Friday, September 16, 2011

Know what your website is worth to you and others

Determining the value of your website or blog depends on the viewpoint of the person asking. To those who are hoping to sell their website, the buyers viewpoint (others) is most important. The consensus of all experts agree that:

Your site is worth whatever someone is willing to pay.

This is because: a buyer estimates the worth of a website based on the income it will return.

Similarly, however, a site owner also values its website based on the income it currently returns.

Example: Let us consider a 5 year old website which nets a clear profit of $2,000 per year and targets a unique audience. At current interest rate levels, we find that 5 year CD's are yielding 2.00% per year. This means that the site owner has the equivilent of $100,000 invested in the CD which returns $2,000 per year. Thus, the owner correctly considers the value of his site to be worth $100,000. His risk, however, is interest rates. If the 5 year rate increases to 4.00%, then the value of the site will drop to $50,000.

Many authors cite a website's worth based on a fixed multiple of current income. The multiples range from 5 times earnings to 20 times earnings.  This seems rather arbitrary, but from this, we can value the above site to be worth $10,000 to $40,000. Remember however, most of these multiples were established several years ago when interest rates were higher, and may have been in line at that time.

A person who purchases an emerging website is taking a risk, and therefore expects to earn a higher rate of return on his investment. Assuming an investor targets a 10% return, he is willing to spent $20,000 for a website that is returning $2,000 per year. The $20,000 value can be determined using a 10 times multiple.

However, there are many intangibles which can increase or decrease a sites value. For example, if the site is being developed on a part time basis, the full suite of its potential reach may not be acheived. A buyer may indeed see that by adding a bit more manpower resources, the site may grow exponentially.  Conversely, a blog whose content is based solely on the author's experience or memoirs, may be of little or no value to a potential buyer.

If the income of a website has continually increased since the launch of the site, future income growth may also be anticipated. If this is the case, the the value of a website should increase. However, if newly launched competition hits the web arena and threatens to reduce a website's reach, then the value of a website would naturally decrease.

So, returning to our original example and utilizing all of this information, we could reasonably expect the 5 year old website profiting $2,000 per year to be conservatively valued at $100,000 to the owner, but only $20,000 (plus an intangible margin which could range anywhere from $0 to millions of dollars). Thus, I would set a minimum price of $50,000 for this particular website example but would push for its upside potential.

Remember: It's up to you to influence what a buyer is willing to pay in order for you to receive its full potential value.

Below is a summary of intangible items that can potentially increase your website's worth substantially:
  • Content Uniqueness
  • Cost to replicate
  • Demand
  • Potential earnings
  • Branding
  • Domain name desirability
  • Income Diversification
  • Traffic sources
  • Visitor demographics
  • Design
  • Age of site
  • Search Engine position
  • Tax implications

You can learn more by reading the websites below.

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