A question that gets asked occasionally at the internet marketing forum I frequent is: how do I value my website? Just today, someone had posted that his site was earning $1 per day at present and he was eager to know its value if he were to consider selling. So, in this post I want to give what I think is a fair way of establishing a website’s true value.
Firstly, we should think about how we arrive at a valuation for something more familiar. For example, if you were to place your house on the market, how would you expect to arrive at a fair valuation for it? Now I know you would employ an estate agent, but before you get around to that, think about how you would come up with a reasonable estimation of its true worth? You would do it by comparison – right?
You would look at what other similar houses, in your area, were selling for and that would give you a reasonable approximation of the value of your house. Of course, your house might be worth more or less than the average, that’s true, but the comparison would give you a fair idea of its value. The same is true of other things, for example your car. If you wanted to know how much your car was worth, you would conduct a similar exercise. That’s how we arrive at a value for anything, by a useful and valid comparison.
So in my opinion, the true value of a site can be derived from a comparison of its annual profit against the ROI (return on investment) of investments in the financial markets. The key question is: what amount of money needs to be invested in the financial markets in order to attain an ROI that is equivalent to the website’s annual profit.
At present, financial investments are not doing particularly well, but if you had, let’s say $1,000 to invest, what could you expect to earn in interest? A quick bit of Googling shows me that rates of around 3% are realistic at present, but perhaps you might be able to get up to 5% if you knew what you were doing and where to invest. I think that 5% is an optimistic figure but it’s a nice round number that we can use to do maths and we can also know our valuation will turn out to be on the modest side.
5% of $1,000 is $50
So for every $50 your website is generating in annual profit, its value would (modestly) be $1,000. The person who asked the question said his site generated $365 per annum. Now, provided this figure is profit, we can calculate the value of the site as follows:
365/50 = 7.3
Therefore this site would be worth:
7.3 x 1,000 = $7,300
The figure is based upon the profit-generating capability of the site. All costs are taken into account provided we are talking profit and not income. Provided the methods used to drive traffic to the site are properly represented within its running costs and taken into consideration in the profit calculation, then I would argue that this method is valid.
There will be many people who might argue the reverse, especially those who deal in such commodities. You can buy and sell sites on flippa for example and lots of people use this as their business model. If you look at the flippa listings, you would get an entirely different view of a website’s worth.
It is possible, however, to affect variables such as traffic stats, conversion rates and income. Such factors may be deliberately manipulated or misrepresented by unscrupulous people in order to inflate the perceived value of their listings. If not actually manipulated, figures can still be massaged via statistical methods. Provided no attempt is made to manipulate such figures, I believe the above method provides an objective way of arriving at the true value of a website. I hope this post proves genuinely useful to some people.