Another great post that will help “newbies” to the online game…:)

Run rate in my office is how many times I can get a run in on any given work day. Like these posts Jeremy, good stuff.

This has been an awesome series Jeremy! Just wanted to say thanks for educating us

No comment.It is great.It will help ”newbies”

run rates also apply to expenses. Best to look at all numbers over time so you can see the variation and hopefully attribute a distribution to the data.

I just went through this exact exercise with a friend here in town on his local business. The market is Heating and Air Conditioning… and they were wondering why, after 25 years of local business, they always seem to lose money in Feb-April and Sept-Nov.

I dont think they had ever looked at the historical info in their financials to scale up or down at the appropriate times of year (Seasonailty) when it comes to labor, overhead etc.

I will say that in relation to the web - we ran an ecommerce site for 2 full years and the same seasonality that affected their local business was NOT applicable on the ecommerce site. Even though sales in our local market were stunned when mild weather hit… there was always another area of the Country that was either too hot (needed AC related items) or too cold (needed heating related items)…

Very different animals, local and web, and they need to be evaluated in unison as well as separately.

Mark

lol - run rates, acquisitions, valuations etc etc

every so-called analyst has their own numbers.

but in the end…whatever price the buyer and seller meet at, is the perfect ideal price.

The seasonal nature of a business, and how it affect cash flow, is one of the critical components of valuation, whether brick & mortar or online. Thanks for the primer Shoe.

I find it especially hard to calculate the run rate of a non-ecommerce site. e-commerce sites are a little easier because they function like BM stores to some extent.

Sites that rely on advertising for revenue can be tricky to evaluate because they rely on site traffic. A lot of those factors are out of your hands. So you could be doing great this month, then lose some inbound links or PR, and tank the next month.

I focus mostly on how viable I think the overall idea is. If it’s genius, I think I can make it work.

I have really enjoyed the new write up about business. I see that you have learned a lot in the years you have been in business. I know you have commented about this before, but maybe you should put together a book “Owning an online business” including chapters about marketing, finance, hiring/firing ect.. At a reasonable price I think your fans would really like it.

A while back I was running an operation of custom woodworking through online sales. I used a laser cutter to do the precision cutting, and the rest was a mix of my talents and outsourcing to local companies. One business function I failed to heed was the seasonal variations on my raw materials I sourced for e-commerce. So let this be a warning to newbies, a cold Russian winter can have dire consequences for the next 6 months. Lesson: beware the single source.

are you going to suggest next what sites to buy The buyer would love you for it.

I really will have to relay these posts to my clients! I also wish we had this kind of ideal set up during the dot-com boom. It would have prevented so much of the volatility we saw in the market at the point in time.

Great posts!

Yea, sometimes it is kind of hard to nail thiings down when they happen “in the blink of an eye.”

In terms of valuation, is run rate the main attribute in contributing to price? i.e. 5x 1 year run rate = value of company?

Wow, just found this site and I’ve read all 3 parts. Great! Good work!

Man, I’m hoping my luck changes after reading more about this. I need to send you my latest linkshare check for $2.49. WEEEE.

i wanna share a little story about trends. when i started online marketing, i was doing the adult niche. and every summer sales are rock bottom. i guess people are going out more during summer, and not stuck at home on their computers.

Great post. It’s extremely true that the world of the internet is different than any other business medium. The rules can’t apply here. The environment is anything but predictable.

So if someone evaluates an internet property, he does calculate the growth of the e-business as a whole, too?

Would it be possible to do a write up on how to get in front of venture capitalists that invest mainly in internet companies?

Interesting and useful post.

This is a really tricky subject though (and for those who make it to the level that they are able to sell their online business for a good price, then something, certainly, worth thinking about).

I’ll second the book idea!

interesting, though I’m not into this thing…

Great series on valuing web properties. This kinds of ideas don’t get talked about nearly enough. I recently posted a video on how valuing web properties can be related to valuing real estate. I love this stuff. Great post, Shoe.

Great post, thanks…

[...] You can read part 1 - Financials here and part 2 - part Rate of growth here and part 3 - The Run Rate Here and part 4 - Resources [...]