While they have no physical form, parts ecommerce websites are assets. They have intrinsic value due to the effort that goes into creating them, the loyal customer base they have, the data they’ve collected over the years, and the revenue they generate. When it’s time to buy or sell a website, it’s important to know how to quantify the sites’ value so you can get the best price.
This article will walk thru the basics of website valuation, with a goal of helping prospective buyers and sellers ask the right questions. It is not a substitute for a professional appraisal. This should go without saying, but if you’re getting ready to buy or sell a website, invest in a professional appraisal and/or review from an acquisitions expert. That’s the best way to make sure you don’t get taken advantage of.
But if you’re just getting started in the process and curious about valuing a parts website, this guide will get you going.
Appraising A Parts Ecommerce Website – A Rough Guide to Valuation
When you’re valuing any given parts website, here’s what you want to consider:
1. First and foremost, it’s about revenue. While there are other factors to consider, revenue is usually the attribute that determine’s a websites price. Most websites sell for a multiple of annual revenue, with some sites selling for just 1 year’s revenue, and some selling for as much as 5 years revenue. However, the average is 1-3 years revenue.
The exact multiple depends on some other factors, profit being the biggest (more profitable sites get higher margins), but profit isn’t as important to website buyers as it might seem. This is because profit is largely a function of site management…a poorly managed site will have a low profit margin, and buyers will often covet these types of sites as they’re under-valued. Likewise, a site with a high profit margin is probably very well managed, and as a result the multiple that people are willing to pay is much lower.
But still, when it comes right down to it, monthly revenue is the biggest determinant of a website’s value.
2. What does the website cost to create from scratch? Is the site built on a platform that’s no longer supported? What does maintenance and hosting cost? All things being equal, a beautifully designed website with excellent functionality is worth more than an ugly site that functions poorly. If a website was built by a premium web development company, looks great, and functions well, you want to account for the cost of creating a similar site when you determine the site’s value.
On the other hand, if the site looks great, functions well, but is built on a proprietary platform with a high monthly operating fee, it’s less valuable. If the platform is going to have to be changed at some point in the future – say, because the site is built on an old ecommerce system that’s no longer popular – than the value of the site is decreased. Maintaining sites on old ecommerce systems gets increasingly expensive as time goes by, and at some point security concerns all but force the owner to pay for an update.
3. What data does the site include? If you’ve got a parts ecommerce website for sale, and you’re giving the new owner a list of your previous customers (all 50k of them, for example), the value of the data can be significant. While there’s no hard and fast rule for the value of each email address you have, each mailing address you have, etc., you can estimate the value by calculating the average revenue you earn from each customer each year.
Likewise, if you’re buying a site with lots of data, you should be prepared to pay a premium.
4. What are the site’s main sources of traffic, and how effective is each source? Site traffic in itself isn’t a terribly important metric. However, it’s important to understand what a website’s traffic sources are when you value it. A site that’s heavily dependent upon organic search traffic – for example – isn’t necessarily as valuable as a site that earns a lot of traffic from affiliate links, email marketing, social media, etc. This is because search engine rankings can change suddenly, and a site that’s dependent on search traffic can become worthless after a big Google or Bing update.
It’s also important to study traffic source data because it can help you spot fraud. If you’re buying an established website, it’s a very good idea to ask for both access to Google Analytics AND access to server logs AND the option to put your own tracking on the site to verify data before completing a purchase (if you have reason to be suspicious).
5. What risks are associated with the site? There’s a long list of possible risks, but some of the most important to consider:
- Was the site recently hacked? Was data stolen? Was this data private? If the answer is ‘yes’ to any of these questions, understand that you could be liable down the road if you’re the buyer or the seller.
- Is all the data on the site legitimately sourced? Did the people who created the site write unique content, or cut and paste (aka steal) content from elsewhere? What about product and fitment data – was it purchased, created from scratch, or scraped?
- What does the site’s backlink profile look like? Did someone create a mountain of spammy links that can not be cleaned up or disavowed?
The more you can learn about the site’s history, the better you can assess potential risks. There are no guidelines for the cost associated with specific risks, but when you consider the cost of a lawsuit, risks shouldn’t be taken lightly.
6. What knowhow will be included in the sale? Managing and marketing a new site is hard, so it’s helpful when a seller can provide a buyer with ongoing support. This gives the buyer a chance to learn the ins and out of fulfillment, gain insights into what customers find most important, etc.
Additionally, buyers should ask sellers to provide all the information for their contacts. If they have a developer that knows the website, they should provide the developer’s info to the buyer as well as an introduction. Same goes for suppliers, marketing folks, etc.
Where To Buy or Sell A Parts Ecommerce Website
The very best place to buy a parts ecommerce website is at a busy public auction. By definition, a website’s market value is whatever it sells for at auction, so if you have a chance to buy a site in this manner, you should do so. Auctions are usually held online only, but there are “live” auctions held in person from time to time.
However, most sites with serious revenue are bought and sold outside of an auction. This is partially because buyers and sellers desire privacy, and partially because auctions present risk to both buyers (who might pay more than they should in the heat of the moment) and sellers (who might not get what they could negotiate privately). Private sales can be facilitated by brokers, but they can also be done by private listings on marketplaces like Flippa or Sedo.
Additionally, websites can be bought and sold on eBay, via GoDaddy’s domain auction system, and a handful of other places.
Finally, if you’re in the market to buy or sell, it’s smart to contact your competitors and gauge their interest. While this might seem like a strategic mistake – telling your competitor’s that you want to buy or sell might give them some sort of advantage over you later – the simple fact is that your competitors are the people most willing to buy your site, and/or the people you’d most like to buy from.
Buying a website is a lot like buying a house: You need to inspect it carefully, take your time, and get an expert to help you make sure the details are correct. However, just like property, buying an established website is often a very smart way to grow your existing ecommerce business or get a jump start on a new business.
Likewise, if you have an auto parts ecommerce site you no longer want to own/maintain, seriously consider selling it. Even if the site is old and doesn’t make any money, listing it on Flippa is easy and relatively cheap. Better to sell the site for a token sum than let the domain name expire and get nothing.