Calculating Website Value: How to Value Your Website Before Selling
Are you considering selling your website and want to know how much you may be able to get for it when you sell?
Perhaps someone has made an offer for your website, or you have just lost passion for the website itself or the market your involved in. Or it could be that you’re just happy to cash out and do something else with your money.
Whatever your motivation you need to know how to value your website and come up with what it’s worth before selling so you don’t get ripped off and leave money on the table.
Why Do Websites Have Value?
But before we get into the nitty gritty of valuation formulas and multiples, lets canvas why websites have value in the first place.
Value by terms of definition is the monetary worth of something. The reason that a website has value is because a potential buyer can make a profit from it. Nothing more, nothing less.
Buyers are solely motivated by return on investment, so anyone out there thinking “but my website has so much potential” strike those thoughts from your vocabulary. Normally what you think your website is worth and what someone is willing to pay for it are two completely different things.
Some website owners and bloggers struggle with the idea that just because you’ve put all this effort into creating content and doing SEO, your website inherently has value. I’m sorry to tell you this, but in terms of valuation 1 + 1 doesn’t equal 2. All the assets of your website (your domain, content, marketing, SEO, systems) are designed to create profit and it is that profit that buyers base their calculations on.
What Is Value In The Eyes Of Website Buyers
Website buyers typically pay a multiple of earnings for a website. That is they pay a multiplication of how much net profit the website makes per year.
For example if your website makes $100,000 per year. A buyer may adopt an earnings multiple of 1.5X thus they will offer you $150,000 for the website.
Generally the higher the risk the website holds, the lower the multiple they will offer.
Below is a list of items that will lower the risk of a website and thus attract a higher multiple offer from buyers:
- Increasing growth
- Stable earnings
- Automated systems
- Diversified traffic streams
- Diversified income streams
- Unique Selling Position
There are a few different types of valuation methods that buyers will use to value your website.
1. Revenue Multiple – You have most probably heard the statistic that most businesses sell for 2-3 times earnings. Basically a buyer will take the current net profit of the website for the past twelve months and then multiply it with an earnings multiplier to get a final valuation figure.
2. Comparable Sales – Buyers will use this method if there is sales data available for similar websites. They will then adopt a similar valuation and make an offer based off that.
3. Asset Value – sometimes buyers will ignore the revenue of a website and instead look at the assets of the site (the customer list, or email database) and make a calculation on that instead. They do this because they may be able to leverage those assets better than the existing owner with a new product or making alterations to the system etc.
How To Determine What Your Website Is Worth
So now that you have the perspective of buyers you can then calculate the value of your website.
Remember a valuation is just an estimate of what a likely buyer will pay. At the end of the deal the real value of your website is what is sitting in your bank account once you’ve closed the deal.
First you need to determine your net profit. You calculate this by taking your total sales/earnings and then subtract all your expenses from that figure, which will give you your net profit. Do this for the last twelve months earnings, known as trailing twelve months earnings (TTM).
Then you need to apply a multiplier to your TTM earnings.
Generally newer sites will sell for 1-1.5X earnings. More established sites 1.5-2.5X earnings. And high risk sites 0.5-1X earnings. Websites can sell for out of those ranges however they are normally an exception to the rule.
This data is based off over $1,000,000 worth of transactions over the past few years.