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Website Value 101 – How to Appraise a Website

Online marketing information can change quickly This article is 8 years and 62 days old, and the facts and opinions contained in it may be out of date.

This post has been updated here –  Building a Website You Can Sell

If you own a website, you should understand how to buy or sell one. Buying and selling is at the basis of any viable business. The web business sure has changed the ways of thinking about business with wild valuationn, deals with incredible return, and everything in between. During the first dot com bubble, ALL rules of business somehow magically flew out the window. There was a sense of urgency during the first bubble to “get in on the ground floor”. Even pet food was going to be sold online by sockpuppets! Hindsight is 20/20, and a lot of the promise of the web that was founded on business principles is returning after confidence has returned. Now investors are more skeptical, owners are more savvy, and everyone still wants to get in on the promising ground floor.

There are two main ways I can see to value a website:

1-Cashflow (profit/ revenue) multiples

2-Value of re-creation

So over and over the question is asked of how a website should be valuated. There are a variety of metrics available to the general public, but how accurate are these metrics, and what should they be combined with to determine a true valuation? Where is the line between a website appraisal, and the valuation of an online business?

I think website valuation is one of the most difficult questions in the world of the web. It is based on principles, but it is also based on gut feel. I don’t think you can truly value a website these days without a sense of how to valuate the links a site has. If it were based solely around principles then anyone could do it. Buying and selling websites is somewhere between buying and selling established businesses, real estate, and stocks and bonds. The magic in it is that not too many people have figured out how to do it effectively. There is so much overspeculation and instability in the space that there are wild-eyed investors all over the place chasin’ a dream that is only sometimes based on reality. Here are some questions, tools, and criteria, potential equations, and general thoughts that I would check out for appraising a single website.

With the current state of search engine algorithms, and distribution of marketshare in the space, recreating and maintaining high rankings is one of the very large unknowns with any website. Part of a website valuation should be placed on search engine rankings and/or the potential for them. Without qualified, relevant, targeted traffic (or the potential for it) a website is barely worth the space it is hosted on.

Types of Website Revenue Models

All of these can probably be broken down into additional categories of business to business or business to consumer. The type of site will play a key role in choosing which valuation criteria are most applicable to the site, or more importantly if the site should be valued with the criteria used for

  • strictly a domain,
  • a web-based business, or
  • a “traditional” business.
    • No current model – informational or resource site
    • Donation
    • Subscription
    • Advertising
    • Service
    • Lead generation
    • Product

    Obviously there are hybrids of these models to make matters more confusing.

    Questions for appraising a website

    Note: for today we’ll leave domain only and “traditional business” valuations to their respective industry experts. Many times, to get the answer you are looking for you have to craft the proper questions to ask.

    • What is the revenue model?
    • What is the current revenue?
    • What is the current profitability?
    • What are the current liabilities?
    • What are the current assets?
    • What risks are involved with assigning annualized revenue?
    • What is the value of the industry?
    • What is the scope of keywords?
    • How many unique keywords are there?
    • Is it a “longtail” or “shorttail” keyword industry? (online education is longtail – poker is short tail)
    • What is the CPC range of keywords on PPC?
    • Is there room in the industry for a big competitor?
    • How many major competitors are established in the industry?
    • Do any bigger companies have their eyes on the niche?
    • What is the alexa rank?
    • Does the demographic skew the alexa rank? (lots of webmasters, etc)
    • What is the value of the domain name? (an entire discussion to itself)
    • How brandable/memorable/marketable is the domain?
    • Is there type in traffic?
    • What is the current traffic level of the site?
    • What is the current estimated value per unique user?
    • Is there any current brand value to the site?
    • What is the current natural search traffic like?
    • What is the potential for future search traffic?
    • What is the quality of the search traffic?
    • How well does the site convert?
    • What costs would be involved in re-creating the site?
    • What is the level of brand loyalty?

    Tools for appraising a website

    Without accurate tracking logs and financials it’s going to be tough to put a value on a website. KEEP those log files – you’re gonna want ‘em later.

