Business Decisions: What would you do with $70k?

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insomnia

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Jun 25, 2006
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Hey guys, heres the scoop: I'm having a hard time deciding whether to purchase a site for around $70k. It has decent typein and SE traffic, probably 7k-10k uniques/day. It makes anywhere from a $2k to 4.5k a month. If I were to buy it, I'd really try to boost traffic and income. Its a flash game/media entertainment site, kinda like ebaums.

So, what alternatives exist if I don't decide to buy? In other words, if you have 70k to spend on maybe another site, or to startup a site, what would you do with it? Is there a better way to spend this kind of capital? Do you think I could achieve those kind of numbers if I just kept the money and spent it all on a media site from scratch and promoting it?

Lets hear it! Thanks guys.
 


$70K is alot of money to be throwing at a single site that's only doing $2k - $4.5K a month. For that kind of money, you'd have alot of buffer to really fuck up learning arbitrage and be able to recover. If I had $70K to spend on site, I'd do half PPC/Arbitrage and half toward developing something new organically in a niche that makes way more than that site. I personally would stay away from media related sites and go with something that allows for a higher margin.
 
$70K is way too much to spend for a site that makes 2-4K per month.

If I had the cash, I'd look at purchasing several (10-20) other smaller sites that get a couple thousand uniques a day and work on promoting those or monetizing them. Look for ones that are new ideas in good niches that haven't grown to their full potential yet (look at traffic reports, look at the traffic trend, is it still on an upward growth). Spread it out so you have several sources of revenue that won't all dry up at once.

I'd only spend the $70K on the site if it was something that was totally unique and no one else had.


Also not knowing your current living/job situation you'd be best to keep some in case you fall on hard times (6 months is always a good number). This will also allow you to learn what your doing and not have to have the sites perform as you estimate all the time.
 
I should mention the domain name for the site in question is pretty good, been around for 10 years or so and lots of typeins.

Right so, $70k: lets say you could boost earnings to $5k/month, you'd break even in around 14 months. Not bad? Thats about a year, too long you guys think?
 
35 months revenue?!?! Are you joking?

Especially on a entertainment site that you can't really add anything else to monetize it.
 
Hmm, I guess I should mention that the site has plenty of room for optimization and improvement. Theres no SEO on it, its PR6, and the only monetization is a bunch of unrelated YPN ads. In fact it probably only has a dozen pages, its really shitty. Thats why I saw potential in it, revamp it with a nice backend and frontend. Up the traffic by 100% and do some hard core SEO and link exchanges, which it doesn't do any of at all as of now. So revenue COULD very well increase if it was bought.
 
insomnia said:
I should mention the domain name for the site in question is pretty good, been around for 10 years or so and lots of typeins.

Right so, $70k: lets say you could boost earnings to $5k/month, you'd break even in around 14 months. Not bad? Thats about a year, too long you guys think?
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Too long for me. If it's been around for 10 years I'd look at traffic history and the history of income. 2-4.5K a month is fairly large swing in income, what's driving that? Is it seasonal, event related, dependent on the traffic? What's the traffic look like? Is it fairly stable, what percentage is from type ins and what's from search engines. How likely are those to change.

As for boosting earnings you'd need a plan you feel that you could execute. How do you plan on boosting income? By monetizing the traffic you have now better or by getting more traffic? How much is that going to cost you? Has the current owner tried it before.

And then there's always the question of how much would it cost you to do on your own? Could you build the same site and the same revenue stream for cheaper in a shorter amount of time?

Using the standard guideline of determining a business worth is Ebitda (earnings before interest, taxes depreciation and amortization) times the multiplier for your particular business. So you take an average of your monthly earnings ($3,250) figure out your yearly ($39,000) and multiply it by the multiplier (3 to 6.5 for media firms). That comes out to $117K - $235.5K that it's possibly worth. So is it a good price, by that standard yes.
 
insomnia said:
I should mention the domain name for the site in question is pretty good, been around for 10 years or so and lots of typeins.

Right so, $70k: lets say you could boost earnings to $5k/month, you'd break even in around 14 months. Not bad? Thats about a year, too long you guys think?
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Way too long. I wouldn't take on anything that I couldn't break even with in 3 months or less. I've picked up sites for next to nothing that were doing $300 a month and within 2 months I had them making $5K+ a month...that's the kind of thing you should be looking for if you really want to buy a site. Find something outdated and lame that ranks decently but could do better with some good planning and SEO.
 
One word of advice for you...

BALK!

This is not 2004-2006... you can't bank on sites like that as hard as you think. Less and less CPM networks are taking these types of sites because they are fuckin everywhere now. It's not very hard to make one from scratch, especially with the help of myspace, youtube/gvideo, etc.

Take your $70k and make a whole bunch of replica sites instead. With the combined income from that, you'll be well on your way in the profit zone by month 3.
 
