How to Value Your Website

website valuation formula How to Value Your WebsiteWhenever we talk about selling a website, website valuation is usually the first thing that comes to mind. If you are about to sell your website, you naturally want to know how much you can get for it, and possibly, how you can maximize its sell-on price. For whatever reasons that you are selling your website, understanding how it is valued will be crucial to you from the beginning.

Website Valuation Methods

Buyers will take on 3 different approaches when valuing your website:

1. Asset value approach

buyers value your website based entirely on the value of its assets. Assets in this case include traffic, product inventory (if any) your mailing list, and any other assets that can be leveraged to maximize profits. This approach is used as an alternative to the revenue multiple method and a buyer is likely to use it when they think they can utilize the website’s assets better.

2. Comparable sales approach
When using this approach, buyers and sellers compare similar websites and how much they have sold for. The value is therefore agreed upon based on available sales data of other websites in the same niche.

3. Revenue multiple approach
This is by far the most common website valuation method. It’s essentially the amount of profit you’re making, multiplied by an earnings multiplier. The range is usually 12-36x for monthly earnings, or 1-3x for yearly earnings.

How Buyers Value Your Website

Most buyers value your website purely on its profits – if you’re making money every month or year, then it’s probably worth buying. As you’d expect with many buyers, they are looking at ROI, i.e. how quickly they can recoup the money and make a profit from the investment. Most sites are therefore valued using the earnings multiple approach.

As an example, if you are making a net profit of $5,000 a month, then your website can be bought for anything between $60,000 (12 x 5,000) and $180,000 (36 x 5,000). Or simply between $60,000 (1 x 60,000 yearly profits) and $180,000 (3 x 60,000). Some websites can sell at higher multiples, others at lower multiples, but that is rarely the case.

If you are wondering how buyers decide which multiple to work with, here’s the general rule: RISK. The higher the risk, the lower the price a buyer would be willing to pay. Expect higher earnings multiple if your website has:

  1. A strong brand value
  2. Solid, consistent earnings
  3. Multiple income streams
  4. Multiple traffic sources
  5. A Unique selling proposition
  6. Automated systems

Selling your website is not easy. So while you’re still trying to figure out how much you can sell your site, forget about one word – potential. Don’t take people seriously when they tell you that your site has potential. While that might be true, it won’t really help you sell your website. Unless you are Instagram, focus on building the revenue models and maximizing profits so you can convince a buyer to pay for its true worth. That’s when you’ll have hit the potential you’ve been raving about, plus the money you deserve.

Improving Your Website’s Value
So how do you strengthen your position as a website seller? The straightforward answer obviously lies in maximizing your earnings, which can be done in several ways:

Diversifying your income streams – there are many revenue models that you can implement on your site and take advantage of the traffic that you currently enjoy. Think lead generation for companies, different advertising networks, subscriptions, consultancy, or selling products (such as eBooks). Try those that apply to you.

Increase traffic – promote your site on social networks and invest more in search engine visibility. Traffic is an important asset because the more of it you have, the more money you make.
Grow your brand – strengthening your brand can help you attract more visitors, and keep them as well. A strong brand in itself can greatly improve the price that a buyer would pay for your site.

Now that you now what factors come into play when determining the value of your website, you should avoid making the mistakes that many website sellers are making, which is selling without optimizing. Instead of going for the quick buck, look at the different ways you can grow your earnings and promote your website to garner more traffic. By doing so, your website will be worth several times more than it is now.

About the author:

Tom writes for www.valuator.com.au – click here to learn more about what your website may be worth and what it may fetch when selling.

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