Niche websites are now relatively easy to create and run without possessing advanced technical skills, thanks to modern web publishing platforms like WordPress. Combine this publishing ability with a little keyword research, basic SEO skills and an appropriate advertising or affiliate program and you have all the essential elements to create a largely passive income stream. Unsurprisingly there is a growing number of individuals cashing in on this opportunity.
As a result there is a growing marketplace for those wishing to trade these niche sites, fueled by those who specialise in creating them specifically with a view to sell them on for a quick profit (a practice known as “flipping”). Conventional wisdom seems to suggest a nominal value of around twelve times average monthly earnings – in other words a year’s income – for these sites. Judging by the number of those involved in this market, it must be profitable enough. But personally I would never sell one of my niche sites for so little.
I look at it this way: how much money would I need to earn and stash away in the bank or some other form of investment in order to generate a certain amount (for argument’s sake let’s use a figure of $100 per month)? At a rate of ten percent per year I’d need $12,000 in capital. Of course in the current climate I’d be unlikely to achieve a ten percent return without taking on a lot of risk – perhaps it’d be more realistic to expect a three or four percent return, in which case I’d need between $30,000 and $40,000 to generate that $100 per month.
On the other hand, using the “twelve times earnings” rule of thumb I mentioned earlier I could only reasonably expect to sell my $100-a-month site for around $1,200 – which I certainly could not invest to achieve a similar return. So the site is worth far more to me earning a steady $100 per month, year after year than the single-year value of its earnings up front.
Of course circumstances may force one to sell an asset for the sake of ready cash, but given the choice, my advice is always to hang onto these “virtual capital” assets for as long as possible.
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In “normal” business in the offline world, the rate when purchasing and selling companies is more like 6-12 years of EBITDA. So if you are comparing this to a website earning you a profit of $100 per month, you would expect to get $7,200 to $14,400 for your site.
Obviously the price will be lower if it is one of the “quick fix” sites that are only 2 months old and you can expect it to stay at that rate for even a year, but if you’re looking at a site with a consistent history of 1-2 years, paying 12 months earnings would be a bargain.
So I completely agree. Instead of considering to sell, start buying (but do your due diligence thoroughly).
/Mikael
@Mikael – thanks for the insight. By the way, what do you mean by EBITDA?
EBITDA = “income before interest and taxes and depreciation and amortization have been subtracted; an indicator of a company’s profitability that is watched by investors”
I just started making niche sites and my first site just had a $100 month, I’m not going to lie the 1200 sounds nice if it had it right now, but if I just keep this site in my back pocket there is no reason it couldn’t make 5 times that over 5 years.
I think a lot of people just want money now, which is smart if you are going to re invest it into another bigger site or into outsourcing but if its just to buy sill stuff, then just sit on it
Could nt agree more – wordpress has been kickin open the doors for a while now. No better time for the niche!