A Simple Valuation Guide to How Much Your Website Is Really Worth
As a website owner, do you have any idea how much your site is worth?
If you've been in the trenches building your online business day after day, week after week, year after year, you must've asked yourself by now:
How much is my website actually worth?
It's a straightforward but intimidating question.
In this post, I'm going to reveal how experts value online businesses and how you can significantly increase the value of your own website.
But before we get into all that, what is the endgame as far as your business is concerned?
For many, their endgame is to exit the business and sell it to an investor or another entrepreneur. But for many others, the answer to this question eludes them.
This article will help you answer that question as well.
Note that if you are running an SEO agency or a business with a similar model, most of the advice in here won't really be of help to you because although SEO agencies are great cash flow machines, they often make terrible assets.
So if you're in that situation, now might be the time to start building out websites of your own.
After all, clients are great, but assets are definitely better! There are always thousands of eager buyers and investors looking to acquire digital assets that are profitable, and they are willing to cough up high prices for them.
How high, I hear you ask?
Empire Flippers sells websites anywhere from $10,000 all the way to seven figures. Just in the past year, they sold an affiliate website for $1.8 million! I'll bet that would make a nice payday for anyone and an especially rewarding one for a hard-working person such as yourself, am I right? 🙂
But, even if you have a pretty small asset, selling it could be all you need to start playing at a whole different level.
So, What Is a Fair Valuation of an Online Business?
This is a very important question when it comes to determining how online businesses are valued.
There are a lot of businesses that are leaders when it comes to pricing, marketing, and selling online businesses. Many have sold hundreds of millions of dollars’ worth of websites and have used their real sales data to create automated valuation tools.
Although these tools may not be perfect, they are continually being refined. Examples of tools that you can use include ones from DnScoop, Empire Flippers, and WorthofWeb.com, among others.
When choosing a website valuation tool, you need to go with one that takes an in-depth look at your traffic
numbers, monetization methods, and various other important information.
Here's a breakdown of how most valuations work:
It's actually a very simple formula with the basis for the valuation being to take your average net profit for the past 12 months and multiply it by a 20-50 multiple.
The only part that might prove a little difficult is figuring out the multiple. For a healthy and profitable business, the multiple can be anything from 20 to 50x.
At this point, I should warn you that if you are really serious about selling your business (as opposed to merely gaining an idea as to what it’s worth) then such a calculator is not a substitute for individual and business-oriented evaluation.
In such a case, your best bet is to get a valuation that's done by real humans using models that they can understand as well as manipulate, where they will take a closer look at things like real revenues, profit margins, and potential.
Assuming you've already tried one of these tools and you've been presented with a figure of what your website is worth, now we can move on to how you can manipulate the multiple we talked about in your favor.
It's a sad fact that a lot of people creating and growing websites (and various other digital assets) have no idea what their value is.
Many don't even know that it's possible to sell their websites, and even fewer still have any idea how to raise the value of what they've built.
If you're among these people, don't worry, in this section, we're going to talk about how you can begin now to increase the value of your website so you can get the best possible payday if you ever decide to exit the business.
But first, let’s take a look at why search engine optimization is the best traffic source when building these assets.
Why SEO Gives You an Advantage When Selling Your Digital Assets
Regardless of where it's coming from, all high-quality traffic is great. It's always a good idea to diversify your traffic sources and gain several marketing mediums so you can produce quality leads and, ultimately, sales for your business.
Although Facebook Ads is awesome, from a selling perspective, nothing beats SEO traffic.
When it comes to selling an online business, finding the highest number of potential buyers possible is helpful not only in selling your business faster, but also to secure the highest priced offer.
The buyer pool you approach needs to be the broadest possible. With organic SEO traffic, you'll be able to do this easily because all buyers absolutely love it.
The reason why buyers love search engine optimization is that, unlike other marketing channels, you don't need to actively monitor the campaign. Once you've ranked for your chosen keyword(s) in Google, there isn't much else for you to do other than going after different keywords.
This starkly contrasts Facebook Ads, which requires you to keep an eye on your campaigns on a daily basis to ensure that none of them are broken.
Furthermore, you need to calculate all the expenses from your ad with precision and accuracy to ensure that you are making a profit and not losing money.
Also, unlike paid traffic whereby ads could simply stop for whatever reason and the business could die virtually overnight (e.g Facebook can ban your account and never reinstate it), traffic coming to a site from search engine optimization never stops.