    Potential Website Valuation Equations

    There are probably a million different ways to value a website based on the situation and intentions of both buyer and seller. This is just a handful of ways I can think of to put a price tag on a website

    Content site (no current revenue model) – Value of domain name + value of content + value of backlinks
    • Considerations – content origination, link stamina (how long will they remain)
    • What is the value of the theme industry keyword traffic?
    • How will the site be monetized

    Content site (advertising revenue model) – future traffic projections and earnings based on past earnings per unique visitor or net income or revenue annual multiples

    • Considerations – content origination, link stamina (how long will they remain)
    • What is the value of the theme industry keyword traffic?
    • How will the site be monetized?

    Subscription site – Value of current mailing and subscription base – Users + time + trust and ability to adjust to change. Much more easy to monetize than to value.

    • What is the loyalty level of the user base?
    • What are the current response rates?
    • What dependence/ expertise is reliant on current ownership?

    Service site- based more on traditional business valuation

    • Will the service scale?
    • Will customers remain after change of ownership?
    • What are the growth trends in the service sector?

    Lead generation site – Lead generation net x time period desired

    • Will the lead commissions increase or decrease over time?
    • How are leads currently tracked?
    • Will the current commission structure remain in place?

    Product site- Net sales or profit x time period desired

    • How are orders fulfilled?
    • Will the fulfillment process remain the same?

    Any website business valuation should be based on some metrics of expectations for future revenue potential, but mainly on the above two listed principles (site recreation cost or proven profit or revenue multiples.

    It is tough to create viable models for site buying and selling since there is so little history written on the subject. This is all mainly undocumented territory, basing speculation on a variety of unknowns. Identifying and labeling those unknowns helps to document and predict future trends.

    Variables to consider when buying or selling a website

    • Revenue
    • Profits
    • Earnings per click
    • Costs per click
    • Site overhead
    • Search rankings
    • Stability of search rankings
    • Legitimacy of search rankings
    • Size of the site
    • Unique Content
    • Current and future revenue potential
    • Loyalty of user base
    • Lifetime value of visitors
    • Affiliate relationships
    • Content relationships
    • Yahoo linkdomain:
    • Link harvester unique linking domains
    • .edu and .gov links
    • “Resource value”

    General thoughts on website appraisal

    One way to get an idea of current valuations of web properties is to use a multiple of Trailing Twelve Month (TTM) revenues that the site has generated. Our analysis indicates that mainstream web properties are selling at the following median multiples:

    eCommerce sites: 3 x TTM

    Content sites: 6 x TTM

    from: Ventureplan.com

    (12 x (Net Income Average)) + 12 x (Unique Visitor Average x Unique Visitor value)) x 1plus the content value = High Value for Website

    (9 x (Net Income Average)) + 9 x (Unique Visitor Average x Unique Visitor value)) x 1plus the content value = Low Value for Website *Unique visitor value = 1/2 the value of the top fifteen bid placements on Overture for relevant keyword
    - from Buysellwebsite.comExample appraisal *caution PDF file

    Expense considerations for any website purchase:

    • Ad Expenses
      Pay Per Clicks
      Print Ads
      Other Advertising
    • General and Admin Expenses
      Hosting
      Merchant Fees ($)
      Bank Fees
      Other Expenses
      After getting through nearly all of this post, I found a pretty darn good resource with a spreadsheet included for $20 via clickbank. I almost put it in without an affiliate link (then decided that would be pretty dumb), so I’m writing this small disclaimer instead. I bought it myself, and it seems like a pretty handy little guide for the price. You can get the ebook valuation guide and spreadsheet for $20 here.

    Website Valuation Resources

    Website Value

    Domain Value

    Keep your head on straight, and don’t get caught up in the glitz and glamour of web 2.0. The future value of these properties is what we’re looking at now, and there are certainly some gems to be had. Don’t get sucked in by the fools gold being sold by those savvy enough to sell picks and shovels to all the prospectors. As you can see, there are a million and one different variables to this equation. Until you understand, identify, and examine at least a significant portion of the variables, it is going to be difficult to put a price tag on any website.

