Website Valuation

Valuation Methods

So you want to buy or sell a website, but you don't really know what it's worth? Perfect! In this article, we're going to look at four ways to value a website. The aim is that by end of this article, you'll be able to form a ballpark figure of what you're website is worth.

If you've already got a ballpark figure of what your website is worth, check out some additional evaluative criteria that can help you figure out if your website is worth more or less than your ballpark figure.

Before we go any further, it's important to realise that the only real value of a website is the price that it sells for. With that in mind, let's take a look at the four ways to value a web business.

• Asset Valuation
• Historical Earnings Valuation
• Future Maintainable Earnings Valuation
• Relative Valuation

In most business valuations the parties will use more than one measure of valuation to arrive at an appropriate value for a business. Let's have a more detailed look at some of the most used website valuation methods.

Asset Valuation

An asset valuation looks at the assets that a business owns. An asset valuation should be regarded as the bare minimum of what your business is worth, as it represents the sum of is saleable parts.

Historical Earnings Valuation

As the name suggests, this method relies on the historical earnings of the website. Depending on a lot of different factors, a website will usually fetch between 3x and 30x its previous monthly earnings.

Future Maintainable Earnings Valuation

A future Maintainable Earnings valuation looks at what the website is likely to earn in the future. For example, a website might be worth more than it's historical value because it has recently climbed to the top of the search engines for a significant search term.

However, due to the highly volatile nature of search engines and web businesses in general, this kind of valuation is often discounted.

Relative Valuation

A relative valuation looks at what the cost would be to set up a comparable website. Let's have a look at an example.

You see a website listed in the startup section of the sitepoint marketplace for $200. It has 5 pages of unique content, and a unique design.

A web developer that is just starting out could decide that he could make another website with a unique design and 5 pages of unique content in 5 hours work. Because the relative value of building a comparable website himself is lower, the relative value of the website listed on sitepoint is low.

At the same time, another person again could look at this and see that a unique design and template would cost him $150, and to pay a copywriter for 5 pages of unique content would be another $100. For this person, the comparative cost of building a new website is higher, so the website on sitepoint has good relative value for him.

Coming up with a ballpark figure

There is no formula for coming up with a value for a website. After all, the only real value is the price that it is sold for.

However, here are some guidelines.

If your website is brand new, the most accurate value is it's relative value.

If your website is less than a year old, a good starting point would be about 3-6 times the monthly profit.

If your website is one to three years old and has solid revenue, a good starting point is about 6-12 times the monthly profit.

If your website is four years or older, with solid revenue, look for 12+ times the monthly profit.

Now that you have a ballpark, use this evaluation criteria to help paint a clearer picture.