Many buyers who do not have experience with domain appraisals often do not understand the numerous variables that are considered when determining an online company’s value.
While most buyers primarily base their decision on the company’s financial performance, there are a handful of aspects that an ecommerce business broker should consider when evaluating a domain appraisal. Aside from the bottom line, organic traffic rankings are one of the most important intangible assets tied to an internet business because of the results they produce and the length of time they take to achieve.
Ideally we like to see businesses that have a strong organic traffic foundation that is not heavily dependent on handful of first page rankings, but derive their traffic from hundred or even thousands of optimized keywords. In addition to traffic rankings, we also look at the company’s historical trends, growth opportunities, owner’s involvement, overall business model, website infrastructure, supplier relationships and more. T
he key is determining how much weight each of these variables carry in formulating the recommended listing price. For example, if you were to compare two different companies that have the exact same cash flow, same historical performance, but Company A essentially runs on autopilot while the owner of Company B works 40 hours per week to keep the business running, there will be a difference in listing price.
The business that essentially runs on autopilot will sell for a higher multiple because the owner will not be tied up with operations and will have time to focus on running an additional business; on the other hand, if the owner had to hire an employee to work the 40 hours per week, this would need to be taken into consideration because it would ultimately reduce the bottom line and would result in a lower sale price.
However, each business is different and it is difficult to compare one opportunity to the next because there are few businesses that posses all of the quality attributes buyers ideally look for, as most businesses have a few areas of weakness that leave room for improvement.