Unless you’re thinking about selling your website, I’m not sure that you really care about the dollar value of your website. Let me explain.
Yes, you and I do care that our websites are valuable – we LOVE websites that generate a steady stream of revenue with positive growth prospects. However, I’m not sure that you’d really want to know the real value of your website. Why? There are three reasons:
- Reason #1: You don’t care because you’re not going to sell yours, anyway.
- Reason #2: Too many things to factor in a website valuation.
- Reason #3: The good will value, sentimental value and potential make website valuation ambiguous at best – thus the popular statement among website owners, “the price of a website is only as much as what a buyer think it worths.”
However, if your run your website as a business (like we did at Noobpreneur.com), you need to understand that you’ve got to have an exit strategy. No matter how much you want to cling to your beloved website, there will be a situation (or an opportunity) where you may want to sell your web business.
Unfortunately, when the time comes for you to name a price, you’re becoming overwhelmed; you’re not prepared. And chances are, you’ll name your price according to what you feel about your website, not based on the objective considerations – which mean that your price may be too high or too low. In either way, you lose.
In essence, you’ve got to have everything ready even before you plan to sell your website: the plan, documentation, financial statements, etc. Indeed, there are so many factors to consider.
But fear not, we’ve discovered an interesting infographic published by QuietLight Brokerage, that pretty much sums up the four pillars that make up a website’s value:
The infographic is very much explaining the basics, but let me pick up a few things to suggest some practical tips to help you in taking action.
What make up a valuable website: The four pillars
Okay, the infographic suggests that there are four pillars that make up a valuable website, let’s talk about each.
1. Risk Mitigation
Risks are the bane of all investors and buyers. That’s why buyers logically want the highest return on risk taken. Before you sell your website, make sure you’ve identified every known thing that impact your website.
For example, how dependent is your website on Google traffic? What if Google penalized your website and it lost half of its traffic? Will that impact your income severely?
Here’s another one: Is your website dropshipping products? If so, what if the supplier cut the business relationship with you? Do you have alternative products that have similar quality?
And finally, here’s the most important example, in my opinion: Is your business having too much reliance on you? Without you, would your business be able to operate well? Can a new owner do the things you do for your business?
Take action: The soonest you’re able to identify the risks, the better you – and your prospective buyer – are in mitigating them.
2. Growth prospects
As mentioned in the infographic, growth prospects are not the same thing as potential.
From my experience, potential is the single most misleading factor in website valuation. Buying a website based on its potential puts you and your money at higher risk; it’s simple really – how can you know about the future if you don’t have any proven track record?
That said, you need to focus on historic data. Although there is no guarantee that the website will follow the growth trends, at least your buyer can know what to expect about the possible outcome of his/her investment based on the past business performance.
Take action: Prepare a list of things that could be better of you to do certain actions with your business. Remember, your weaknesses can mean growth opportunities for the buyer who can do what you didn’t do for your website.
Can buyer dive into your business and do things exceptionally well without causing operational interruptions since day one?
Within Noobpreneur.com’s exit strategy (yes, we have one!), I have a plan to remove myself from the operational. I can do so 60-70 percent of the operational at this time. I’m currently assuming the role of the Editor and tech guy of this website, but I’m in the middle of transferring the role to someone else.
Not only that, in term of branding, I transformed Noobpreneur.com from a personal brand to a business brand; from a solo operator to a business with a staff taking care of things. We also incorporate multi-authored content.
Take action: List all transferable assets (i.e. Licenses, Agreements, etc.) and make sure that before you put your website for sale, you ‘remove’ yourself from the brand and operations.
No matter how hateful you are toward financial management, you’ve got to do that for your website. One important part in ensuring that your website is verifiable is by keeping your financial statements tidy.
Take action: Keep track of your bank statements, transaction details, tax returns, and everything else in between. Be sure to separate your website’s finances from your personal finances. Prospective buyers want verifiable data, and you should be able to give it to them – or else, your website’s value will suffer.
Some use revenue-based measurement – i.e. I’ve been advised that a website’s value is 20 times of its monthly income; someone also advised that for a content-intensive website like a blog, it should be 50 times of monthly income.
Some other use potential-based measurement – i.e. A website in the same niche can make X dollar a month and sold at Y dollar, so your website can potentially be sold at the similar price at Y dollar or a ratio of X/Y.
From my experience, those are not accurate; for example, if a website is sold at five times of the monthly payment, you need to ask this questions to you and the site seller: Is the website difficult to run? Is the website requires your full-time commitment? Is it a risky business? You need to factor in those issues – therefore, you need the four pillars to help you see a more accurate picture of your website’s value.
I hope this helps. Good luck in your website valuation endeavor!