How to Value Your Website

A website is just like any business – you need to keep customers coming in the door, have great Cash Flow & most importantly, have a plan for growth or an exit strategy.

Many business owners have a pretty clear exit strategy for their bricks and mortar business – leave it for their children to take over, have a partner buy out agreement or a plan to sell.

When it comes to websites however, few website owners have considered what will happen to their websites when they’re ready to move onto new and exciting challenges.

Like a bricks and mortar business, you could leave your website to your children or have a partner buy you out. But how do you sell a website?

You sell a website in the same way you sell any other business. You need an agent, relevant paperwork and your business needs to look its best, as well as present potential buyers with areas to improve upon.

But before all that, you need to have some idea of your website’s value.

Valuing your Website

There are the 4 key areas to look at when establishing the value of a website.

  1. Financial position

    Buyers will want a clear understanding of your website finances - the sources of revenue you have and operating costs.

    Having a strong financial position contributes to the growth multiple (a website generating profits of between $3,000 and $7,000 per month can expect a 12 month multiple) you can apply when calculating your website sales price.

  2. Asset value

    For a website, the Asset value is determined through the technology used in the website, the physical and intangible stock value, the quality and volume of content within your website and the customers, leads and prospects you have in your database.

    There is a flip side to the technology and content components of Asset value.

    Upgrade costs and comparative costs are two areas that can negatively impact on the Asset value of your website valuation.

    Upgrade costs are the hours and effort required to update the technology used in the website. Technology changes fast and its important to keep the website technology current. The more current the technology that is being used, the less the cost to upgrade and therefore more likely that the website will be worth more.

    Comparative costs are the time and expense required to build from scratch a website similar to yours. Low Comparative costs, tend to lower the website valuation. The temptation to replicate a website is always off-set by the volume of traffic the website receives.

  3. Traffic

    Much like counting the number of people who walk into or past your business each day, your website traffic is very important to buyers.

    Two key measures that contribute to website value are unique visitors and page views. All good website analytics software will record and report these measures.

    The value of your website can increase dramatically if you already have very high traffic. This is because the cost of taking traffic away from competitors through pay per click advertising (PPC) can be quite high. If you’ve already done this, then the prospective new owner doesn’t need to.

  4. Administration

    Unlike a bricks and mortar business, a website is expected to be as self-sufficient as possible. The amount of time, effort and expertise required to keep the business growing and earning money is as important to buyers as how much money it actually makes.

    Automating websites can be expensive and whilst you may not have the funds or expertise to automate more of the website yourself, by providing buyers with ideas for where and how better systems, and processes, can be implemented you will increase the potential value of your website.

Believe it or not, it is many of the above factors that lead to websites like Facebook and Google achieving their multi-billion dollar valuations. It is also these same factors that have lead to some websites with absolutely no incoming revenue being sold for hundreds of thousands of dollars.

Even if you never consider selling your website because you use it as an online signpost for your business, it is a business asset and as an asset it creates value for your business in more ways than one. Knowing how to measure the value of your website is a great way to monitor it’s growth and success over time.

Keeping a record of the value of your website is like keeping a record of the value of plant and equipment. It's an asset and just like other types of assets it can retain, decline or appreciate in value every year and why conducting an Annual Website Valuation Review is important for your business.

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