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Online Business Valuation Calculator - Feedback Please!

JM35

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Hey Fastlaners,

In my quest to start an online business brokerage (going well so far, signed up 2 $150k+ sites in two months), I decided to build a business valuation calculator to serve as a lead generator eventually (going to cost ~$8k to develop).

If you have ever tried one of those "whats the value of my website?" calculators where you just put in your domain name, you'll notice they're pretty crappy. They only value a website based off of potential ad revenue from the traffic the site receives. So if you have a SaaS or digital product business, for example, and you only get 1,500 hits a month, but make $1,500 a month, it will probably tell you your site is worth a couple hundred bucks. There aren't very many good calculators out there so I decided to use my financial modeling skills to build something more complex that is based off of actual transaction data.

I took data from about one thousand online business that have been sold online across all the various brokerage firms, and used it to calculate average profit multiples that these sites sell for.

I put it into a Google Sheets file and would appreciate any feedback that anyone has!

https://docs.google.com/spreadsheets/d/1f751hUOm0LIsK4ooFOTaqDfF7Gl4OLCu0SMyj6gM_xk/edit?usp=sharing - click this to access the calculator on google sheets!

Here are the main variables that I used:
upload_2018-9-30_18-23-18.png

The model calculates an "average" valuation, along with a high and low valuation which are simply 88% and 115% of the average. I tilted it towards the high side by and extra 3% because I felt it would be more appetizing to show higher potential values, but let me know if you think otherwise on this.

As for the weights, these are the 5 variable inputs and the weightings that they have on the overall valuation. I sort of picked these at random so would be curious if anyone would adjust them differently. I know it will be tough to tell without being able to see how the values are actually calculated (but I can't give away my secret sauce :smile2:. As an FYI - the revenue input doesn't affect the output, but all the other inputs do. And Size is the total valuation for the website, thought being larger sites go for larger multiples (circular reference).

Anyways, would appreciate anyone giving me shot and letting me know what they think! It isn't perfect and still has some holes in it, but it should be 100x more realistic and accurate than the other calculators you can find online.
 

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404profound

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It looks logical to me, though I can't imagine why it would cost 8 bands when you can get a decent developer to do it for a few hundred.
 
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JM35

JM35

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It looks logical to me, though I can't imagine why it would cost 8 bands when you can get a decent developer to do it for a few hundred.
Thanks, I appreciate the note.

In regards to the developer, we have gotten quotes from $2.5k-10k. The formulas in my model are quite complex...here is a snip of one for example, out of probably 50 like this:

=IF(R33>=5,AVERAGEIFS('RAWDATA'!$F$2:$F$659,'RAWDATA'!$B$2:$B$659,$C$32,'RAWDATA'!$E$2:$E$659,$P33,'RAWDATA'!$E$2:$E$659,$Q33),INDEX($M$62:$U$69,MATCH($M33,$M$62:$M$69,0),MATCH($T$32,$M$61:$U$61,0)))

It's got nested array's, circular references, etc. so coding the logic is very difficult to start with, and then I need the ability to continually update the data to be able to add more transaction data to make the outputs more accurate. The goal is to have a custom and separate screen for each input variable, and then when you get to the end of the inputs, you put in your email address and the results are emailed to you.

So the goal is to be able to capture leads by getting email addresses and accurate data on the size of website the user owns, unless they are inputting the data hypothetically for a site they don't own. If you use the calculator and get an estimated value greater than $100k, we'll have an auto email sent to ask if you'd like to setup a time to talk to one of our brokers about selling your site.
 

404profound

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Thanks, I appreciate the note.

In regards to the developer, we have gotten quotes from $2.5k-10k. The formulas in my model are quite complex...here is a snip of one for example, out of probably 50 like this:

=IF(R33>=5,AVERAGEIFS('RAWDATA'!$F$2:$F$659,'RAWDATA'!$B$2:$B$659,$C$32,'RAWDATA'!$E$2:$E$659,$P33,'RAWDATA'!$E$2:$E$659,$Q33),INDEX($M$62:$U$69,MATCH($M33,$M$62:$M$69,0),MATCH($T$32,$M$61:$U$61,0)))

It's got nested array's, circular references, etc. so coding the logic is very difficult to start with, and then I need the ability to continually update the data to be able to add more transaction data to make the outputs more accurate. The goal is to have a custom and separate screen for each input variable, and then when you get to the end of the inputs, you put in your email address and the results are emailed to you.