DaveEMG said:
Look at it this way, if it was 10% of the money (ie making $200-450 a month and you had to pay $7,000 for it) would you do it? Don't pay attention to the large dollar value - consider more the scalability of the investment.
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IMO, that's a really bad way to look at it. It's alot easier to go from an average of around $300 a month to $3000 a month and pay the investment off in a couple of months compared to going from $3000 a month to $30000 a month and pay the investment off in the same amount of time. Some things are only scalable to a certain point and there's a huge drop off as the amount of money in question gets bigger.
 
Smash: Interesting multiplier, but what is it based on? Wheres it from? Seems kind of arbitrary, if you had stats to justify the 3 it would make sense.

BrianL: haha 3 months, thats very short! I guess thats just a difference in business risk averseness. I don't mind paying longer if I think its worthwhile.

DaveEMG: I'm afraid I have to pay attention to the dollar value. At the 10% scale, yes I would buy, because worst case if I fail is I lose 7k or less. At the real rate, I don't want to lose $70k. Bigger risk.
 
Valuating a site isn't mearly looking at how many months it takes to recoup your investment. There are plenty of other variables, many of which are relative to the buyer and what they want to get out of the deal.

Keep in mind that you are buying an entertainment/humor site, which happen to be a dime-a-dozen.

Anyway, the same rules apply online that apply offline with real estate. Look
at what properties are selling for around you (in the same niche) and use those figures to get a better perspective on the market.
 
avantrosa said:
Anyway, the same rules apply online that apply offline with real estate. Look
at what properties are selling for around you (in the same niche) and use those figures to get a better perspective on the market.
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It's nothing like real estate - there are too many factors that could turn a site into something completely worthless vs. real estate will always have some value, if even just the land value because there isn't much new land just laying around. It's also such a subjective market that there is no way that you could compare things side by side. Just because YouTube sold for a crazy amount of money, doesn't mean that a replica of YouTube is worth anywhere near that...even if the traffic were similar.
 
BrianL said:
IMO, that's a really bad way to look at it. It's alot easier to go from an average of around $300 a month to $3000 a month and pay the investment off in a couple of months compared to going from $3000 a month to $30000 a month and pay the investment off in the same amount of time. Some things are only scalable to a certain point and there's a huge drop off as the amount of money in question gets bigger.
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Huh? It scales both ways dude. Figure, all other income aside, if this site was only making $300 a day, it's very hard to get to $3k a day, just like it's very hard to go from $3k to $30k. Your incoming cashflows will only connect so many dots.

The only reason I phrased the question that way was to get an idea of whether or not the issue to insomnia is whether or not it was a good purchase in general or whether it was the right purchase for him. It sounds like it's a lot of money for him to risk (as a percentage of overall current income and assets) so therefore I'd suggest he not try to pursue it. Like Jon said - take the money you would spend on that, and work towards other projects. The cost is too high. At most I'd pay 12x last years running average monthly income. In this case, I'd imagine thats something like $2,500 a month, which means I probably wouldn't pay more than $30k for a site like that.

The exception to that rule is if the site is on a stellar growth path. Since it's been around for 10 years, I gotta believe that it's just not doing that. It's like buying an (unreliable) cash cow.
 
BrianL said:
It's nothing like real estate - there are too many factors that could turn a site into something completely worthless vs. real estate will always have some value, if even just the land value because there isn't much new land just laying around. It's also such a subjective market that there is no way that you could compare things side by side. Just because YouTube sold for a crazy amount of money, doesn't mean that a replica of YouTube is worth anywhere near that...even if the traffic were similar.
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LOL. You and I totally disagree on everything. Except your boobs thread :D

Look at the action of Flickr, YouTube, Myspace, Facebook, etc. Comparing current deals is a great way to get a sense of the overall market. Same goes for smaller deals like you see on SP, DP, and other forums with marketplaces. Lots of small sites move for 10-15x monthly earnings all the time. Not the 20+ multiple that's going on here.
 
DaveEMG said:
Huh? It scales both ways dude. Figure, all other income aside, if this site was only making $300 a day, it's very hard to get to $3k a day, just like it's very hard to go from $3k to $30k. Your incoming cashflows will only connect so many dots.
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It's WAAAAAAAAY more difficult to go from $3k to $30k. What you aren't figuring in is that advertiser budgets dry up and there's a curve/drop off in revenue once you get to a certain point and that drop off happens more and more as you get closer to the $30k. Going from $300 to $3000, there is far less chance of drying up the budgets of advertisers. Trust me...I've seen this exact thing in action...especially with AdSense. I've seen affiliate programs that had to cut off affiliates because they couldn't handle the volume of leads/sales they were getting. Maybe in some markets, things are scalable equally across the board no matter how much revenue, but definately not online. What you are proposing is that I could throw $3 million at a something and just as easily walk away with $30 million as it is to go from $3 to $30...It's just not possible.
 
70k is a lot.. i would also diversify, unless you really love the site, and must have it. if the domain is good thats a plus, maybe you could brand it better.
 
Just to clarify that I'm not talking out my ass, the travel sites I work on combine for about $100k a month. The more they grow, the harder it is to keep up the growth compared to when we were at $50k a month. Advertisers pay less and less or cannot fill inventory...it just happens and that's something to keep in mind.
 
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