Beginner’s Guide: How to Value a Website

The Newt Labs blog is at the core of a community that is growing each day, and we are proud of this fact. Reader satisfaction fuels us to write better and more valuable posts. We have covered a lot of topics—from WordPress basics to complex security threats. However, we have neglected a complicated aspect: how to value a website and generate the conditions for the best exit.

Selling a website is a complex activity that predominantly requires a strong business sense rather than WordPress or coding knowledge. You have to take into account a plethora of factors to correctly value a website. Much more, some elements are dependent on the seller while others are independent. The seller can improve a site’s traffic, but it’s almost impossible to make your website’s niche more attractive.

Unfortunately, there is no precise formula to determine how to value a website. All we can do is estimate. The exact price of your site is the amount of money in your bank account after you provide full site control to the buyer. Nothing more, nothing less!

In this article, I suggest one don’t and three do’s to evaluate your site, and as a bonus, I will share with you some useful tips to make the most profitable exit.

Do NOT Use Online Tools

Most likely, you’ll be tempted to use online calculators that give an instant value of your site. Don’t ever trust them. They are similar to an app where you upload a picture of a house, and it outputs the price. It’s true that the site’s stats are pivotal in determining the value of a website, but its price relies on other factors such as the website’s niche, the market sentiment, or the buyer’s desire, all of which can’t be determined by an app.

1. Revenue Multiple Method

According to this method, the value of a site is determined by the following formulas:

(12÷36) x Monthly Profit = Sale Price

or

(1÷3) x Annual Profit = Sale Price

These formulas are equivalent—the first one refers to the monthly profit while the second one refers to the annual profit. The idea behind this method is that the monthly gain determines the site’s price. Therefore, if you want to get wealth from it, you should do your best to grow the monthly profit.

The first factor of the equation price is called the multiple. Its value varies from 12 to 36, and it really makes a difference. A website that generates £1,000 monthly profit can be sold for £12,000 or £36,000. That’s a pretty significant difference, isn’t it?

The multiple reveals how the buyer and seller perceive the site. On the one hand, a trustworthy site that generates that profit for a year or more and relies on diverse income streams is a secure investment. Consequently, the buyers agree to pay more money because the acquisition is a sure bet. On the other hand, a freshly launched site that has a unique stream of income isn’t the safest bet in the world. As a result, the multiple reaches the minimum value for these sites.

The multiple is influenced by a few factors:

The Site’s Niche

A research study conducted by Digital Exits shows that the average multiple in 2016 was 2.27. The average multiple for e-commerce websites was 2.13 while the multiple for software businesses was 2.87. So check the industry average multiple to value your website as objectively as possible.

Market Sentiment

A broker or an experienced seller/buyer will quickly notice this aspect. Different factors such as the general economic state or trends determine effervescency or extreme prudence. Wait for the best moment to present your offer. For instance, the software business sites were highly appreciated in 2016, and most likely, it will be the same in 2017. Therefore, it’s time for a profitable exit if you own such a website.

Financial History

Everyone wants to run a risk-free business, but it’s an impossible dream. A tangible alternative is to own a business that is low risk, and a website might be a solution. Lots of buyers prefer a low-profit venture that is almost risk-free instead of a risky affair that might bring high margins.

A to-the-point financial history of a website is a huge advantage for both sellers and buyers. The seller can show that the asset for sale is healthy and safe while the buyer has precise information about it.

The multiple factor is sensitive to a good financial history. The older and more stable the income of a site is, the higher the multiple is.

Traffic Generated and Its Sources

A heavily visited site with multiple and evenly distributed sources of traffic is the best for affiliate marketing or advert displaying. Of course, the organic traffic share should be dominant. Consequently, the multiple factor would be in the maximum range.

A site that has a decent number of visitors coming from social sources isn’t too attractive for buyers. It’s risky and probably unprofitable. In this case, a buyer will ask for a low price.

Transferability

At first sight, transferability doesn’t look like a capital factor in the buying process. However, it’s top-priority in some situations.

Transferability refers to two separated points:

First, it’s about the seller’s influence. E-commerce or software sites aren’t amenable to the owner’s profile. Conversely, a blog is sensitive to the owner or content creator’s approach. The readers continuously visit a blog because they are eager to consume fresh content. Would they continue visiting a blog when the content creators are gone? Readers become familiar with a style and an approach, and no one can predict how they will react to a new team of content creators.

Don’t expect a fortune if you run a site where people know you and your style. The chances are that the buyer will lose a significant percentage of loyal readers just because you have left the site. Some of them will consider leaving a betrayal. Perhaps take into account various types of collaborations instead of selling the site.

Second, it’s about consultancy. You can expect a higher multiple if you offer support for three to six months. The buyer will be sure that you can help him when facing unexpected situations.

The revenue multiple is the most used method, so don’t ignore it if you plan to buy or sell a site. It’s a perfectible method—it doesn’t take into account important aspects such as traffic quality and the total number of backlinks. However, all of these drawbacks are corrected by adjusting the multiple factor.

2. Comparing Method

How do you value a website using this technique? It’s simple and efficient even though it may seem unprofessional. The comparing method means looking through a listing site or a marketplace to see the prices of other sites. Look for sites with similar revenue, traffic, age, and monetisation methods. The closer the values are, the better the estimated price will be.

