Website Price of $1,000,000 is Psychologically Different from $999,999 Price
Let’s briefly discuss the psychology and importance of pricing. We have a client who is having a very difficult time pricing his website for sale. Despite our professional advice and recommendations, his indecision has been dragging on for months. His website business has been appraised at between $800,000 and $1,500,000 by various appraisers. This includes our appraisal which was lower than he expected. He doesn’t want to leave any money on the table. He wants to cash out as high as possible so his dilemma is “What price should I ask for?”
Websites, as well as domain names, can take time to sell. We’ve sold some websites in as little as 2 weeks. Other websites have taken 6 months to sell. Of course, sometimes websites do not sell at all despite your best intentions. In the past, we discussed some of the reasons why some websites take time to sell including whether you’re selling a generalist website or specialist website. A specialist website generally takes much longer to sell than a generalist website.
The biggest reason why a website takes time to sell is its price. Website sellers, like domain name sellers, have a tendency to over-value and over-price their websites. A quick scan of listings at marketplaces like Flippa or BizBuySell will prove this. Half of all listings do not sell because of price. Websites are over-priced because a website transaction is a one-time big-dollar exit for a seller. Sellers want to cash out at the largest multiple possible. This is understandable. But this multiple may not match the multiple that the market is willing to pay. And the website sits idle in the marketplace.
$1,000,000 in human financial programming
The number 1,000,000 carries a lot of weight in our society. People have been programmed to view $1,000,000 as the Holy Grail. Everyone wants to be a millionaire.
Million-dollar listings and transactions are celebrated in the news. 6-figure transactions are seen as second-tier to 7-figure million-dollar transactions. The term luxury in real estate refers to million-dollar properties. High net worth generally refers to individuals with at least 1 million dollars in assets.
This programming pushes sellers to seek the million-dollar windfall. A million-dollar transaction sounds much better than a transaction of a few hundred thousand dollars.
If you take a moment to step out of this financial programming, you realize that $1,000,000 is 1 dollar more than $999,999.
The financial difference is $1. But the psychological difference is exponentially bigger.
Note that nobody says “I want to be a 999,999 thousand-aire.” Everyone wants to be a millionaire.
Despite the fact that the difference is only 1 dollar, these two price tags attached to the same asset bring two completely different types of buyers. In essence, $999,999 and $1,000,000 live in two completely different worlds.
Every human being is unconsciously comfortable at a certain number of figures in financial transactions.
When you first start dealing in money as a kid or young adult, you consider $100 a lot of money. As you get older, you become more comfortable at $1,000 or $10,000 or $100,000 or higher.
Well, the same applies to website buyers and traditional investors. Some investors operate comfortably in the 5-figure world. Others operate in the 6-figure world. Some operate comfortably in the 7-figure world… and so on.
As the number of figures increase, the number of people involved decreases. As you increase the price of your asset, you target fewer buyers. There are fewer buyers for a $100,000,000-business than there are buyers for a $100,000-business.
When you price a website at $1,000,000 or more, you immediately eliminate the buyers under $999,999. These buyers won’t even look at the listing. Psychologically, they believe that it’s outside their price range and comfort zone. Some of these buyers could comfortable buy the same asset for about $900,000 or more. But as soon as they see a 7-figure price of $1,000,000 or more, they look the other way. Its human programming at work.
This human programming has always been exploited by businesses to generate revenues. Big box retailers price a $50-product at $49 and a $20-product at $19.99.
It’s why $1-items are priced at $0.99. The difference in the price is 1 measly cent. But, psychologically, a shopper feels like he’s getting a bigger bargain and better deal at $0.99 than he is at $1.
So my advice to a seller with a website that is appraised at around $1,000,000 is that he should price it at $999,999.
As a website seller, you want to attract as many buyers as possible. The 7-figure buyer is comfortable at $999,999 and the 6-figure buyer is comfortable at $999,999. Let them both come in and compete for your asset. You want lots of traffic to your website listing in order to give it the highest chance of a sale.
How much money do you lose by pricing it at $999,999 versus the world-famous $1,000,000?
You lose $1.
If this small insignificant loss bothers you, think of it as spending $1 to attract a much higher number of buyers.
If you absolutely insist on pricing your website at over $1,000,000, then offer the possibility of seller financing. In this way, 6-figure buyers under $1,000,000 may still contact you to inquire about financing a purchase.
Remember, you’re not obligated to offer financing to anyone. You can receive and assess all offers from 6-figure buyers and 7-figure buyers and provide financing at your discretion. This flexibility will produce a faster sale.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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