Website owners have a different reason for creating their sites. You may have created your website 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 website and seeing its audience or customers grow.
However, for some reasons, there may come a time when you would want to sell your website. 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 website as a short-lived opportunity that you want to dispose quickly.
Whatever the situation, selling your website 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 website 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 website. And one of the main questions you will ask is: how do I set a price tag on the web site? What is the website’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.
Below are ways commonly used to assess and determine your website’s value, 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 website’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 website 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 website with a domain name keyword.com only makes $50 a month of profit, while another website with the domain name keyword1-keyword2-keyword3.biz generates monthly profit of $500 per month. Then using the 10x valuation method, the first website’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 website 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.
Some web businesses are sold mainly because they own some proprietary technology protected by patents. Patents normally increases the underlying value of a business. However, patents are intangible intellectual properties, and can be subject to varying assignments of value and worth.
Branding and industry stature.
A website 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
A website’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 website 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 website 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 website 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 website that is similar or in line with the website you are selling for an agreed period of time.
Consider this the “X factor” that the potential buyer sees from your website. 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.