 

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  • Peter T Davis

    That’s an extensive list of points to consider. You skirted the topic, but another thing to consider is the age of the site. Particularly in SEO circles, age is currently a very hot aspect of a site sale. How much would you pay for a site started in 1995?

  • http://web-professor.net webprofessor

    Interesting post Todd. This is a really tough issue to tackle from a sellers perspective. I recently put one of my sites up and the initial asking price was 24 times monthly revenue.

    I was met with all sorts of reactions.. from “you’re stupid” to “what a bargain”. Somewhere in the middle was the experienced buyer that realized negotiation was expected.

    And thats the rub.. you just don’t know who’s going to look, how they evaluate value, and whether or not they know how to negotiate.

  • http://www.seobuzzbox.com Aaron Pratt

    Outstanding post, the only thing that I didn’t like was the dead end links to WMW, many of us out here do not have access to the “paid area”.

  • Nebraska

    Great list (but a bit overdone for 90% of real world sales). I think domain names *can* be the most valuable asset that a site owns. If your widget site has 400 unique people per day typing your domain into their browsers -looking for your widget – that’s some strong mojo.

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  • John

    Great post Todd – this is exactly what I’m looking for as I’m in the market to buy a website. The area I wish you’d focused more on (or perhaps this could make a follow-up post) is where the best resources are to buy a site. You mention the DigitalPoint forum and buysellwebsite.com, but that’s about it.

    In my experience you have to wade through tons of turn-key and adsense crap before finding any decent sites for sale. Where all the good places to buy? I’m compiled my own shortlist – but I’d love to get your input as well.

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  • http://ryze.com/Rdoblmeier Robert Doblmeier

    Excellent and very extensive post.I have not had the pleasure or displeasure of selling a website exclusively, but I have worked with a few B&M businesses which have had websites, and at that piont, they were NOT considered independently in the overall evaluation and sales price. The website was simply looked at as ongoing advertising and lumped under expenses as such. I like the idea of using several aspects your EM based on metrics for specific site types.
    Please contact me I might be able to arrange a speaking op for you on the topic.
    R.

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  • Marc Ostrofsky

    re: SEO.COM….it’s worth MILLION$.

    I am the person who sold the URL or Domain Name….Business.com… for $7.5 Million.

    SEO.com is worth millions. Think about it. It’s the name of the industry. It’s a RARE three letter domain. It’s an instant brand. Type in traffic alone make it worth almost $10,000 a month vs. firms paying $2 per click from Yahoo and Google. When people are looking for an SEO firm or need SEO services, how many do you think won’t type in THAT name? Very few I would imagine.

    As someone who knows a bit about domain names (my firm owns HUNDREDS OF THOUSANDS of them) and specializes in the subject of “internet branding”, I have tried to buy SEO.com in the past for $500,000 + and was turned down. It’s worth that and much more. You will read a bit about this domain name and the sales process (and comments like the posts I have read) in my forthcoming book titled “Get Rich Click” coming out later this year. It’s incredible how short sided people are. But that is what makes future thinkers their market isn’t it?

    Read ANY article about this “internet” real estate / Domain Name market. Sales of names you would not think anyone would type in are sold DAILY for $20K, 45K…even 75K. Good names sell routinely for $100K – $250K. Great Names like this one – $750K and up. The stats and metrics speak for themselves. Values are growing rapidly, to many new players and no good names left. Great firms, bad names. Anyone remember what HOTELS.com or Match.com used to be called? Learn from Barry Diller and Procter and Gamble (Baby.com)….the domain name is the where it’s at. There is Incredible brand confusion in this particular space and certainly NO recognized brand leader. There is more money on madison avenue to spend and not enough “quality” places to spend it on…not to mention that domain name prices going thru the roof.

    Domain Names end up at the “highest and best use” or “user”. In this case, it was owned by a firm in the optics market that was sold to a competitor. A smart entrepreneur bought it from the new firm after the acquisition. So for the first, and likely the very last time, SEO.com will be sold. Most likely to an SEO firm or related player. How could any good marketing, advertising or brand manager in the Search Entine Optimization space not want to own this URL? The only issue will be “how much”.