So the goal is to be able to capture leads by getting email addresses and accurate data on the size of website the user owns, unless they are inputting the data hypothetically for a site they don't own. If you use the calculator and get an estimated value greater than $100k, we'll have an auto email sent to ask if you'd like to setup a time to talk to one of our brokers about selling your site.
I see, that makes sense then. I am currently learning javascript and associated tools, but your needs seem better suited to python, and I know python guys aint cheap for backend work. The code you included looks like VB, if it is, I am sorry (though I know the finance industry lives and breathes it).
 

PhilPhil

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Nov 23, 2015
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The logic you provided isn't even that complex.

Go build it on bubble.is

It's been a game changer for me since finding out about bubble.is You can pretty much build any type of complex website/apps that require tons of workflow, backend data, formulas, etc. I am actually building out an M&A marketplace and valuation tool for financial advisory/wealth management businesses.

Goodluck.
 
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JM35

JM35

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The logic you provided isn't even that complex.

Go build it on bubble.is

It's been a game changer for me since finding out about bubble.is You can pretty much build any type of complex website/apps that require tons of workflow, backend data, formulas, etc. I am actually building out an M&A marketplace and valuation tool for financial advisory/wealth management businesses.

Goodluck.
Phil - thanks for the suggestion. I've never heard of Bubble but it looks quite interesting. I'll give it a shot and see what I'm able to build here - maybe it will suffice for the short term.

But eventually, I think it's worth it to pay a pretty penny for something that is 100% built out and functions exactly like we want it to. $8k is pretty expensive, but fees in the brokerage space are lucrative as well. If I sell one out of the two companies I am marketing right now, I will earn enough in fees to recover my startup costs, pay for a fully-built plugin, and put a few thousand bucks of pure profit in my pocket. If this is a tool that is going to be driving six-figure leads for my business, then the ROI is huge. One small to medium sized deal and the return is 2x the cost.

I am actually very curious to hear about your M&A marketplace...I currently work for a lower-MM private equity firm, and spent some time in the past in private banking so have some experience on the wealth management side of finance as well. Are you building a platform to service business brokers/advisers/investment banks in marketing their transactions, or providing a platform for high net worth individuals to source private deals without an intermediary?
 

GoGetter24

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Ignore the nickel-and-diming comments. Likely none of them have ever paid to have something developed or know the expense of that labour or have any experience in what they're talking about. $8k is fine but they better do a good job and get it done in reasonable time. Alternatively you can spend $500 on some 3rd worlder on upwork and enjoy broken English communication & a trash result.

In one podcast I listened to the guy mentioned he got a sales funnel website built for $50k. And he was in the marketing business. He was well aware how cheap it could be done, and that he could make it himself. But he also knew the age old rule: you get what you pay for.

One thing I'd add is that business pricing is epic complicated, arbitrary and "black art". I was researching how to evaluate a partner's stake in a partnership, and it was a complete joke. Articles suggested 4 completely different evaluation methods, with no factoring in of the loss of business value that comes from a partner leaving (have to be replaced, take on their roles, etc).

So what you're offering, based on historic data for the multiples, sounds solid and a winner.

You could even consider rolling it into M&A yourself. If you got good traffic, and had solid financial analytics set up, you could even just give them direct lowball offers yourself. I.e. using multiples 30% less than average, but offering rapid sale. Some guys just want out. In fact if they're searching for business evaluation, most of them are thinking of getting out. People don't normally sell when they're "just not enjoying the business so much at the moment", they're selling when they want to ditch the thing right now because they've had enough of managing it. Then you could start rolling them up into bigger businesses based on market overlap, and get them big enough to sell to some big guys for 6x to 10x.
 

CareCPA

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You could even consider rolling it into M&A yourself. If you got good traffic, and had solid financial analytics set up, you could even just give them direct lowball offers yourself. I.e. using multiples 30% less than average, but offering rapid sale.
This is an interesting idea.
Kind of like the "we buy houses for cash" signs you see everywhere (or yellow letter campaigns) for real estate. Let them know that you could market their site and they could get 2x annual, or you would buy it for 1.5x annual (just an example).

@JM35 can you define the parameters on the sheet? I'm assuming monthly, but some brokers deal in monthly and some in annually. I'm assuming the final program will specify.
 
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JM35

JM35

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Jul 13, 2013
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Ignore the nickel-and-diming comments. Likely none of them have ever paid to have something developed or know the expense of that labour or have any experience in what they're talking about. $8k is fine but they better do a good job and get it done in reasonable time. Alternatively you can spend $500 on some 3rd worlder on upwork and enjoy broken English communication & a trash result.

