovered new plug-ins and tricks of the trade. The initial excitement has worn off, and it really bums me out if the main focus of writing is for money. Some of you might indeed achieve similar or greater success. I just haven’t heard of good examples so far. The greater your blog’s success, the harder it is to replicate.
* Different management quality. The large valuation multiple spread between publicly listed companies and blogs probably has a lot to do with the quality of management e.g. you and me vs. CEOs who have spent decades building and running massive organizations. That’s not to say C-level executives don’t cock up things just as bad as the amateur, it’s just that those with money, the buyers of assets have more faith in some fella with a fancy pedigree than the lot of us.
SELLING YOUR SITE SHORT
Let’s say you’ve been generating a monthly operating income (revenue minus expenses before taxes) of $5,000 a month for the past two years. You see a 70% chance you’ll generate $10,000 a month in two years and a 30% chance of staying the same or declining. Someone who buys their way online offers you a tantalizing $100,000 for your site. Should you take it? Surprisingly, most of the people I’ve talked to say YES! Let me know in the comments if you agree or disagree.
In about two years time, the buyer of the website will have made back all of their money if we assume no growth in earnings. After that, it’s just windfall after monthly windfall as the owner hires some staff writers for 20 articles a month for $1,000 dollars if the owner doesn’t want to do anything. Now imagine if the buyer was actually savvy at optimizing a site? The payback period could be even quicker and much more lucrative.
A $60,000 annual operating income stream is equivalent to $3,500,000 based on a 1.7% risk free yield. If we assume a 3% dividend yield on a stock to value the income stream, we are still talking about a $1 million dollar valuation. Yet here we are, salivating over a $100,000 offer! The valuations are so far apart it makes me want to buy every income generating site around who is willing to sell!
Let’s say you take the $100,000. What are you going to do with it? If you invest the $100,000 in the S&P 500 your total return MIGHT be 10% a year or $10,000 if we assume an 8% growth rate and a 2% market dividend yield. There’s also a chance you might lose money don’t forget. If you put the $100,000 in a 7-year CD at 2%, you’ll only get $2,000 a year. That’s pathetic.
If I had a stable $60,000 a year generating blog, there is no way I would sell the site for less than 10X annual operating earnings, or $600,000 with interest rates so low. With $600,000, I would realistically assume a 4% annual return with some risk, for $24,000 a year. The $36,000 discount is my reward for not having to maintain the site. The thing is, I enjoy writing and interacting with the community so working on my site hardly feels like much work at all.
Now of course if a big company decides to pay me say 8X operating earnings but also keep me on as a salaried employee, that’s a different story. You can make a very good living blogging. You just have to stick things through long enough to see the flowers bloom.
DON’T SELL YOUR SITE IF YOU DON’T HAVE TO!
It’s important not to be tempted with illusory cash in this low interest rate environment. Cash is trash compared to owning income producing assets like real estate. Do the math and think thrice before selling your website. If you are looking to build wealth, half the battle is holding on for a long enough period of time. Keep writing, keep marketing, keep having fun. When it’s time to sell, remember all the hard work you put into your baby and get what your property is really worth.
It’s been around six years since I started Financial Samurai and Yakezie and I’m actually earning a good passive and active income stream online now. The online income stream has allowed me to pursue other more interesting things, such as consulting for various financial tech startups, traveling around the world, and spending more time with family.
I never thought I’d be able to quit my job in 2012 just three years after starting Financial Samurai. But by starting one financial crisis day in 2009, Financial Samurai actually makes more than my entire passive income total that took 15 years to build. If you enjoy writing, creating, connecting with people online, and enjoying more freedom, see how you can set up a WordPress blog in 15 minutes with Bluehost. You never know where the journey will take you in 2015 and beyond!
Updated on 3/2/2015. Financial Samurai receives about 1 million page views a month now and is making more than I made in finance. It’s good to hang on! I’m now consulting for Motif Investing and other affiliate clients. It’s the best of both worlds with double income.
Sam this is a SPECTACULAR article. I think about that all the time. If I sell what will I do with the money. I invest already and 10% of 100000 isn’t going to cut it. Not in NYC. Thanks for the good read.
Don’t sell yourself short Jai. You can buy one half of a parking spot in an OK location w/ $100,000 in NYC!
Sam, Thanks for the timely article. If my site generate $5,000 stable income, I probably wouldn’t sell for $100,000.
I think another problem you can add to the list is the unpredictablility of the monthly earning. Sometime you make a lot, but sometime it’s very little. If you get a big offer during the dry period, it would be a lot more tempting.
I don’t think I would put all my time into a blog if I had to start again. There are easier ways to make money out there especially in the beginning.
