Thread: SEO vs Paid Traffic - When Selling Your Website

we buy sites.

we value seo differently.

GOOD seo reduces our cost of paid traffic.

we find a site with seo only traffic, not that interested. unless we can see a clear path to paid.

Paid is sustainable, even tho the adds get over done, you can redo them in a week and have fresh traffic, SEO, takes 6 moths to really see if its working.
too long


so for us, a good mix of both has to be done to get the best valuation.

Z

I completely agree with you! Good advice! I hate waiting for SEO

@ Zendo,

Interesting how you see paid traffic more sustainable than SEO.

My idea is that if you get a top 3 rank in Google via SEO, you get constant/stable/predictable traffic, in volumes, even for years, and most of it is uniques. It's like "infinite traffic", until Google changes its algorithm.

When dealing with paid traffic, my idea is that, if you are buying ads directly from websites... the traffic available is most of the time very limited... is the same pool and it will exhaust after some days... people will see the ad over and over again and conversion and clicks will drop very significantly... forcing you to look for other websites with fresh traffic to advertise on ... which you might not find... or the price might be just sky-high and just not profitable at all...


But my question really is, is a business that relies 100% on paid traffic as valuable as a business that relies 100% on SEO, if both have the same net profit at the end of the month?

I think it depends on the site. If it is ecom, I value cheap paid traffic much higher. Not only are your visitors going to be more targeted, you will also get a higher ROI on your marketing expense. In the long run, you might have to pay more for the traffic, but sales will still be made. On the other hand, if you rely on organic traffic, and spend the same amount to get to the first page, you could be dropped the next day and not see any ROI on your SEO work.

paid advertising>SEO

@MNentre,

I see what you mean and I agree, but how would you justify to the person that will buy your business that the traffic might "wear off" after some days and that he might not be able to get it back to where it was?

Unlike SEO that is very predictable... I find that with paid traffic you can always be outbid and get less traffic in a month... or the seller can raise the price and make it no longer profitable for you to advertise there... or the ads can "wear off" and no longer convert in that website, forcing you to look for new websites that might not exist/are not tested...

Originally Posted by Disruptive

@MNentre,

I see what you mean and I agree, but how would you justify to the person that will buy your business that the traffic might "wear off" after some days and that he might not be able to get it back to where it was?

Unlike SEO that is very predictable... I find that with paid traffic you can always be outbid and get less traffic in a month... or the seller can raise the price and make it no longer profitable for you to advertise there... or the ads can "wear off" and no longer convert in that website, forcing you to look for new websites that might not exist/are not tested...

your not buying your traffic right.

yes it shifts. but its larger in alot of ways.

we do direct response type sales funnels. so we know the value of each customer
we then buy traffic thats under that. the bottle necks are more on the merchant side, in volume rather than the how much money we have to buy traffic. there are trillions (yes trillions) of impressions EACH MONTH. if you cant do it very well, you can hire it out.
6 months of work on seo, for 1 change at google to wipe you out. hmmm not my thing. if someone wipes out of a bid, we move to a diff traffic source, tweak it, and were back making money in less than a week.

plus in highly competitive markets, we can be online and making money in no time flat. but if i had to get good seo done on say a credit card offer? man thats years of seo, and still not on the 1st page

to each their own
Z

Originally Posted by zendolphin

Paid is sustainable, even tho the adds get over done, you can redo them in a week and have fresh traffic, SEO, takes 6 moths to really see if its working.
too long

what sources do you have in mind when referring to paid traffic?

The only good experience with paid traffic for me comes from Adwords, but this system gets regularly changed like Google Argorithm.

All the other experiences of buying traffic from traffic brokers are bad. I think the broker sells traffic for one reason - he can't convert it himself.

IMO, the valuation depends on the source of the traffic and its measure of CONTROL.

If 100% of the traffic comes from SEO, I'd value it far lower since that traffic is uncontrollable.

If 100% of the traffic comes from repeat users and branding traffic (People KNOW and LOVE your company) then the value is far greater.