In one podcast I listened to the guy mentioned he got a sales funnel website built for $50k. And he was in the marketing business. He was well aware how cheap it could be done, and that he could make it himself. But he also knew the age old rule: you get what you pay for.

One thing I'd add is that business pricing is epic complicated, arbitrary and "black art". I was researching how to evaluate a partner's stake in a partnership, and it was a complete joke. Articles suggested 4 completely different evaluation methods, with no factoring in of the loss of business value that comes from a partner leaving (have to be replaced, take on their roles, etc).

So what you're offering, based on historic data for the multiples, sounds solid and a winner.

You could even consider rolling it into M&A yourself. If you got good traffic, and had solid financial analytics set up, you could even just give them direct lowball offers yourself. I.e. using multiples 30% less than average, but offering rapid sale. Some guys just want out. In fact if they're searching for business evaluation, most of them are thinking of getting out. People don't normally sell when they're "just not enjoying the business so much at the moment", they're selling when they want to ditch the thing right now because they've had enough of managing it. Then you could start rolling them up into bigger businesses based on market overlap, and get them big enough to sell to some big guys for 6x to 10x.
Absolutely - I think the big opportunity is getting into the buyside down the road. If I can get a good amount of proprietary deal flow, I can cherry pick the best businesses and buy them for myself, likely getting them for a lower multiple by offering a quick sale. Then because I have a built out brokerage, my selling costs are 0% rather than having to sell through a brokerage shop and pay 10-15%.

Private equity is my true passion and I think there is a lot of opportunity to start up a traditional private equity firm that focuses on non-traditional asset classes such as online businesses.
 
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JM35

JM35

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This is an interesting idea.
Kind of like the "we buy houses for cash" signs you see everywhere (or yellow letter campaigns) for real estate. Let them know that you could market their site and they could get 2x annual, or you would buy it for 1.5x annual (just an example).

@JM35 can you define the parameters on the sheet? I'm assuming monthly, but some brokers deal in monthly and some in annually. I'm assuming the final program will specify.
Yes, the multiples are monthly multiples. Some brokers use annual but I prefer monthly, since the annual multiples typically trade in a pretty tight range of 1-3x annual profits. It's a lot easier to comprehend a 19x monthly multiple than a 1.583x annual multple, in my opinion.
 

CareCPA

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Yes, the multiples are monthly multiples. Some brokers use annual but I prefer monthly, since the annual multiples typically trade in a pretty tight range of 1-3x annual profits. It's a lot easier to comprehend a 19x monthly multiple than a 1.583x annual multple, in my opinion.
Awesome.
I think the idea is great. I haven't been to too many broker sites for ecommerce (just the ones I've dealt with).
However, I have dealt with real estate, where you input all the information, and it either says "give us a call" or "we'll have someone call you." When I'm looking at a calculator, I want to make sure that I'm getting an actual number out of it. Looks like yours does this, which is one step ahead of most.
 

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GoGetter24

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It's a lot easier to comprehend a 19x monthly multiple than a 1.583x annual multple, in my opinion.
It's not very familiar though; industry standard is just annual. I'd just round it whichever way favors me, 1.5 in this case. It's also closer to the income averaging period: businesses aren't usually valued based on the last month of sales, they're valued closer to the last year of sales.
 
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JM35

JM35

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It's not very familiar though; industry standard is just annual. I'd just round it whichever way favors me, 1.5 in this case. It's also closer to the income averaging period: businesses aren't usually valued based on the last month of sales, they're valued closer to the last year of sales.
I agree on your last point there - what we do is take an average monthly profit from the trailing 12-months and base the multiple off of that number. So it does capture the annual profitability - we just show it in a monthly manner rather than annual. There are some significant brokers in the industry that use monthly instead of annual so I wouldn't say it's necessarily industry standard - a lot of brokers don't even show multiples...and our marketing decks actually don't either.

But also, for smaller online businesses, it isn't uncommon to see them trade off of their trailing 6-month earnings rather than 12-month. Reason being, they are a lot more nimble than traditional businesses and trends are set a lot more quickly.

Anyways, using monthly vs. annual is just an aesthetics question in this case. I don't think it hurts the overall goal of the calculator for us. I could build in the functionality to show annual and monthly, or for inputs to be just annual, but not sure if it is worth the extra time at this point. At the end of the day, it gives the user a $ value, and that's what most people care about.
 

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