In the traditional market, a piece of candy can be placed on the counter of a business for $1.00. There are those who will walk in and want to pay less, but the price has been set, and if they don’t want to pay, then they don’t get the product. As long as $1 is fair, however, you will eventually find someone to buy your candy.
Selling a website is different. The seller has to prove to the buyer that the website is worth its asking price. Whereas the consumer of the chocolate will likely eat it and be satisfied for a moment, the buyer of a website is an investor looking for a return on investment. In a perfect situation, that works out for both you as the seller and the buyer as investor. You two will list what you want to pay and then negotiate a rate somewhere in between those two numbers. But before that begins, you need to look toward the market and your website to determine a fair asking price.
The Market and the Buyer
The best starting place for estimating the value of your website reviewing the market to determine what buyers are most likely to pay for your business. Unsolicited offers, market analysis and solicitation of offers are three useful tools for preliminary website valuation.
Using Unsolicited Offers
The best way to do if your website is worth something is if someone has offered to purchase your website. If you are receiving unsolicited offers for your website, then you have a very valuable tool at your disposal. Many times, when a website is taken to market, there are no initial and unsolicited bids. Using these bids as offers, you now have a good metric for helping to determine what your business is worth without you advertising it. But there is still more to do if you want to see your website sell for more than what others are telling you they want to pay for it.
Because not all of us are lucky enough to have received unsolicited offers from prospective buyers, we have estimate the value of our website using different tools. One of the most powerful tools is market analysis. Take the piece of candy we were talking about earlier. It might sell for $1, but if you analyzed the candy market, you might realize that similar types of confections are selling for closer to an average of $1.25 in the retail market. You could be making more money and not even know it.
Flippa is one of the world’s leading places to buy and sell websites, domains and mobile apps. Using their list of websites currently for sale and narrowing the listing to those particular to your niche market, you can easily and quickly discover what your website might fetch on average in today’s market.
Solicitation of Offers
Flippa also allows you to list your website in their classified listings for free. Doing this allows you to place your website on the market even if you have no intention of selling it. The purpose of placing it out there is to see if there is demand for your website in the market. If potential investors begin contacting you, you have a good sign that you might be able to sell your business for a pretty penny. Competition is the first principle of the free market, and if there is enough demand for your business to warrant competition, you’re sitting in a good position. Also, you can gather from these investors a better estimate of your website’s value in today’s market.
The Market and the Buyer are tools used to analyze the demand for your website, and its potential value given current market conditions. A good businessperson, however, knows how to go beyond the market to garner the greatest return on investment. If you’re looking to make a good deal of money from your website, then it’s time for an individual valuation that analyzes the website itself, not as just another commodity in the market but a commodity worth something not only to you but to others as well.
Commonly, the final selling price of a website is determined with the use of a sales-earnings multiple. Here the profits made by your website are multiplied by a number that illustrates possible earnings to be expected after the sale of the business. Of course, this is a subjective number agreed upon by you and the potential buyer of the website. For this, you should know the average sales-earnings multiples currently being used as well as the factors that can increase the multiple.
Valuing Other Assets
Lastly, a very important tool is looking at all of the assets and variables that might affect the value of the website and determining how to use that for your benefit. For example, the longer the business has been around, the more data is available for analysis of profit and other variables. For this, the age of the business is one factor that affects the sales-earnings multiple. As well, if profit has been increasing over a given period, you illustrate a greater possibility of increased profits in the future. Again, the multiple is likely to increase based on this information.
Other important variable include traffic or the total quantity of visitors to your website over a given period. These statistics can be found using analytics tools such as Google Analytics. Using this data, you can calculate average sales price, visitor-customer conversion rates and a value of each visitor to your website. This information can be highly useful and add value to your website. The domain name itself can increase in value because of traffic but also because of its generic value. Analyzing traffic and domain together with projected future profits and the age of the business can increase the final selling price or the sales-earnings multiple used to generate that data.
This has been only a brief and cursory examination of estimating your website worth. There are many other means of valuation beyond these and different ways of using these valuation methods together to generate a fair asking price. Ultimately, a multi-variable approach to valuation that uses a number of different means of estimating value–including traffic valuation, domain valuation, the use of a sales-earnings multiple, market analysis, solicitation of buyer bids and other such things–can be highly useful before you enter the boardroom to negotiate a deal with a potential investor.