I was browsing Admin Talk when I saw a thread titled “$600 for a forum without revenue?” A member named Soliloquy mentioned that a forum they liked was up for sale for $600. It has over 70,000 posts, 4,000 threads and 1,500 members. But it does not make any money as there has been no attempt to monetize it.
Online communities can offer a lot of value to people. Providing them with answers, helping them with a challenge they are facing and building strong friendships. But if you should ever want to buy or sell a community, the discussion will come down to monetary value.
When you talk about buying or selling a website, which is what an online community usually is, there are often revenue based formulas that are thrown around, such as 12-24 times monthly revenue. While it is OK to consider these formulas and even use them as a vague guideline, you should not use them as a rigid standard. Often, they do not equate to a proper valuation of what a community is worth.
For example, with the community above, you have $0 revenue. 12-24 times $0 is $0. That obviously isn’t what the community is worth. Also, if KarateForums.com and Karate-F0rumz.biz are exactly the same in every way – they make the same money, they have the same traffic, etc. – are they both worth the same? No, not at all. KarateForums.com is a substantially better domain name and is worth a considerable amount of money by itself, even if there was no community built on it.
It’s like if two companies both make the same money, but one owns a really nice building, where the other operates in a broken down shack. The building has value.
The way to properly value a community is to consider all of the assets that it has. If your only goal is quick money and maybe flipping the community in a few months, then revenue might be all you care about. My goal is never that, so I would seek to evaluate the community more completely. Here are some things that I would keep an eye on:
- Total activity. How big is the community, size wise?
- Current activity and traffic.
- Quality of content. How is the quality of the contributions within the community?
- How well the community is managed. If it is managed poorly, it may not be worth the effort to get it on track because the members are used to a management style I wouldn’t want to use and it could alienate them.
- Domain name(s).
- Assets on third party sites like Twitter, Facebook, Google+, etc.
- Email subscribers, RSS subscribers, etc.
- Design and branding. If it has a great design and logo, that is money I don’t have to spend.
- How it ranks in Google or if it is blocked or black listed.
- How averse current members are to monetization efforts. Do they have any ads? Would I be the bad guy who would introduce them? How is the membership likely to respond?
- Revenue (and expenses).
All of these things can factor in. Let’s look at domain names, for example. I’ve sold a forum specific domain name for a substantial amount of money. That domain name did not have a community on it, had never had a community on it. That means it had no traffic and no revenue.
All of these things can be a factor and they aren’t in any particular order. Revenue isn’t necessarily the least important thing, but it probably isn’t the most important because someone who knows how to monetize a community will know what they can and cannot do. They can look at what the community is currently doing and identify methods that are not in use, that will allow them to grow that revenue.
For instance, if you have an email newsletter with a few thousand subscribers and you don’t monetize it at all, that is a goldmine to someone who knows how to monetize email subscriptions. Just because you haven’t done it doesn’t mean that it is worth nothing.
The thing about valuating strictly on revenue is that it has rarely been maximized in an efficient manner. If all they did was throw some Google AdSense ads on the forums, then revenue multiples mean absolutely nothing. 12-24 times whatever you get from just putting some AdSense codes on your site, without thinking about it, is not a proper valuation of what your community is worth.