There comes a time in the life of any business entity that profits plummet or the business simply loses its luster and appeal. In other instances, prospective buyers may present offers that are irresistible; or the business owner may have his eyes locked onto something entirely different from what he had been engaging in and therefore considers selling the business altogether.
Whatever the reason for selling a going-concern, it is critical to have the business valued to ensure that the business is sold at the right price. These concerns are very rife and crucial while intending to sell a website as well.
Do websites really have value?
So how to sell a website? The substance of any website lies in the profits it generates. Unlike brick-and-mortar businesses, websites are more often abstract in nature. What make websites come to life are the profits they generate, and not other factors such as domain name or the SEO mechanisms in place. The term value in itself is the financial or monetary worth of anything, and websites are not exempt from this definition. It is also important to realize that the value of a website lies entirely on the profits that the website makes. The potential of the website to make profits in the future holds little water for any buyer since it is speculative and intangible. Most buyers make their decisions solely on the profits the website makes and your investment in terms of systems, marketing strategies and other website assets do not appeal to the buyers. It is apparent, therefore, that all valuation calculations made on the website will depend on nothing else but the profits the website is making!
How are websites valued?
Most buyers consider the net profit made by the website annually plus some percentage higher than this amount. Suppose, for example, a website’s annual net profit amounts to $100,000.00 a buyer may multiply this amount with 1.5 and give an offer of $150,000.00 as the buying price for the entire website. Other than this, there are several other issues that the buyer considers; such as any risks that the websitemaybe facing. In case a website shows high risk patterns, the buyer may provide a lower multiple which generally lowers the final buying price. In order to ascertain the risks faced by a website, a number of factors are considered such as:
- Increasing growth
- Stable earnings
- Automated systems
- Diversified traffic streams
- Diversified income streams
- Unique selling mechanisms
Methods of Valuation
There a myriad of ways in which websites can be valued. For some websites, the assets the websites owns such as a rich contacts database or customer list may be appealing to potential buyers who may have innovative ways of using this asset, and therefore may value the website based on these assets.
At other times, buyers may consider the revenues the website makes and identifying a multiple based on strengths and weaknesses of the website. In such a case, the buyer scans the revenues the website had been making for a stipulated period of time and multiplies this value with a predetermined multiplier figure in order to arrive to the final value of the website.
Finally, buyers may employ a comparable sales method to value the website. Here, the buyer compares the sales data of the website with other similar website sales data to determine the value of the website.
Determining the worth of your website
The foregoing paragraphs give an impetus upon which a website owner can value his website. It is important to bear in mind the fact that valuations are just but estimates of the actual worth of the website. It is aimed at buffering the seller from getting a raw deal for his website and getting a reasonable amount for his website.
At the core of the valuation process, the seller needs to determine the net profit of the website. To arrive at the actual net profit of the website requires subtracting all the expenses incurred in the course of running the website from the total revenues made. It is recommended that this calculation is based on a period of 12 months (commonly referred to as Trailing Twelve Months – TTM – earnings). After determining the TTM, the seller may select a multiplier value. In majority of cases, for new websites, this value is set at 1.5. For high risk websites, this value ranges between 0.5 and 1.0; and for well established websites, the value may be between 1.5 and 2.5. It is important to note that this values presented here are based on websites with transactions over $1,000,000.00 over a period of a couple of years.