How Much Is Your Website Worth?
A Realistic Guide
If you had told someone 25 years ago, when the Internet was in its infancy, that one day people would be able to make serious money from simply selling a website they had created, chances are the only response you would have got was a polite chuckle.
Fast forward a quarter of a century and people are doing just that. “Regular” people too, not just tech nerds and eggheads. It’s now perfectly possible to make a tidy cash profit from selling websites, but it almost goes without saying that you really do have to know what you are doing, or at least know someone who does and can help you out.
One of the very first steps to be taken before selling any website is to try and determine its value. In fact, that’s something worth doing even if you have no plans to sell your site right now. After all, you probably know what your house or car is worth, so why not try to determine the real ROI from all of that hard work – and money – you are putting into your little slice of potentially lucrative Internet real estate?
So, What Does Make Websites Valuable?
What makes one website valuable and another far less so, at least in the eyes of a potential buyer? That’s a big question to which there is no one good answer.
Ask five different potential investors what they think a website is worth and you’ll probably get five different answers, with at least a couple of them varying wildly. That’s because every buyer sees the potential any site has a little differently. And that’s only just the start of things getting a bit hard when trying to determine an accurate valuation of your site.
Don’t Kid Yourself
Before getting into the numerous basic ways that are used to determine a website’s value you need to be told a few home truths about your site.
You think your site is great. Brilliant visuals, stunning content. You’ve put in hours of work. Tons of money. You’ve followed every reasonable recommendation and advice article you could find to help ensure its properly optimized. It’s a great piece of work, even if you do say so yourself.
That’s fantastic, but it may all mean very little when it comes to determining the actual value of your site. Many buyers aren’t really too bothered by what a site looks like, or even much of its actual content. What they are interested in is getting the best possible ROI on their site purchase in the shortest possible time. Period.
The extra money you might have invested in the building of the site may not matter too much. You might have paid hundreds to maintain the best security, install the best SEO plugins, get a customized built- just- for -you theme. If a potential buyer can’t see the money-making potential, none of that matters. That investment can’t be added on to the value of the site just because you made it.
The takeaway here is, be prepared to be disappointed. Hopefully, when website valuations do start coming in you’ll actually be but be aware of the fact that as valuable as you think your baby is, others may not agree.
If however, your website has, for example, a decent sized membership and they pay their dues every month AND you have some decent, demonstrable advertising income, and good traffic, you may be onto something. Why? Because those are things that you can prove now.
The Most Commonly Used Website Valuation Methods
Before getting into the actual valuation methods used you should understand some of the factors that might add value to your site in general:
- A unique selling point
- Demonstrable, consistent earnings
- Month to month growth
- Several different revenue streams
- Increasing and diverse traffic
- Consistent and effective branding
- Name recognition
Although the methods people might use to personally come up with a value for your website will vary to a certain degree, there are some commonly used valuation methods that most experienced buyers will use:
#1. Revenue Multiple
This is a rather basic way to calculate the value of a website, but it is one that most people use, even if they then take other factors into account.
Basically, they take the revenue the site generates now on an annual basis and multiply by that figure by 1, 2 or 3, depending on how much they are willing to pay.
For a newer site, one that can really only show monthly stats at this point, that figure will be based on the number of months you have to offer accounting for.
Quick Note- Trying to sell a website that is less than a year old will be an uphill battle. Those who think they can build out sites and then quickly flip them for a big profit in just a few months are usually sorely disappointed.
Mathematically, the Revenue Multiplier looks like this:
Annual website revenue = $20,000
Multiplier buyer is willing to pay = X2
Website valuation = £40,000
Simple and very basic. A little too basic. A shrewd buyer will rarely rely solely on this kind of calculation. But most of those dinky little automated website value calculators do, and that is why they are so unreliable.
#2. Comparable Sales
Real estate agents have been using comparable sales figures – or comps as they prefer to call them – as a way to help determine the value of a home for decades. And comps can be also be used to help determine the value of a website.
The process is almost exactly the same as one a real estate agent would use as well. The potential buyer tracks down sales stats for sites similar to yours for the last several months and makes a tentative valuation. Again, not an accurate science, but a good way for a buyer to determine a ‘ballpark figure’.
#3. Asset Valuation
A potential buyer will usually also perform an asset valuation to determine what they believe would be a fair price. This would take into account more of the factors unique to the individual website, including all of the following:
When evaluating a site’s traffic, the basic numbers are a secondary consideration for any savvy buyer. They want to see quality traffic and they want to see diverse sources of that quality traffic.
For example, if your website has decent traffic numbers, but most of that traffic comes from a single source (Google search, Facebook, a ‘feeder’ landing page) then any investor will be given pause for thought. One simple algorithm tweak or accidental rules violation could see it all dry up, rendering the site at least temporarily useless.
Creating a solid mailing list is a #1 priority for most website owners. A mailing list can be worth a lot more than a website owner may realise. Sometimes it may even be worth more than the site itself. If you have a mailing list it’s important you understand its value.
How do you do that? One very basic way is to determine the list value using the concept of “replacement cost.” How much does it cost to get each subscriber on the list? For example, say that to lure each of the subscribers on the list in question, it cost £5, via Adwords, Facebook ads, employee time etc. The list contains 5,000 names. That’s a value of £25,000.
That however is a very basic estimate. To understand more check out this extensive guide put together by the folks at American Express.
Subscribers are, you would imagine, even more valuable as they often actually pay a fee to use the site. In order for them to be truly valuable to a buyer though you’ll need to show how they are maintained and those methods ideally won’t take too much away from the net profit potential.
Domain names are bought and sold in their own right every day on the Internet. If your site has a great domain name – more on that here from the kings of the domain name game, GoDaddy – just that URL itself may add to the overall value of the site.
Your site does not to be up there in terms of brand recognition with Google and Amazon but if you can demonstrate, for example, a solid and growing Instagram presence that produces a great deal of ‘buzz’ within the website’s target audience you may have a case for upping the price.
These are just a few examples. Basically, anything they feel might help them turn a profit in a reasonably short amount of time is likely something a website buyer will add into their own valuation equation when formulating an offer.
These are, it should be noted, not the only methods buyers will use to determine what they think is a fair price for your site. So, you could follow them yourself, come up with a figure and still find that you can’t get your asking price when you finally list the site for sale.
So What’s The Answer Here?
Homeowners who are selling their property often run into the same problem. They take a value from an online calculator, pull a few comps, add in what they think are factors that increase the value of their place over Fred’s down the road and come up with an asking price that is often even wildly high – meaning the place doesn’t sell, or woefully low, meaning they lose out when it does.
Website owners often do the same. Then are perturbed when they list their site for sale and it either doesn’t sell or all they get are what they think are lowball offers.
For the homeowner, the key to avoiding under or overpricing their home is a professional evaluation from a real estate agent. They will certainly use those comps too, but they will also make use of their unique knowledge of the current market, the neighborhood and what really does, or does not, add value to a home to determine a realistic listing price that will get the place sold.
Website owners can do the same. As we’ve tried to convey here, getting a real picture of a website’s value is not a science, it’s an art. Buyers take the time to try and perfect it and there are others out there – Internet real estate agents if you like – that do so too. These are the people you need on your side if you are serious about selling your website for what it’s worth.
Get a free valuation and planning call to better understand the value of your business and how to position yourself for maximum value in an acquisition.