Of course, it’s a matter of good luck to find sites with similar stats. You have to do gross estimations and extrapolate various average values. It makes sense to approximate by adding the price of a site with good metrics and reliable income streams.

3. Asset Value Method

Sites that generate no revenue are valued through this method. It means pricing a website from what it can achieve and not what it’s currently achieving. This method evaluates the potential or assets tied to the site (for example, the email list, qualified leads, and original content) and not the effective revenue. New sites or ones improperly managed might be evaluated with this method. The major flaw of this approach, however, is that a site’s value can vary a lot.

How to value a website isn’t rocket science, but it requires taking into account tens of elements. At some point, you probably were or will be lured into the idea of selling your site. Thousands of dollars might be the difference between a site prepared for sale and one sold without a strategy behind it. You will get the right price only if you prepare the site for sale months before selling it. Here is a small guide to optimise your site for the most profitable exit.

Improve the Website’s Performance and Design

Improve your site’s performance and design before listing it for sale. A fast-loading site and a modern design make up the first impression. You only have one chance because, in the www realm, the second chance is a fantasy. On top of that, it’s crystal clear what a seller will have to do: install a good-looking theme and use some plugins to improve the site’s speed.

Look for Stable and Diverse Income

As I already mentioned, a stable monthly income works as a magnet for many buyers. Months before selling a site, do your best to improve its profitability. Also, don’t rely on a single income stream. Let’s suppose that 75–80% of your total income is from affiliate marketing by selling the products of a single client. A buyer won’t appreciate this situation because that client could give up on the affiliate program at any time.

Each site has its speciality, and this tip might not be relevant in some cases. For instance, it’s pretty difficult to search for e-commerce sites that generate various income streams. However, try your best to create a stable and diverse income; stability and income variety are the most sought-after value for buyers.

Prepare the Documentation

Buyers don’t have the time and patience to ask sellers for various bits of information. If you fail to provide the proper site information backed by solid evidence, you will lose precious buyers. No matter how you plan to sell the site, this data is always required by buyers to make a complete opinion about your site:

The Site’s Purpose

Make the purpose of your site clear because the multiple from revenue method varies depending on the site’s destination. Also, let buyers know the platform you built the site on and its age.

Traffic Stats

No one will pay your site’s price without a clear perspective of the traffic generated. It’s not relevant to show Google Analytics stats for the last month. Show the traffic evolution for the last year, if possible. These stats should contain the monthly page views, unique visits, bounce rate, time on site, demographics, type of traffic, and organic traffic. The more data you provide, the more qualified buyers you will attract!

A List of Income

The income generated is probably the factor with the most weight. Each buyer makes up a strategy depending on this information. Practically, the acquisition ROI heavily relies on income.

A list of monthly income isn’t enough. Provide information about site’s monetisation and the revenue generated by each method. Try to back up your data with third-party agents. The buyers need to be sure that your data is accurate and that your sources are reliable.

A List of Expenses

Not only the income is capital, but also the expenses are essential. Be transparent and honest and show the buyers how you spend any money.

Additional Assets

95% of sites have a list of subscribers, a Facebook page, and a Twitter account. Specify if you are selling these assets or if you are asking for an additional amount for them. Point out the number of subscribers, Facebook fans, and Twitter followers.

4. List for Sale

Create some buzz around your site to attract more people. Usually, this is not enough to sell it. There are a few places that should be on your radar:

Forums

Don’t put high expectations on forums, but they could work for low-priced sites. You don’t pay a fee, but the lack of a third party may create unwanted situations such as fraud and deceptive site stats. Digital Point forum is a reliable place, so give it a try.

Specialized Marketplaces

If you prefer a professional approach, opt for specialised marketplaces. These are well-known by buyers, and you can get a lot of exposure, but you have to pay a listing fee and a commission on the sale. Each market has its own policy in this regard, and I strongly recommend checking it out before taking any action. Here are a few marketplace suggestions:

Flippa

Flippa is probably the most famous marketplace, and it’s suitable for small- to medium-size sites. You can buy and sell apps, Amazon FBA businesses, and domains. Additionally, you decide how to sell: start an auction or set a fixed price.

A huge plus of Flippa is the filtering system and the menu. Both are optimised to find the sites you are interested in.

Empire Flippers

This marketplace is aimed at pricey websites. At the moment of writing this article, the cheapest site was £29,024. It’s a more professional marketplace, and your site will be in good hands. Empire Flippers’ brokers have a success rate of over 95%. Empire Flippers is practically a sure bet.

Freemarket

Freemarket comes with a clear advantage: no fee for listing your site. Instead, it takes 5% if you sell your site. This marketplace is suitable for low-traffic and low-income sites. You can participate as a bidder in an auction or directly buy the site by paying a fixed price.

Exchange

Exchange is a niche marketplace—it’s only for Shopify-based online stores. The marketplace brokers make sure that the info provided by sellers is accurate, and they help buyers and sellers transfer the sites. It’s a professional marketplace, so you can check offers without any worries related to data accuracy or possible fraud.

Brokerage Agencies

Some firms specialise in site brokerage. Usually, these firms focus on big sites that generate impressive amounts of money. Their services are competent, and they handle almost everything. Each agency has different types of commission structures, but you will have to pay a considerable fee for top-level services.

Have you ever sold a site or used a site marketplace? Share your experiences with us and let us know which part was the most difficult for you.