This is part 2 of an series of posts of how to evaluate an interenet property. You can read the first post here which is about the financial aspects
The rate of growth is a pretty easy concept to understand. Either your company /business has been growing or its not. Rate of growth is not always measured in profit. For instance a website growing in users at the rate of 50,000 per day but slowing in revenue is much more attractive then a company gaining in revenue 10% per month but slowing in users by 150% per month.
One important word here is hockey stick growth. It’s when you look at a chart of your website/company and see a hokey stick in the shape of the chart for the metric you are measuring. But as mentioned earlier this growth is not always just about profit. For instance if you are just buying a simple domain. Lets say the domain is iphoneusers.com. Being the only asset for sale is the domain name it makes it fairly simple to figure out the main metric should be the amount of mentions and news this niche has been getting and if that trend is up or down. As you can see below the iphone niche has seen “hockey stick” growth.
But that is not all. You can have all the traffic you want but if you are not measuring the rate of conversion growth then you are missing a valuable part of a website valuation. Keeping with the iPhoneusers.com example being that it is a forum/social community you will want to be sure to measure the rate of growth that pertains to new users. Rate of growth in this area is important and can play a very big part in your valuation of the site. The site might have a ton of traffic but is failing to convert those people into users. This is generally measured by the user signing up for the community or forum and being active. This is often where the gold is found in buying websites. Most people just do not understand how to convert traffic into users. I love to see a site with a hockey stick growth in traffic but a poor rate of growth in conversions.
For typical business selling products online the rate of growth can be measured many ways. For one you have the site analytics as mentioned above and you also have user conversion but there are other things to look at with user conversion. A user conversion is generally measured by a purchase but there is also in just acquiring that user to market to in the future. The of course there is just the obvious net and profit margins rate of growth to measure.
A blog or news site rate of growth is measured by site analytics but with blogs and news sites there is also something called RSS. RSS (really simple syndicaion) basically makes it really easy for people to keep up with the news from the site by including it in there news readers. RSS is a up and coming thing. Currently on my blog I have about 15,000 RSS readers. It’s very powerful. Measuring the rate of growth of RSS subscriptions is one of the few good metrics of conversion for a blog or news site.
So you see the rate of growth is a very important factor in determining a sites valuation. And as shown by many examples above what matters to you in that rate of growth could be different then what matters to someone else. Some people buy sites purely for niche traffic… others to aquire more users to their existing communities and businesses often buy compeditors purely for the database of customers. Whatever your reasons are the rate of growth is a very important factor.
Tune in next week as we cover chapters 3, 4, and 5