I have a relatively new client that just bought a skin care products e-commerce company last spring. He hired us this August to do web design and SEO, and we just finished re-designing and launching a new site for the skin care products company. If I do say so myself, the new site is tons better looking than his old site, and the e-commerce technology platform is way better than his old FrontPage site with Google Analytics.
But I digress… My client bought this skin care products company, which has been around a few years. The company owns 4 other websites that have some decent traction in the search engines.
So the question is, if you bought this e-commerce company…
- What would you pay?
- How would you decide on the value of the assets?
- How would you decide on the value of the 5 websites?
Well, my client hired a CPA consultant, and they looked at many different businesses before choosing this e-commerce company. My client didn’t tell me, but lets pretend he spent $1 million. That translates into $200k per website.
A CPA might look at sales and top line revenue. If the business revenue is $200k per site, is it worth 1 times revenue? Maybe, maybe not. But that kind of value equation is left up to a CPA.
The equation for figuring out the value of a website is way different.
Some factors that make a site valuable include:
- Short, Keyword Rich Domain Name – Shampoo.com would be quite valuable, assuming a lot of people search for “shampoo” online. HairCare.com might be even more valuable, if more people search “hair care” than “shampoo”. Unfortunately, most of the good, short, popular, keyword rich domain names are long gone.
- Age of Domain – if the site’s been around a long time, that’s good. Google penalizes new sites just of being new. If it were as easy as buying a $10 domain, doing some SEO tags, and that’s all it took, I would own a thousand online businesses – but it’s not that simple.
- Link Popuarity – the hardest thing to do, hands down, when marketing any site online is to get other sites to link to your site – free, reciprocal, paid, whatever. If you can buy an existing domain with thousands of links to the site, this is considerably more valuable than a brand new domain with no links to it. Trust me on this, it’s valuable.
- Depth of Content – if a site is only 20 pages deep, there’s not much there you can’t do on your own without buying a site.
- Google PageRank – is the site a 5, 6, or 7 Google PR.
- Site Usability – if the site is easy to use and converts well, then great. If you have to re-design the site, that’s something to consider in your cost of acquisition.
- Customer Conversion Rate – what is the site’s conversion rate – 2%, 3%? Two percent is a little above average for an e-commerce site.
- In-House Email List – Smart e-commerce companies ask customers for their email addresses. A business that has thousands of loyal customer’s email addresses on file is very hard to beat.
Search engine marketing considerations:
- Natural Search Rankings – What are the top 100 keywords most relevant to the site? How well does the site rank for these keywords in Google, Yahoo and MSN?
- Paid Search ROI – How well has paid search marketing worked for the site? What is the cost per lead or cost per sale? What is the return on investment?
Historical reporting considerations:
- Website Analytics – Does the site have at least one year’s worth of visitor tracking data?
- Monthly Visitors – How many unique visitors does the site get each month (not hits)?
- Seasonality – What’s the best time and worst time of year for the business?
- Visitor Sources – what percentage of visitors come from natural search, paid search, email and direct to the URL?
- Marketing ROI – Has each online marketing effort been tracked and measured in the past? What has worked or failed in the past?
- Online Marketing Costs – What are the monthly carrying cost associated with each marketing channel spend – paid search, paid links, paid directories, banner ads? Is the an SEM vendor in the mix or a key SEO guru employee?
E-commerce technology considerations:
- Shopping Cart Technology – What shopping cart is used? Can it measure important details like cart abandonment rates?
- Email – Are email addresses collected?
- Live Chat – Does the site have live chat so customers can instant message customer support?
A CPA might overlook these items, but they are much more important than sales. A company that spends $300k a year on paid search and generates $600k in sales is not worth much if their markup is 100% and their only web traffic comes from paid search advertising.
The next time you think about buying an e-commerce company, call a search engine marketing company and ask them to take a look before you call your CPA.