Revenue in site valuation

[mshel]

Hey, I know that a site’s monthly revenues are taken into consideration into the valuation of the site/domain name, but are we talking gross revenue or is it net?
If it is net, then there must be some kind of accounting process involved – is there a standard one for the DN industry? I get the impression that all DN valuations are on gross revenues.

 

[nielsencl]

I would say yes, the valuations that are used ARE gross. But what are the expenses that you would use to calculate the net:
- Original domain purchase price (if any)
- Yearly domain registration
- Hosting fee (if a site)
- Cost to create the site (if a site)
- Maintenance, marketing, software renewal/updates, etc. (if a site)

I think that's why you generally don't see anything but the gross amount used, the expenses for a domain are low and a known value.

But that's a great question, because I don't think a lot of new people are aware of the expenses that are involved with running a site. An if they have not bought a business before, which is really what they are doing, then they may not know about things like net income and gross income, and other things that can make a great sounding offer look less attractive.

 

[LilBlackDress]

Good points. Thanks for the info! I have been developing sites and realize that with the low teaser rates offered by name registrars and hosting companies my expenses will be quite a bit more next year.

 

[mshel]

Thanks nielsenci, that makes sense.

Here's more of the issue:

A lot of what I'm referring to here is when you have an established site actually selling physical goods, even if they are affiliate sales such all your product links actually linking over to Amazon

- done this way, your site still shows a gross monthly revenue, and if this has been going on consistently month after month it shows your site visitors willing and able to spend "x" amount of money when they visit your site, which looks to me can be legitimately termed as "gross monthly revenue" for the site

- from all I've gathered so far about this issue, though, the higher the price tag/valuation of the site the more the revenues are scrutinized, and I don't see any way to ever come up with a "net revenue" from affiliate sales - which is why I'm hoping that the industry standard of gross revenue will continue to hold true in such cases.

 

[nielsencl]

I have not seen this specific issue before, but here is how I would look at what you are talking about:

- If a site is selling products directly, then you would talk about Gross sales numbers and net profit.

- If the site has ads or gets money from affiliate sales, then I would only talk about the Income from those sources. You have no control over the prices at Amazon or your commission percentage. If you switch to another affiliate program, like say Best Buy, the Gross sales amount and your revenue could change, and in different directions depending on their program.

Since you generally have no expenses to speak of for affiliate income, I think it would be confusing at best, if not misleading, to use Gross sales amount to reflect a value of your site. The revenue generated should be enough by itself, and that's really the only thing that matters to me.