    Finally you can rest assured…it is for sale. I’ve been retained to help the seller make this happen and will meet with the top players who want to buy this name.

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  • http://www.eweonline.com eWeOnline

    May be late comment: Valuable information to evaluate a web site. This information will be usefull wen buying or selling a site.

  • http://www.GoWFB.com Dave from Wholesale Furniture Brokers

    I’d like to see more examples of applying the equations and assigning the variables.

  • http://www.LemmeFind.com Vic

    Very informative article, this one – and some useful responses too.

    I was wondering if the number of bookmarks a website has acquired could also be used as a factor for calculating its value?

    What do you think, Todd? Others?

  • http://www.afl-blog.com Jason

    I stumbled upon this article whilst searching for an evaluation method, this is a great article and has helped me out a lot, there simply is no easy way to determine a true estimate on the fly for a websites worth.

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  • http://www.ukseo.com E.H. Higgin

    I am interested in Marc Ostrofsky article re selling domain names. We have lots to sell and I would love to get in touch with him and discuss this further.

  • http://www.ShapeFit.com Kurt

    Great information on valuating websites. Being that I am not the most mathmatically gifted, I was wondering if anyone could refer me to a company that actually performs website valuations. This would be a great help to us. Thank you in advance.

    Kurt Bierek
    Vice President
    ShapeFit.com
    Kurt@ShapeFit.com

  • http://www.ackadia.com Paul

    What a great article, Todd. I actually found it while researching writing a similar sort of article myself. Most impressed! One to bookmark, folks

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  • http://www.pedatabase.com Sam

    Interesting points, however, I have to say the best way to find a quality site/business for sale is create a list of sites that interest you and contact the owner directly.

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  • http://www.webnet-gb.co.uk ALan Marks

    There is another point that you could add. After looking at various sites, they claim that having a proper valuation will improve the value of the site.

    I wonder if it is possible to keep having valuations until you reach a critical mass where the value is expanding exponetially with every value?

    Guess not.

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  • http://www.imergeadvisors.com Michael Gravel

    Lots of great discussions points here. There are numerous factors to consider when valuing a website, many have been mentioned. Entry barriers play a key role, if a high school student can build a website, dropship product and be happy with razor thin margins, the value of that site is going to be very low vs one that has very high entry barriers. With the majority of sites that straddle the middle of the bell curve you will find valuations that give buyers returns from 20% a year up to 35% a year on his/her investment. Internet businesses will slide along that scale depending on revenues, growth, traffic, seo rankings, history and so on.

  • http://www.edwardjthomas.org Edward J Thomas

    This is a survey of how the leading online video sites compare to YouTube in terms of end-user engagement. What is interesting here is that the 14 leading video sites (i.e. next to YouTube) in aggregate only appear to have about 8% of YouTube’s audience.

    I built this web valuation model based on the YouTube acquisition price and the amount of traffic it receives. This model can be applied to any destination/portal web site. For more information please follow my links.

    http://www.edwardjthomas.org/?p=10
    http://www.webanalyticsassociation.org/en/art/?317

  • http://www.buyhawkeye.com David Phillips

    I just stumbled across this link looking for this kind of info. Very helpful. I recently looked to purchase a website and the owner had no idea of its value. I might have to go back and point him in this direction…

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  • http://www.homeprofitsguide.com Mom Business

    Thank you for this comprehensif report. But, I’ve a question regarding it, how can we scoring a value of website? Some methode is reference from point of Google PR, alexa rank, blogline subscriber, etc. Maybe, you can write a post about it.

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  • http://www.seedmonster.com The Seeder

    the site is getting about 1000 unique’s a day and about 10.000 pageviews a day. Adsense is bringing in roughly 200.00 usd a month. And the site is gowing kinda fast. Its been up for 7 weeks. Alexa ranking in the states is 180,000 overall weekly average ranking is 208,000. You dont need to register to use the site but it has 20,000 users. If i wanted to sell this site what should i charge for it?