Again, what do you control and don't control? If the traffic is uncontrolled, you're adding substantial risk into the equation and the valuation will be far less.

I had a huge super-affiliate -- the fact that I didn't (theoretically) control this affiliate's actions and properties, lowered my valuations because it increased risk. In any purchase, risk plays a big role much the way volatility plays a role in an options price.

Originally Posted by MJDeMarco

If 100% of the traffic comes from SEO, I'd value it far lower since that traffic is uncontrollable.

What if the website had a 4-5 year history of sustained visitor growth, and had 700,000+ visitors a month, all from SEO traffic? Would you consider that uncontrollable or has it been through enough "wars" to show long term sustainability?

Originally Posted by MJDeMarco

IMO, the valuation depends on the source of the traffic and its measure of CONTROL.

If 100% of the traffic comes from SEO, I'd value it far lower since that traffic is uncontrollable.

If 100% of the traffic comes from repeat users and branding traffic (People KNOW and LOVE your company) then the value is far greater.

Again, what do you control and don't control? If the traffic is uncontrolled, you're adding substantial risk into the equation and the valuation will be far less.

I had a huge super-affiliate -- the fact that I didn't (theoretically) control this affiliate's actions and properties, lowered my valuations because it increased risk. In any purchase, risk plays a big role much the way volatility plays a role in an options price.

Thank you for the info.

What about PPC traffic how would that compare to SEO?

I would imagine it would be lower than the repeat users and branding traffic?

Originally Posted by PatrickP

I would imagine it would be lower than the repeat users and branding traffic?

Yea, in terms of valuation, PPC would be better than SEO because it is a venue you have some modicum of control. Your costs are relatively known and you can project the average annual increase of these costs within a decent of margin of error. You can't project SEO and the impact of any future algorithm changes. Of course, I'm not saying ignore SEO, but from a valuation standpoint this is how I would evaluate any company and their traffic metrics. Buying a company with $X revenues and all traffic via SEO would be, IMO, high risk. Incidentally, when I was in selling mode with my company the knowledge of my "super-affiliate" would cause suitors to back out of the deal -- this was because the variable was uncontrolled and in effect, subjected me to a Commandment of Control issue in a backwards way.

A similar example: If you manufacture a great product (YOU HAVE CONTROL) but one of your customers is 30% of revenues (WALMART) you are subject to a Commandment of Control issue in reverse - you're controlling manufacture but are losing control in distribution. If Walmart drops ya, you're in trouble.

If you are making a ton of money from an online buisness but not paying for traffic, that does not mean your website or business is good. If the average competitor is paying $1 per click and still making money... but you cant afford to do that and the only reason for your success is free leads (seo)... hmm thats a baaaad business and 10x worth earnings? lol thats a sucker paying that valuation. Id rather pay for a biz i knos ix paying for leads because that means if the source dries up i can go to the next knowing the business itself can make money even if we have to pay $$.

SEO is cool but so it lotto, seo is getting worse by the day only because its become more unpredictable... the days of seo are over for most.. if you want to start an online business today, most likely you are going to have to pay.. and pay well for customers so make sure you know what your doin, no more luck from seo.

Originally Posted by MJDeMarco

Yea, in terms of valuation, PPC would be better than SEO because it is a venue you have some modicum of control. Your costs are relatively known and you can project the average annual increase of these costs within a decent of margin of error. You can't project SEO and the impact of any future algorithm changes. Of course, I'm not saying ignore SEO, but from a valuation standpoint this is how I would evaluate any company and their traffic metrics. Buying a company with $X revenues and all traffic via SEO would be, IMO, high risk. Incidentally, when I was in selling mode with my company the knowledge of my "super-affiliate" would cause suitors to back out of the deal -- this was because the variable was uncontrolled and in effect, subjected me to a Commandment of Control issue in a backwards way.

