Selling Your Website: How To Know When the Time is Right
So far in this series, I’ve shared with you the best ways to to set up, grow, and monetize your site as quickly and easily as possible. The first and most obvious goal you need to set for your website is to build it to its fullest earning potential. But also, if you want to continue growing your overall business, at some point, you need to set the goal to sell your website. This may seem like an odd goal at first, especially considering how much time and effort you’ve put into growing your business. But ultimately, the idea of building websites and selling them at the opportune time is how your business can start producing six figures annually!
In 2013, a buying opportunity for Vandelay Design came along for me. I wasn’t looking to sell at the time, so the opportunity was unexpected. I knew this decision would require some deep soul searching and that I would need to base my decision on what was best for my business overall and for my personal growth as a professional. It was the principles in this article that helped make see that in order to grow, I needed a change. What started out as a website to attract new design clients took off into a huge business. While I enjoyed the experience and the successes, the web business took up all of my time, and I didn’t have time to work on my true passion–designing for clients. So it was in May 2013, that I decided to get back to my design roots and sell the Vandelay Design blog. Knowing this would help me and the business move forward, the decision clear cut and the principles in this article gave me confidence that I was making the right decision for my business.
Why Do Websites Have Value?
Before we get into the nitty gritty of how to determine when to sell and how to determine the value of your site, let’s look at 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 for 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.
How To Determine the Value Your Website
Website buyers typically pay a multiple of earnings for a website. This means 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.
- Revenue Multiple – You have 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.
- 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.
- 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
Now that you have an idea of how buyers calculate a business’ worth, you can then calculate the value of your own website. Remember a valuation is just an estimate of what a likely buyer will pay. At the end of the day, 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 subtracting your expenses from that figure. Determine 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.
How To Determine When To Sell
Once you determine the value of your website, you’ll be able to determine what is a good buying offer and when it’s a low ball offer, so having this figure helps makes the selling decision much more clear cut.
However in addition to the value of your website, there are a few additional variables that you’ll need to consider when deciding if now is the right time to sell your website.
When To Consider Selling Your Site Now
- You’ve Maximized Your Website’s Earning Potential: Once you’ve met the #1 goal for your website and have built it up to earning the most money possible, then it’s probably a good time to think about selling. While this may not be an immediate need, it’s something you need to do in the near future. Otherwise, if you’re like most entrepreneurs with the need to create and innovate, you’ll become bored with the site, and the website (and it’s earnings) will suffer which is NOT where you want to be when preparing for a sale. This leads into point #2…
- You Need a Change: If you notice you’re getting bored with your website or are even to the point of getting sick of your website, this can signal it’s time to sell, especially if it’s earning stable income.
- The Market Is Unstable: As I pointed out earlier in this post, generating stable income each month is a huge asset to your business as it makes it more appealing to buyers. If you notice that either your website or your competitors’ sites are becoming unstable–whether that’s instability in earnings, traffic, or search rankings–this may be a sign that the industry is becoming unstable. If this is the case with your industry, your business will start to depreciate any day, so if you have a potential buyer for your site, it’s imperative to sell before your business begins a descent.
- You Have Other Sites With Higher Earning Potential: Entrepreneurs oftentimes are guilty of acquiring too many websites and spreading themselves too thin. Since they don’t have time to focus on growing a hand-full of these sites into strong revenue producers, the result is several mediocre websites that aren’t producing to their full potential, and since it’s easy to get overtaken by competitors, this sets the stage for a high risk business.
The better solution is to focus on one or two sites at one time until they become stable revenue producers. If you see there’s a huge amount of untapped potential in one or more of your other sites, selling one website will give you instant cash and free up your time so you can focus on making more revenue from your other sites, so the end result is more revenue for your business overall.
5. You receive an offer you can’t refuse: This one’s pretty obvious. After you determine the value of your website and feel confident in your valuation, if you receive an offer that’s well above what your website is worth, then it’s probably a good time to sell. You may never receive another offer, so in these cases, it’s best to take the money and run.
When You Should Hold Onto Your Website
- Don’t Sell In a Slump: You never want to sell your website when it’s value is rock bottom. Growing a website takes tons of time and effort. All businesses have tough times, so just expect it. But working through these tough times will make you and your business stronger and more knowledgeable about the market. Also, sticking with it and working through the issues will produce a much higher payout and a better financial position for your business overall.
- Don’t Sell Just Because Your Have an Offer: When you receive the first purchase offer for your site, it’s easy to focus on the money you’ll receive in the short term. Jumping on a cash opportunity without accessing the true value of your site or it’s future earning potential is never a good business move.As I mentioned earlier, every website will eventually need to be sold in order to keep the business overall moving forward. Knowing when to sell and when not to sell is crucial to the performance of your business overall, so when selling opportunities come along for your website, I hope this information will help you know if it’s the right time to sell your website or if it’s better to hold onto it and continue to cultivate its earning potential.