  • http://www.retailord.com Retailord

    Thanks for giving detailed valuation description. it sure helps in determining website’s monetary credibility.
    keep up the good work, thanks again

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  • http://www.snapspans.com/ Snapspans

    Great article-especially the TTM multiple. But why would I sell a site making steady income?

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  • http://websitebroker.com Ben

    That is actually a very interesting article. A website valuation tool I have come across is the WebsiteBroker valuation tool at http://www.websitebroker.com/valuation.php . It allows you to calculate the potential value of an exisiting website by providing some simple information.

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  • http://nichemicrobloggerinthemaking Matthew Beltrano

    Great article. As seen in this acticle and all the respones, there an infinite amount of ways to value your CURRENTLY OPERATING WEBSITE, YES CURRENTLY OPERATING.

    My question is, what if your site isn’t up and running yet and all you have is a model for one?

    All of the above approaches are great ways of getting close to the correct value of your site. But for selling purposes or valueing purposing who cares about whats correct, its about how much more you can sell your site for above the correct value.

    So here’s a way to do it. You take a group of metrics, statistics, attributes about your site and the top dog websites within your sub-industry. What you want to do is benchmark your site up against these dogs.

    If the top dogs stats is say 1000 unique views a month and you can legitimately project that you can obtain 200 unique visitors a month then you want to say your site is worth 20% of the value of the top dog. Do this with a ton of different statistics (relevant ones and beneficial one) and create an weighted average type of value. (I’m not going into detail about this bc it’s not the most correct apporach but there is good reason to do it and this is the point I want to get to).

    WHY WOULD WE DO THIS?

    BC YOUR ARE GETTING GOOD VALUES ON THE INTANGIBLES – GROWTH AND GOODWILL

    1. GROWTH VALUE IS IN – The top dogs valuations are extremely inflated by their future growth value. If they were stocks, which some of them are, they trade at high P/E ratios, which means most of their value comes from the idea that there is going to be alot more earnings in the future. Growth is a hard thing to prove for a new up and coming site bc you are usually trying to prove that you will survive instead. So by benchmarking against a top dog you are basically borrowing thier growth potential.

    2. BRAND VALUE IS IN – Again the top dogs have developed brands that hold strong goodwill. By benchmarking against statistics you are incorporating that goodwill into your valuation, your are basically saying you can obtain as strong of a goodwill in your valuations but actually not making the claim.

    BY DOING THIS YOU WILL BE CREATING A PROPORTIONATE VALUATIONS AGAINST A TOP DOG:

    If the top dog is worth 1 Million, 100 000K is Goodwill (10%), and 250 000 K is based on growth potential (25%), you will be borrowing that proportion over to your site.

    So you prove your site is worth 30% of the dog based on statistical benchmarking, 1 Mil x 30% = $300,000. Now we have created our value with 10% goodwill $30,000 and 25% growth $75,000. If you tried to prove that your company has that worth in growth and goodwill, most investors or buyers would have laughed at you, but the statistics can’t lie and if you sell them correctly they will buy into the approach
    perfectly.

    It’s like selling a house, my neighbor is worth “X” -we live on the same street, same school is nearby, same neighbourhood, etc. They have 3000 sq feet and i have 2000, therefore my house is worth 66% of my neighbours.

    mbeltrano@gmail.com
    Matthew Beltrano

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  • http://www.facebook.com/zeol.shah.5 Zeol Shah

    thats nice info

  • Filmai online

    Nice stuff :)

  • http://www.wholinks2you.net/ Abhay Singh

    nice article….
    thanks for sharing

  • http://blogfacebookbaru.blogspot.com/ sanahwinari

    thanks.. its very nice articel,

    Cara Membuat Blog

  • http://www.wix.ro Alex Mark Vanstein

    Closely related to this well written article I have developed a website price estimation algorithm that you can test here:
    http://www.webuka.com
    Congrats and keep up the great work!

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