Even with algorithm updates such as the most recent one, it's extremely rare for websites to lose the entirety of its organic traffic overnight. And even when they do lose some of the traffic due to an update, such a problem can typically be fixed.
In this regard, traffic from SEO can actually be considered an asset in and of itself!
So now that you can see the reasons why investors are more interested in websites that are fueled by search engine optimization as opposed to paid media campaigns, let's move on to how you can begin now to move the needle for your website in order to earn maximum profits.
How to Maximize Profits When Selling Your Online Business
This is something you have way more control over than you actually imagine.
The secret to increasing this multiple significantly is to go about preparing your business long before you decide to sell it. If you can manage to have 12 good months prior to selling your website, you will be in a pretty good position when it comes to maximizing your profits.
The majority of the changes you need to make to increase the value of your website are common sense, really.
Remember those questions you asked yourself when starting your business?
Who's my target market?
What's my audience like?
What are their hobbies?
What gives them pleasure/pain?
As a marketer, you already know that marketing something successfully comes down to simply being able to solve your audiences pain or to provide them with whatever pleasure they seek.
The same applies here, except instead of thinking of a vast audience, you're thinking of just that one specific person you need to convince to buy your site.
Here are the two factors that have the biggest effect on how much you sell your website for:
Average Net Profit
Length of Profitable History
Let's explore these concepts quickly.
Average Net Profit
Everything else being equal, a higher average net profit translates to a higher multiple.
Listed below are some of the ways you can increase the average net profit. Keep in mind that although getting higher traffic numbers is a great approach, it's not always just about bringing more traffic to your site.
You can quickly increase your websites average net profits by clamping down on content creation, link building, and other expenses which are typically the biggest costs, particularly if you're focused on SEO as your main traffic source.
Also, ‘addbacks' which are nice to have but not necessarily must-haves can be left out.
This includes things like conferences, courses, and other things that aren’t required for running your business but you usually charge to your business for tax reasons.
These and other expenses can be added back into your net profit in order to increase your overall valuation.
These are just three examples, but you know your business well and I'll bet you’ll be able to figure out many other means of cutting expenses and improving your net profit. Just be careful not to overdo this.
In other words, if you start doing all the grunt work yourself just to save on hiring a contractor, your buyer might see your website as a job and not an investment and that might put them off.
Length of History
This one is easy.
Although you can't control the length of time your online business has been around, you certainly can control the amount of data that you have to show for your business's life.
Make sure you have Google Analytics installed from the first day because buyers will expect you to have this.
The more history you are able to show a buyer in terms of both traffic and revenue makes it more likely for you to attract real buyers as well as for you to get a better multiple.
For instance, if you are able to show year over year growth, this will help to increase your multiple.
Other Factors to Help You Get a Higher Multiple
1. Minimize Critical Points of Failure
The term ‘critical points of failure’ refers to anything that is so important to your online business that if it fails, it can potentially kill the business overnight.
For many search engine optimization professionals, this is linked to Google Algorithm Updates.
But building multiple traffic streams like email, social media, and referral traffic will help you fix this issue.
2. High Levels of Traffic
The more quality traffic your site gets, the more you're likely to get a lot of potential buyers interested in purchasing the business.
This is not just about visitors, but about traffic that converts into sales. This means that buyers will likely steer clear of any website that has high traffic levels with very low sales.
3. White Hat SEO
To get the best possible multiple, you need to make sure that you only use white-hat SEO practices on your website.
Buyers will be a lot more willing to offer a premium price for websites that are fueled by white-hat strategies.
4. Email List
I'm sure you've heard the phrase ‘The money’s in the list'. This is also true when it comes to selling your website.
Just make sure that you’re monetizing your list, otherwise, it doesn't effectively add any value to the business.
7. Hours Required
As previously mentioned, buyers want an investment, they are not looking for a job.
No one's going to spend hundreds of thousands of dollars buying a website only to have to grind it out for 40 to 50+ hours a week!
Although that may be all right for you and me right now, buyers out there are looking for leverage so do your best to systemize, use automation in your marketing and everywhere else. If possible, you can build a team so that you’re able to work ON your business instead of IN it.
Use these strategies to start making your business more attractive now, whether or not you intend to sell it in the future.
Either way, you stand to benefit a lot in terms of increased sales and revenue just by implementing these tips.
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Updated: Originally published June 30th 2019