How Much Is Your Website Worth?
To determine how much a website's worth, it is important that we first distinguish what we mean by a 'website.'
A website is a digital business — where the website itself is the business, rather than it being just one asset of an offline business.
So then, Common question is how do you value a website?
Website worth Calculation (The Earnings Multiplier)
As a quick calculation, the value of a website is often regarded as being between 24 and 36 times your monthly revenue, known as an earnings multiplier. That means that if your website brings in $10,000 each month, you could expect to sell it for somewhere between $240,000 and $360,000.
Depending on the type of website, a good general rule of thumb is 24-36x the monthly revenue. So if your website makes $1,000 per month, a good range for its value would be $24,000 to $36,000. Now you might be wondering why such a big range in valuation. The reason depends largely on the type of website
Example: A website that has organic as its main source of traffic, rather than paid, will almost always have a higher valuation due to the costs associated with customer acquisition.
We will explore the factors that affect a website's value and ways in which you can positively impact how much it could be worth.
Website’s Valuation:
You may be surprised to hear that most websites are sold for less than $100,000.
A combination of factors goes into the price that is achieved in a final sale, not forgetting that, as mentioned above, a website is only worth what someone is willing to pay.
Yes, there are tools out there that will allow you to understand a rough estimation on the value, using simple formulas as we shared above. Still, the real test is whether a potential buyer is willing to make that investment and if the website owner is prepared to sell at the market value.
It is often the case that it makes the most sense for a website's owner to retain their assets and receive the monthly revenues than make a sale today; unless, of course, they are going to receive a higher price than market value.
In reality, the sale price of a website usually sits between the market value and the seller's anticipated value (how much they are prepared to sell for).
Net Margins Calculation
It perhaps goes without saying, but a website's net profit is one of the key drivers of its value.
Buyers are often especially interested in the net margins, which can be calculated by:
Net Profit / Revenue = Net Margins
Revenue alone can be misleading, and it is for this reason why net profit and margins are most commonly used as factors that go into a solid valuation.
Think about it this way.
You could be turning over sizeable revenues, but if the costs to generate that revenue is high, the actual earnings left after expenses could be low.
And, let's not forget that websites are usually bought as an investment. The buyer needs to know that there is the potential to make money.
The higher your net profit is, the higher your website's value.
Margins differ from sector to sector, however, as a general rule of thumb, you could expect a typical eCommerce website to have net margins of between 20% and 35%. In contrast, an affiliate-based website may see this as high as 80%.
Traffic Source Splits
This is where a website's valuation gets more complex — however, the impact of a website's traffic source split is more closely tied to net margins than you may first think.
You see, a website that drives the majority of its traffic via organic search, off the back of a successful SEO strategy, will typically have lower expenses, and higher net margins than one that relies upon paid advertising for the majority of its customer acquisitions.
There must be an understanding for both buyer and seller as to how traffic splits affect the overall value of the website.
Of course, in an ideal world, you will use Google Analytics stats to get a clear picture. Data insights will need to be provided to a buyer to help them, but if you want to determine the split of traffic across a website, you can do so using SEMrush.
Website Organic Traffic Value
To gain insight into the level and value of a website's organic traffic (how much it would cost to acquire this traffic via paid channels), you can use the Organic Research tool.
Enter a domain name, and you will see several stats presented on the overview tab:
This data will give you somewhat of an indication of the scope and potential value of a site's organic traffic.
Website Paid Traffic Cost
That said, you will need to balance the organic traffic with the paid traffic acquisition costs, and this can be estimated using the Advertising Research tool.
If we go ahead and enter the same domain, we will see a similar dashboard to the one that we saw for organic, with the stats relating to paid channels.
Here, we can see that the estimated advertising spend on this site is $1 million per month.
It is important that you do not focus on this cost in isolation. Don't forget that paid traffic is a key channel to almost all businesses, and if paid channels are driving a solid ROI, there is no problem with this.
The consideration is that split between organic and paid channels — with the potential to see a lower multiple earned on a site when paid traffic accounts for significant percentages beyond organic.
In this example, the split is 17.5M organic hits against just 127.4K paid hits, definitely not a ratio that would bring about any concern during a sale.
Transferability
If you were to sell your website tomorrow, how easy would it be to transfer the business to the new owners? This is a very real consideration that is sometimes forgotten. However, the easier it is to transfer, the likelihood of a higher sale price.
Or, to flip it around, you may find that your website is worth less if there are complications, in any way, with the transfer.
Consider Factor:
· Will it be simple and straightforward for a new owner to take control of any vendor contracts in place?
