Buying Sites: Site Valuation Formula
Transcript:
Hey folks. My name is Charles Lumpkin. Today I want to talk to you about something that I’ve been working on for quite some time, and it’s really powerful. This is the valuation formula that I’ve derived, so that you can understand—before you get into a transaction—exactly what’s there. It will allow you to pick apart the constituent pieces and parts of an online business. So that you make sure you acquire a site, and that you’re not going to get dealt with.
So, let’s get into the formula. Here’s the whole thing. Now, let’s get into the constituent pieces and parts. Essentially we’ve got the domain value, and the rest of this formula is about the cash flow and understanding the cash flow. Cash flow as you very well know is revenue minus cost. Profit. Then below each of the “Domain Value” and the “Cash Flow” we have the “Discount Value.”
Now we’re going to get into the deeper parts of these, each piece, in later videos, so stay tuned, but I do want to talk very quickly about the time value of money. You probably already know this, but a dollar today is worth more than a year from now. I can take a dollar today and invest it at 10% and have a dollar and ten cents a year from now.
So, understanding this, a dollar and ten cents a year from now is worth a dollar today. When we’re looking at a series of cash flows into the future that a business produces, we have to discount those by a certain rate and take them into present value. This entire formula is a discounted cash flow analysis of a business.
Stay tuned for the rest of the pieces and parts. This is exciting stuff. I love this stuff.
Again, my name is Charles Lumpkin and you can find more of me at CharlesLumpkin.com Thank you.
