January 8, 2010, 5:00 am

How To Buy A Blog Step 2: Assess the value of a Blog Part 2

by: The Financial Blogger    Category: Make Money Online
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Yesterday, I wrote about what I consider important in the process of evaluating a blog. This is a crucial step as, like every business transaction, it will determine if you can find a good deal. I have always considered buying blogs as if I was going to the store to buy myself a small “money making machine”. You want to be relatively sure that your machine is in good order and that it can generate enough money.   Ultimately, your goal is to generate profit for your pocket over the long run after getting back your initial investment.

What I really like about buying a blog is the market ratio for the purchase. As I mentioned in my previous post, you should consider 12 to 24 times the monthly income as a fair price. If you take care of your new money making machine, you should be averaging 50% investment return annually… not bad huh? So my objective is to know if I can get back my initial investment within 18 months by working on the blog.

I am reluctant to invest more than 18 times the monthly income as 2 years is an eternity on the internet. Rules change quite fast and it is very possible that making money with blogs may become virtually impossible 12 months from now… Just imagine if Google changes its Adsense policy? Or start penalizing blogs for affiliate posts?

Finding the right price

If a blog makes $100 per month; I will start negotiating the price at 12 times the income, so $1,200. The market usually considers gross income as running a blog is almost free. I also consider gross income because it is almost net income before taxes anyway 😉 However, it is very important to request the maintenance expenses. If the seller is spending $500 a month on promotion and/or writers, this should be taken out of the gross income… and I should talk about net income instead of gross in order to avoid any confusion 😉

Then, additional months up to a maximum of 24 (the multiplier) can be added for:

– Strong and steady traffic from search engines,

– RSS readers and community size,

– Income stability,

– Income diversification and

– Blog history (number of years and number of archived posts)

And you can use these arguments to lower the seller’s expectation:

– Risk of losing readership since most people visit the blog regularly for the author… and he is leaving!

– The blogging industry is fairly young, there are several risks involved when considering blog survival over the long term.

– The market for blogs is practically illiquid (this is why so many people wondered how I valued GLBL). There are few market comparisons to be made and most transaction prices are confidential anyway.

In the end, I must say that there are no black and white answers. I wish I could build an evaluation chart as Financial Analysts do using ratios while considering the fundamentals of a company.

So far, I have bought 4 sites. The first three were paid off within 12 months of the purchase date. They are now generating “pure” profit in my pocket. However, these sites were not too expensive (between $1,000 and $2,000 for each of them). Obviously, it was easier to make our money back faster. Gather Little By Little will be another story as we don’t expect paying it off as fast.

We are currently building our company through internal growth and acquisitions. While growing through acquisitions has an immediate effect, it is important to proceed one purchase at a time. You don’t want to upset your new readers and want to make sure to care for the blog so it can continue to grow within your company. The next post will be about finalizing the transaction and integrating the new blog community.

In the meantime, we are entering in a new “buying period”, so drop me an email if you consider selling your blog 😉

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Comments

I love this series. I’ll be interested in seeing what you uncover in your new “buying period”. Hopefully 4P won’t get taken over in a hostile takeover. 🙂

Good stuff TFB. Very helpful. BTW, is the title supposed to be “Step 3”?

What about the thought of just buying the WRITER, once you have an established brand name already? Can similar rules apply?

I guess the goal is to also acquire EARLY before the brand gets too big, b/c then it becomes too expensive.

So I would think a good goal would be to canvas the market, identify the “hidden gems” that you think could really kill it, and take em out now.

by: The Financial Blogger | January 8th, 2010 (2:13 pm)

@ FP, you would charge too much 😉 I’ll have to wait before I buy 4P!

@FS, now, it’s kind of part 2 of step2 😉 the original post was too long and I thought it would be better to divide it like that.

Buying a writer is pretty hard since people will more likely sell their blog because they are tired to write. Sooner or later, good blogs make money so the owner is not likely to sell his blog and simply get paid for writing 😉

Time invested is often an investment that is undervalued. Your blog is an asset, always make sure you have your assets valued by a professional to get the best return on your investment

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