· Are all systems in place easy to transfer, even if that means a new team will be taking on the website's day-to-day management?
· Is the website built upon an open-source CMS that can easily be developed by a new team, or is it built upon a custom platform that would be difficult and expensive to migrate away from or support in the future?
· Will it be possible for the team or contractors to transfer over to the new owners, or do they form part of your team?
· Are customers "bought into" the business itself (the brand), or have they bought into the owner and their ways?
While there are numerous factors at play, keep in mind that the easier it is to transfer the website to new owners without disruption, the easier it will be to command higher asking price.
Disruption costs money, and the more that can be done to avoid this, the better.
The Market
What do the future market opportunities look like for the website?
Have you taken the site to its peak of growth or do opportunities still exist to drive revenue and expansion?
Again, a website with growth opportunities is likely able to attract a higher valuation than one that has maximized their opportunities. Especially if these can be executed on the website's current foundations and processes, with future investment largely just in marketing.
A good indicator here is to research how the site stacks up against competitors using the Organic Overview tool's competitive positioning map:
This can help you to determine the size of the opportunities that exist.
Monetization Methods
The way that you monetize your website can have an impact on its final valuation.
Relying on a single method can be seen as high risk, due to the fact that unexpected changes can occur. Just last month Amazon slashed their commission rates for affiliates, resulting in significant revenue declines for many who use the platform as a key driver of revenue.
A site that combines multiple revenue streams is a less risky investment and can often command a higher asking price.
Reducing Future Competition between Buyer and Seller
To maximize the value of your website, you may be asked to sign a non-compete agreement. This is an agreement that is made between the buyer and seller that means the seller won't launch a new business, or website, that competes directly with the one that they have sold. It protects the buyer from competing against someone who knows their new acquisition inside out.
Of course, these are rarely fixed indefinitely and are absolutely negotiable, just remember that you need to be prepared to enter into such an agreement to command your site's maximum value.
After all, the buyer needs to protect their investment.
Way to Increase Your Website’s Value
The million-dollar question that you are probably wondering about is how you can increase your website's value before selling it?
We have some top tips below.
1. Traffic Sources
A key focus while building up your website's presence should be to diversify your traffic sources.
When you are able to demonstrate that a strong percentage of new customer acquisition comes from organic, as opposed to paid sources, you can demand a greater sale price, largely as a result of a lower reliance upon paid traffic.
That said, organic traffic isn't immune to algorithm updates and the like, so the importance of focusing on a mix of traffic sources, as opposed to a single one, is needed.
Build a strong social presence as well as an email list, alongside rolling out a solid organic and paid search strategy.
2. Domain Variations
A website is worth more when you own a multitude of domain variations, as well as all main social profiles relating to that domain.
Imagine speaking with a potential buyer and having to reveal that someone else owns the .com version of your .us or .co domain, even if you have a healthy revenue and traffic source.
It is all about the perception of the complete package, and ensuring you are able to offer a complete 'brand' — this helps to increase the value.
3. Brand Building
Are you offering a brand for sale, or are you simply selling a website?
When you can build a brand, alongside a great reputation, you will ultimately be able to ask a higher price for your website.
Going back to our previous example of NerdWallet.com, it is clear that the owners have put time and effort into building a brand. It isn't just another affiliate site that you could forget as quickly as you come across it.
They have combined great content with great UX and added real value to users, something that many forget to do.
We can see the brand's prominence by the fact that its brand name receives 246,000 searches per month in the US alone.
If you are able to demonstrate that you have built a brand, not just a business, you will be in a much better position to increase the sale price.
4. Domain Valuation
This may sound simple, but a .com is almost always going to drive a higher sale price than a .net, a .co, or any other generic TLD, all other things equal.
We are all accustomed to the leading websites sitting on domain names that we are familiar with, and to most of us, that means a .com. We could go so far as to say that many consumers didn't even know that .company domains (as an example) even exist.
Your domain needs to be brandable, and by that, we also mean not a long-tail exact match keyword. To come back to NerdWallet.com, the branding and short name work well. But imagine if that same site was BestRewardCreditCard.com.
We are pretty confident we know which domain you would place a higher value on.
5. Monetization Methods
When you have multiple monetization streams attached to your site, you are minimizing the risk for the buyer, and minimized risk often allows you to increase the asking price.
Whether it is affiliate revenue, Adsense, eCommerce sales, or other ways to monetize a site, when you can diversify, you should do so. It is also less risky for you while building up the site's revenue.
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