3 years ago, I was told by many bloggers: “You will never make money blogging. And if you do, $200/month will be your highest peak ever”.
Three year ago, The Financial Blogger was averaging 500 visits per month and I was ecstatic when I made my first deal of $10 for a link.
Three years later, I now run three financial websites, bought 2 of them and flipped a blog within a year. I am now able to work 1 full day per week on my online business (while I still have to keep my “day job” in the meantime). I really like buying and managing finance blogs as I think it is currently one of the best investing opportunities we can find.
When I asked Sam if I could write a guest post for Financial Samurai, he asked me to include more details on how I appraised blogs and how do I decide or not to send $10K over the wire (or more!) simply to buy a “.com”.
Look at Blogs as a Real Estate Investing Opportunity
When I first started my blog, I went into a partnership with one of my friends (who is the co-founder of our company). He has been in the website industry since the 90s, well before the .com bubble. He told me to picture a rental property in order to understand how a website can generate income and how it should be valued. He actually wrote an interesting piece about the difference between real estate investing and website investing recently.
His main point is the following:
When you value a rental property, you will most likely pay between 10 to 15 times the yearly revenue. Therefore, if the property generates about $40,000 in rental income, you will pay between $400,000 to $600,000 to purchase it.
When you value a website, you will most likely pay 18 to 24 times the monthly income. Therefore, your investment return can easily reach 50% the very first year!
While both type of properties will generate monthly income, the first one will be paid over 20 years (if not more) and the latter will take less than 2 years to be reimbursed. So now that I have proven that there is a great investing opportunity, how do you value a website?
A few months ago, we purchased Green Panda Treehouse. This is a great personal finance blog aimed at young college graduates to help them manage their personal finances. Since I am still in my 20s, I thought it would be great to add my financial expertise and write more about topics such as asset allocation for beginners or tips for first home buyers (since I have a banker background). So let’s take this example:
How Did We Value Green Panda Treehouse:
There are several metrics when we are about to purchase a website. So before we even start with the calculations, we are looking at minimum requirements. The site must be:
- At least 1 year old (in order to have valid traffic data and to have it recognized by Google).
- Minimum of 10,000 visits per month (it’s easy to build a blog with 3,000 visits/month, since we are looking to save time, we need a good visitors base).
- Minimum of 50% of visits coming from search engines (we don’t want to have boosted traffic from social media since those readers don’t stay long on your site, don’t click on ads, don’t comment and don’t register to any of your RSS feeds).
- Minimum of 300 RSS readers (just to make sure you have a community following you).
- Must not be a Page Rank 0. PR0 websites means that Google doesn’t like them. While I don’t give very much weight to PR, I just want to make sure it’s not 0 because I don’t want my blogs to be penalized by the search engine.
- Must be under monetized. While I am not the biggest pro in monetization, I like to find blogs that are under monetized according to my knowledge. It gives me confidence that I will be able to get my investment returns faster than 24 months.
Green Panda Treehouse met all those pre-requisites. Therefore, we went ahead and did some calculations. Since the site was big (around 10,000 visit/month) but not huge (over 35,000 visits per month), we were able to apply the 18 to 24 months of income rule. For bigger websites, you certainly have to add a premium for the brand, size of community and future income potential.
How do you assess income?
Before putting a number on a website, I like to look in-depth at the different sources of income. I don’t like blogs that are dependant on just one source of income (commonly Adsense or Text links). This makes the business risk greater than well diversified income sources.
In fact, there are a lot of income sources for a blog and I would like to see all of them (in various proportion) such as:
- Text Link
- Products (ebooks, services, paid newletters, etc.).
The more diversified the sources of income, the more I will be willing to give 24 to 36 months of income (since you can really consider it as a business and not a small sideline).
You can have additional weight if you have been monetizing your blog for several months. If you can show an uptrend for more than 6 months, you can definitely talk about potential future growth. If not, I think the word potential is overrated in the internet world. Everybody talks about “potential” but nobody develops it because “they don’t have the time”… right!
There are a few particulars to look at before buying a website. This is more looking towards what you are looking for and what you want to buy as a blog. You can look at the following points before you start shopping:
Do you want to talk about personal finance in general or a specific aspect such as frugality or investments? Obviously, an investment blog will be worth a lot more because advertisers will pay more to show investing products versus coupons.
I’ve seen some blogs getting 30 to 40% of their traffic from only 2 or 3 articles. You want to make sure that you have several popular articles in Google so you can count on a steady traffic base. If most of your pages viewed depend on 1 or 2 keywords, chances are that most of your income depends on the very same words. Therefore, it adds to the risk.
Some blogs are very personal and related to its author. While this can be the purpose of a blog, there are some blogs where readers are less attached to its author than others. While you want to have a strong community, you don’t want it to be too strong either. A lot of readers may leave if you don’t have the same writing style or train of thought of the previous owner.
Some also consider offering a writer’s position to the previous owner to make sure they keep their readership (We kept Stew who was writing 3 times a week on Gather Little by Little for example). It’s not a bad idea at first since it gives you the time to “break-in” your new readers.
Does buying/selling blogs constitute a good business model?
I personally believe that there is a huge investment opportunity in the blog management business since we are currently in a very inefficient market. Since there are not a lot of buyers and that blog valuation is still complex and a standard method has not yet been determined, there are several gems available for a very small price. Our most recent purchase; Green Panda Treehouse was a perfect example.
On that note, if you ever consider selling your blog or if you have any questions regarding blog valuation, don’t forget to shoot me an email at thefinancialblogger (at) gmail (dot) com!