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Thinking
of Selling Your Web Site? How to Determine Your Web Site’s Value
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If you are an Internet entrepreneur,
selling your web site will be one of the most important business decisions
you will ever make. After making it grow, you only got one chance to sell
your site. Once you sign and closed the sale, that’s it! No turning back,
whether you think you sold the web site for a price too low or whether you
shouldn’t have sold it at all.
by
Nach Maravilla
PowerHomeBiz.com
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Web site owners have a different reason for creating their sites. You may
have created your web site with the goal of making it as your sole or
additional revenue source. Or you may have altruistic motives whereby you
don’t really aim to make big money (or any money, for that matter) out of
it, but simply want to get your message across your target audience.
Whatever your objective, you put time, energy, even considerable expense in
nurturing the web site and seeing its audience or customers grow.
(article continued below ...)
However, for some reasons, there may come a time when you would want to
sell your web site. Maybe, it has already served its purpose and you want to
move to a different direction. Or possibly, it is only marginally successful
and you think spending more time and energy to it is a waste. You may also
possibly consider the web site as a short-lived opportunity that you want to
dispose quickly.
Whatever the situation, selling your web site will be one of the most
important business decisions you will ever make. After making it grow
possibly for years, you only got one chance to sell your site. Once you sign
on the dotted line and closed the sale, that’s it! No turning back for you,
whether you think you sold the web site for a price too low or whether you
shouldn’t have sold it at all.
It is therefore important to carefully consider some steps before selling
your web site. And one of the main questions you will ask is: how do I set a
price tag on the web site? What is the web site’s value?
One important point, though: there are no clear-cut ways and established
formula to determine a web site’s value. In fact, making an accurate
valuation is a judgment call, where not all parties may agree. Nevertheless,
below are two ways commonly used to assess a web site, which you can use in
combination with other factors that may be relevant to your web site:
- Multiple of the profit it turns in
. Many practitioners in the field put
a web site’s value using a straight formula: 10 times of its net profit. The
rationale is that 10x is the lower level bottom foundation of return on
investment. For a web site that earns a profit of $100,000 a year, then its
value can be placed at $1 million!
However, this formula is too simplistic (why multiple of 10, and not
multiple of 15 or 20?). Imagine this scenario: a web site with a domain name
keyword.com only makes $50 a month of profit, while another web site with
the domain name keyword1-keyword2-keyword3.biz generates monthly profit of
$500 per month. Then using the 10x valuation method, the first web site’s
value despite its coveted domain name is only $500, while the site with the
longer hyphenated domain name could fetch up to $5,000. Given this case, the
10x valuation formula does not really make any sense.
- Cost involved in replicating the website
.
Similar to brick and mortar businesses, another method of valuation
is determining the price of the web site based on its inventory and assets.
For a website, the inventory & assets would include the quality and quantity
of its content and images, as well as scripts or applications that may have
been purchased or developed specifically for the web site.
It could also include the size of its customer list or database; as well
as number of subscribers. In fact, many web sites could command higher
prices by the sheer size of its customer database alone.
Aside from the above factors, there are other important considerations
you need to include in setting the price of your web site:
- Branding and industry stature
. A web site with a well-established brand
name and industry recognition is likely to attract a higher price than a
totally unknown web site. The site may be getting regular mentions and
publicity from the media, receiving awards, and commands the respect of
others in the field as an “authority.” The age of the site (the older, the
better) can also be considered as a deciding factor in setting up its value.
. A web site whose target audience has more value to
advertisers is likely to command a higher price than a site targeted to a
set of audience that attracts fewer advertisers. For example, a site
targeted to CEOs and high-level executives is more valuable than a site
whose main audiences are folks who love squirrels.
Other considerations include: the effectiveness of the web site to its
users (are they finding what they need?); as well as the loyalty of its
customers as determined by the number of its return users.
There are site buyers who have no interest in the current
content of the site and focuses solely in the site’s domain name. A site
with keyword.com is deemed more valuable than a web site whose domain name
is keyword1_keyword2_keyword3.com
- Income Diversification.
A web site’s current sources of income also
need to be considered when determining its value. Is the site maximizing its
revenue potential? Is it putting all its eggs on one basket and relying
solely on a single income source (e.g. one affiliate program, one
advertiser, one product)? Now, what happens if the web site loses the
advertiser; gets kicked out of the affiliate program; or its only product
loses its steam?
Is it also missing out revenue sources that seem to be a good fit for the
web site? If so, how much is the opportunity cost that the site is
potentially missing out? An example is a content-rich editorial site that is
not currently running Google’s contextual advertising program Adsense.
Where is the web site getting its traffic? A
site generating its traffic solely from natural search engine results,
especially if the traffic is concentrated on a single search engine, is
considered high risk. If Google, for example drops the site, then the web
site loses 100% of its traffic. However, a site that relies on search
engines for 40% of its traffic, 20% from links, 30% from paid advertising
and 10% from publicity has a greater insurance when one source stops
bringing in traffic to it.
A site that consistently ranks at the top of the search engines (not
just a one-time fluke) also can be used as a negotiating factor when
setting the price, as well as the number of its quality backlinks. Also check if the site has been blacklisted by search engines, or
listed as a spammer by the ISPs.
You can put a premium on the asking price if the
buyer will request that (a) you lose the rights to all the content you
created; and/or (b) you may not create a web site that is similar or in line
with the web site you are selling for an agreed period of time.
Consider this the “X factor” that the potential buyer
sees from your web site. Your buyer may be a close competitor where
acquiring ownership and control of your web site may put his or her web
properties in the position of industry dominance. Or your site may be a good
fit with the current network of sites owned by the buyer. The buyer may also
be looking at the opportunity costs that you are missing, and knows that
their investment in your web site can be recuperated (even doubled or
tripled) in no time at all.
As part of revenue maximization factor, the buyer may also see the
weaknesses of your site -- including lack of communication with users, lack
of communication with suppliers, and lack of strong relationships with
anyone – which can drive down the price for you but may be seen by the buyer
as untapped opportunities for growth.
At the end of the day, however, your web site is only worth as much as
what somebody else is willing to pay for it.
About the Author:
Nach Maravilla is the President/CEO of PowerHomeBiz.com. For more
information on starting an online business, visit the
Ecommerce, Doing Business on the Web and
Starting an Online Business channel
February 14, 2005
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