True, although this may be a buyer tricking to pick you off during your time of weakness!
I’m with you – $5,000 a month traded for $100,000 isn’t worth it. That’s good money, but probably not game (or life) changing.
I’m perfectly willing to sit on what I’ve got… not that anyone is interested in buying my internet backwater anyway (ha).
Float and drink on that backwater for 3 more years and then start fishing!
I wouldn’t sell for that price. As Retire by 40 said, if they hit you up in a dry month, the the possibility of a sale increases dramatically.
many sell quickly because they simply don’t realize the potential – other possible ways to monetize, possible synergies, etc. the fear of google depends on one’s reliability on it, so a website that generates income from lead generation primarily through word of mouth is likely less concerned. for most however the fear is justified.
holding on too long has its risks, such as those you mention. the drop in rank/traffic is notably the biggest one. not long ago i was offered $40,000 for a niche site I own. i discussed all the reasons why i declined the offer and my future plans for the site. you can read that here: http://www.extramoneyblog.com/sell-my-niche-site/
that said, much of the vision has not panned out the way i envisioned. the income has suffered. can i still get 40k for it? i don’t know. i do know that the earnings are smaller and thus the perceived price given the various multiples people apply. it’s simply not as profitable to the buyer as before.
so in this case perhaps one can argue that maybe you should sell while you can? (of course not knowing the future)
For a niche site, I think the “sell while you can” is a more pertinent strategy because by definition, the site is easier to create. It’s how the Adsense Flippers guys were able to make a good income until the EMD update in the fall of 2013 wiped out a lot of their income. With niche sites, it’s smart to sell while you can as it has a higher risk of getting hammered by search. They’ve now focused on becoming more of a buy sell exchange which is smart.
I just don’t see very many Prime sites ever get knocked if they are continuously writing great content.
Sam, since my site has my name in the title, I would be loathe to sell my site. After all, I don’t want to give control of my brand over to someone else. For burn out, there are other options such as buying content and outsourcing some site management.
You make a good point Barbara. For those who WANT to build a site and sell, then it’s probably best not to put your own name as your URL and vice versa for those who want to hold on forever.
This is a really interesting topic Sam. I am lightyears away from being able to sell my site, but it is interesting to think about nonetheless. I would be happy to make $50 from my site at this point. :)
First $1 buck, then 1 meeleon and then the world!
$5,000/month for $100,000 doesn’t seem like a good deal – unless you’re burned out or otherwise desperate to dump the site. Maybe after I hit financial independence, I’ll sell my site. Who knows. Although I can’t imagine it being worth that much.
From a buyer’s perspective, maybe they pay so low because they are just getting the site and not the personality. For example, I could buy Financial Samurai. But I would have a hard time duplicating Sam’s writing style. I imagine that over time the readers would drift away and the revenue would go down because part of the reason they keep visiting is for the writing.
Some super popular blogs like GRS seem to be immune to this effect, but it’s not like the new owners are going to publicly claim that (for example) that 20% of their traffic disappeared after JD stopped writing.
Given most established sites have search as their main source of traffic, you don’t need to replicate the writer’s style. You’re buying the portfolio work that is ranking well already.
How come we don’t see more people trying to buy sites for $30, $50, or even $100,000? I feel like there should be many others who see the potential (and have the knowledge) in these sites and should push the offers up!
It’s the case of taking money to make money.
I’m sure there are such transactions, but by larger corporations instead of individuals.
I wouldn’t give up $5000/mo for $100k unless I really wanted out of the blogging world due to burnout or other life factors.
That said, 2-3x yearly earnings is usually what I hear thrown out as a good return for selling your website. If that’s the going rate around the internet, you’re probably not going to get very far if you hold out for 6x if you’re looking to sell.
I guess if you’re not actively looking to sell and can hold out its fine, but if you’re someone really looking to sell and get on to the next thing you’re probably not going to be afforded that luxury.
Hard to say once that $100,000 is dangling in front of your face!
True…I wouldn’t mind the opportunity to find out how I’d really react :)
Not that anyone has offered but I’ve thought about the prospect of selling my food blog, If You Can Read, You Can Cook. What confuses confuses me about the question of what assets come with the sale. The cookbooks of recipes from the site? The cookbook of separate recipes but the same name as the site? The line of taco seasonings I sell through the site?
Good question! Not sure. The buyer of the blog owns all the content that is on the blog and any revenue it is able to generate. But, as the creator of the recipes, I have to imagine you get to own such recipes and continue to use them for whatever. You’re giving the buyer rights to use your recipes. Tough one to answer!