A similar example: If you manufacture a great product (YOU HAVE CONTROL) but one of your customers is 30% of revenues (WALMART) you are subject to a Commandment of Control issue in reverse - you're controlling manufacture but are losing control in distribution. If Walmart drops ya, you're in trouble.

MJ respect for the truth you are putting out there...

the exact thing happened to a good friend of mine.

He was in Canadian Tire (huge retailer in Canada) and it was more than 80% of his business.

Life was good for him since his product was a best seller for three years he was in there.

All of a sudden they dropped his product.. no reason.. no explanation... no calls returned... just bye..

Since he had a seasonal product he had to build inventory before hand and now is stuck with large amount inventory he cannot move.

Now he is having trouble keeping food on the table.

Hmmm, this is really intriguing to me because I have never heard so many people say that essentially, PPC is better than SEO. I've never used PPC, so I focus my efforts entirely on SEO. Where would you say is the most advantageous areas for PPC? Google? Facebook? Buying space on related sites?

Any advice?

Originally Posted by Trevor Kuntz

Hmmm, this is really intriguing to me because I have never heard so many people say that essentially, PPC is better than SEO. I've never used PPC, so I focus my efforts entirely on SEO. Where would you say is the most advantageous areas for PPC? Google? Facebook? Buying space on related sites?

Any advice?

He asked from a valuation standpoint.

Originally Posted by MJDeMarco

He asked from a valuation standpoint.

Well yes, but this seems to be the viewpoint of business in general as well. I have always looked at PPC as the short-term plan or as a supplementary source of traffic with SEO being the long-term, more permanent source of traffic. PPC seemed like giving in to Google's main goal which is to get businesses to pay for AdWords. It seemed to me that going the SEO route and learning to ride Google's algorithm wave was the more controlling route. Obviously, others see things differently, so maybe I need to view PPC as something more than supplementary and figure out what the most advantageous use of a marketing budget would be in PPC. Maybe that question belongs on a separate thread though.

Its a double edged sword -- SEO can change overnight but its ROI is infinite, which grows profit and asset values at a higher rate. PPC is controllable but has a lesser ROI which translates into smaller profits and smaller asset values.

So from a valuation perspective, a site with 100% SEO will have far greater profits and maybe a higher valuation.

Assuming an industry multiple of 3, here are some numbers...

THE SEO COMPANY
Revenue $100,000 (90% from SEO)
Advertising Cost: $10,000
Net Profit $90K
Valuation: $270K

THE PPC COMPANY
Revenue $100,000 (60% from PPC)
Advertising Cost $60,000
Net Profit: $40K
Valuation: $120K
---

In this example, the SEO company is worth more by virtue of greater profits. However, when a buyer looks at these numbers, he may decrease the multiple by virtue of the traffic source and decide that 1X profits is viable due to the risk imposed by SEO. In other words, a PPC company may garner a 3X valuation while a SEO company might be 1X. It really is subjective and based on the stability of the traffic source.

Originally Posted by MJDeMarco

THE SEO COMPANY
Revenue $100,000 (90% from SEO)
Advertising Cost: $10,000
Net Profit $90K
Valuation: $270K

THE PPC COMPANY
Revenue $100,000 (60% from PPC)
Advertising Cost $60,000
Net Profit: $40K
Valuation: $120K
---

The Seo company is valued at a 3x as is the PPC company.
in our purchases we would only value the SEO company at about 120-175K max the risks for all the traffic drying up overnight are just to high. the owner may have done great anchor text optimization just like he should have for the last 5 yrs. but suddenly its no longer favored by google, and gets lost in the next hyena update

so we would want to be albe to recapture as much of our cash back as quickly as possible due to the risk.
the fact that it has some ppc helps get it a slightly better valuation, because we see that we could probably expand that, and recover if we were to lose all seo.

paid traffic is much more controllable and can figured into what it costs to grow the company. PPC is just one version of paid traffic, and after you realize that you can control it, and work to optimize it, its much more scalable, much faster, with a better prediction curve.

just thought i would add my 2 cents
Z