Why Does a Site Have Value?
To understand how to value a website it's important to appreciate just why websites have value - and it's quite simply because a buyer sees profit to be made.
If the buyer cannot see a route to making profit with a site, the chances are he's not going to buy it.
Should no buyer see profits to be made with a site the site is viturally worthless.
Sellers often have trouble understanding this and believe that because they've spent a lot of time on the design, SEO, software or traffic their site somehow has a value. It doesn't. While their time, effort and design are all valuable inputs, what's important from a pricing point of view is what result all that effort has produced. A website, unlike a piece of art, has to generate something to be of value to a buyer. Usually that something is good, solid cash. In rare - very rare - instances it generates something else that they buyer believes he can convert to cash after acquisition, but it all boils down to profit for the buyer.
Sellers sometimes provide examples of big sites such as Myspace or Facebook that had huge price tags even before they generated any profits and use that an an argument for why their site should have a certain value. And their sites would if, like MySpace, they found someone who had a huge chunk of money ($580 million in Rupert Murdoch's case) and, even more importantly, a deal up his sleeve for revenue generation (like Murdoch's $900 million agreement with Google for advertising). Murdoch knew he'd made a profit before he went and shelled out $580 million smackers for MySpace.
But can you convince your buyer that he can recover his investment? In the type of non-million dollar world we inhabit - and knowing buyers the way I know them - I can assure you you'll find it very, very difficult indeed to convince them about "potential". The typical buyer wants to see proof of earnings and history of earnings and even that doesn't always convince him there's profit to be made from the acquisistion.
I've covered some other site valuation myths here.
Relationship Between Profit and Risk
The more secure the expected future profit stream, the higher the multiple a buyer is usually willing to pay. That's why sites that don't boast an established history of profit tend to sell for lower multiples - buyers aren't confident of the future profit they can make. This is best illustrated by the image at the start of this post.
Value is a function of the earnings and risk. The higher the risk the lower the multiple buyers are willing to pay.
Value is measured as a multiple of monthly earnings. A site valued at 24x is worth 24 times its monthly earnings.
In the image at the top of the page, the established nature of the site, minimal management input required, consistency of profit etc., serve to reassure the buyer and lower his perception of the risk.
Note that site design, development costs and the seller's claimed potential are completely out of the equation. They really don't influence the price for 99.9% of established web businesses.
Note also that earnings are "net" i.e. earnings after deducting all costs paid out and not paid out. An owner-website who spends a lot of time managing his site may not pay himself a salary but a fair salary needs to be deducted from the figures anyway if you are to arrive at net earnings/ net profit.
What's A Quick Way To Value My Website?
It's important to realise that site prices aren't set in stone unlike, say, interest rates. Nor do they have a precise measurement like the value of the dollar against the yen. They vary based on buyer, market sentiment, how the sale is presented, and more. There is no universal formula and there are no comprehensive and accepted "standards" for valuing sites. It's about individual buyer's perception of the future profit he can make and his perception of the risk involved.
But there are ways you can get a pretty good idea of what multiple your site is likely to achieve at open auction. One good way is to take the "DNA" of your site and compare it against similar sites which have sold recently.
How Easy Is It To Calculate The Value For My Site?
The above value calculation is easier said than done. You'd have to trawl through thousands of Site-For-Sale listings and find enough sites similar to yours to make the comparison worthwhile. And there are numerous caveats any one of which could make your entire exercise worthless.
The good news is that there's a shortcut. This tool does attempt to do just that algorithmically. You provide the domain name, gross earnings etc., and the tool matches your site against similar sites that achieved a successful sale and comes up with a ball park figure. But as long as it can't peek into buyers' heads, it will never be perfect.
It's no substitute for testing the market by listing a site at auction, but it's the nearest you can get without the hassle of "going public".
Whether you do it manually or use the above tool, the accuracy of the result relies a great deal on finding sites with the same DNA print. Your site could possess a sweetner - such as a killer domain name - that adds considerable value. This wouldn't be apparent from the above exercise.
Is there another way?
Yes. List your site in our forums here and have get multiple opinions from our experts for free. These are people who are regularly buying and selling sites and know the market inside out. Please read these rules before listing.
Some Stats
Here's my compilation of what multiples sites in certain sectors are selling for. The figures on the Y axis are multiples of monthly earnings
Content Sites: These range in subject from technology and games to health, antiques and wedding related. The "content" ranges from text and articles to video and images.
sales-multiple-chart-1.jpg
The average multiple of just under two years’ worth of income is, in reality, probably skewed by the fact that sellers often quote gross revenue as net profit. If we remove the top and bottom two sales in the above chart, we find an average of just 16.35 months of claimed earnings.
Blogs: The subject matter of the blogs analyzed below ranged from health and celebrities to relationships and technology.
sales-multiple-chart-2.jpg
The lower average for blogs (around 11.25 if we remove the two extremes) reflects that the earning figures sellers quote are usually gross rather than net, and that buyers factor in the extra work that blogs entail. Blogs are selling for about two-thirds of what they would realize if they were “pure” content sites.
Forums and Communities: Forums and community-based sites analyzed below focus on topic areas as far apart as automobiles, pregnancy, and gaming.
sales-multiple-chart-3.jpg
The much higher multiples that forums go for is a surprising result till you realise that forums are difficult to monetize, and many sellers have zero to very little proof of earnings. Most forum buyers are site flippers or otherwise experienced at managing and monetizing communities and are therefore willing to pay a higher multiple of the unoptimized earnings. Removing the extremes in the above chart gives us a much more realistic average of 23.5, still higher than the multiples for blogs and content sites, but not by as much as first looks indicated.
Service Sites: Sites providing free image sharing, site hosting and freebie services.
sales-multiple-chart-4.jpg
The much lower average of 9.86, compared with content sites and blogs, reflects that buyers are aware of the higher overheads (like bandwidth) which are often not deducted from the claimed earnings.
There are other types of sites, of course, such as incentivized sites, proxies, sites selling digital products and sites requiring very specific skill sets/interests to manage. If you have one of those and would like a value, start a valuation request thread. Please read the forum rules on this first.
Remember that for the site seller the only valuations that matter are those done by people who have both the desire and liquid funds to buy their site.
Reply With Quote
Bookmarks