I think some people sell because they just want to cash out! If I could sell for a particular price, I would just just start over again. Besides, my name is on it and that requires me to always be a attached!
I like this perspective on valuation. When comparing to money that can be earned in savings accounts, it would certainly take significant capital to earn what many bloggers could be making. Of course, most blogging income isn’t truly passive. But if a blog owner truly enjoys writing, the comparison is a great one.
I saw this issue differently until very recently, but I now think that most people undervalue their sites. That applies to people who sell based on the specifics in the example you shared as well.
I’m thinking burnout is probably a bigger reason than we think for selling. Instead of burning out and watching the blog go to 0, sell and use the money for something else. Not a bad reason to sell at all.
I would tend to agree with Sam on this one; and not for emotional reasons this time :). A blog is an asset and it, at least potentially, is a business. Like with many other things (writing a kick-ass article, for instance) the difference between ‘good’ and ‘awesome’ is usually about 10% more effort. In other words, revving up the effort a bit can make your blog a much more profitable business. Sell only when you want out – not because you think you can’t do any better.
‘Cause we all can!
Good attitude! It is often that extra 10% that is so hard after we’ve already given 100%.
Careful about burnout!
I definitely wouldn’t sell for that price. Unfortunately, I’m not sure we’ll return to the days of even sites going for 3-5 times earnings anytime soon. The whole Panda/Penguin thing freaked a lot of the big buyers out, from what I’ve heard. I think I would consider selling if I got an offer in the 5-8x range.
Yeah, it’s too bad there has been so much action with prior Panda/Penguin updates. Things will start settling down over time as updates become smaller. Also, webmasters are also being more cautious as well.
I agree with you Sam, buyers will offer you tempting amount most often when your defenses are down and you might see the offer more tempting than it is, but never give in especially if your blog is your main source of income. Long term is always better than short term and there are other ways to overcome a burnt out.
Nice article Sam. I considered selling quite recently when that $50,000 offer came along. Luckily though, it fizzled out. I think I could grow my site to be pretty huge soon and the payback will be much sweeter when it’s coming in passively each month! :)
I hope you do Derek!
Selling is definitely premature for me, as I just hit my 1 year anniversary this week. $100k would be WAY OVERPAYING for my site at the moment, though. I do want to give it 3 – 4 years and see what I can make happen. I love doing budgets for people, and the community is pretty awesome, so I would be hard-pressed to sell, unless the offer was a LOT of dough. But for me right now, $100k would be enough.
Would 100k be enough if you made. $5,000 a month in operating income?
Nope, it wouldn’t. Basic math says just hanging around for a few years would pay off more than that, plus the value of the site would be increasing all the while (assuming you didn’t let it go to crap). Selling would only happen if life circumstances literally prevented me from writing ANYTHING for the site.
This is a very interesting topic for me since I’ve noticed a lot of sites come and go in the last two years. Unfortunately $100K for my site right now would be a fantastic offer, so I’d be very tempted!
I agree that if I was pulling in a consistent $5K per month, then $100K would not make much sense. That would be like buying a stock with a PE Ratio of 1.7 – a hell of deal for the buyer! As the seller, I’d want to treat my company (i.e. site) like any stock and try to preserve some cost integrity by getting that ratio up to 5 to 10 (or more if possible)!
Buy, build, and hold! Just like so many other things. But yes, sell before you burn out and values plummet.
[…] Should I Sell My Website? Probably Not and Here’s Why – At some point, nearly every blog owner has considered selling their blog. But the Financial Samurai shares some good advice on why you should hold off in this intriguing Yakezie post. […]
A lot of good insights and analysis in this post. Gosh that’s a crazy true example on the treasury bonds. I can see the temptation to sell especially due to burnout but taking a break is always worth a try first before making such a big decision.
Yeah, it’s a shame when someone just shuts down completely instead of take a break for a while. No shame in stepping away and relaxing and coming back even a month from now.
Interesting analysis – I’ll settle for making a steady $5/month before I shoot for $5k!!! But I agree with your premise – why sell when the seller could just put it on autopilot (if nothing more) and generate a better return? Great article!
AB
I recently found out that you could sell your website and definitely need to get spun up on the industry. I have absolutely no background knowledge on buying or selling websites. I completely understand where you’re coming from in regards to burning out especially around summer time when it’s nice out.
I am miles, miles, and miles away from this even being a question but this is great for perspective building. It is easy to get distracted by shiny numbers that look huge in the moment but actually might not be best long term plan – especially, like you say – if you make your living from blogging full-time.
[…] trailing revenue is a prime example of hallelujah money in the online publishing space!Consider delaying the sale of your web property for as long as possible. Think about how much wealth our grandparents made buying property and […]