Website Value 101 – How to Appraise a Website

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.

  • Alexa
  • Overture bid tool
  • Aaron’s KW tool
  • Site log files
  • Site financials
  • Free quick domain appraisal tool

  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.com – Example 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

  • How much is an adsense website worth?
  • A guide to basic variables that make a website valuable
  • Website valuation questions **WMW supporter’s forum
  • Blog buying basics
  • Valuation of developed sites
  • Website valuation models
  • How to buy a website
  • How to sell a website
  • How to determine website value
  • Sitesalesblog.com
  • Practice with Alexadex
  • Anatomy of a sale – Inc. magazine
  • Website valuation ebook and spreadsheet (aff)

  Domain Value

  • Self domain appraisal test
  • How to pick and evaluate domains for resale
  • A short description of how and where domains are sold
  • So you want to sell your website
  • DNforum domain appraisals
  • Domain appraisal standardization
  • Digitalpoint business forum – buy, sell, trade sites and domain valuation

  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.

Todd Malicoat

More information about Todd Malicoat aka stuntdubl.