Making Sense and Dollars of Your Website

It’s your baby.

You’ve nurtured it from infancy, putting in countless hours and sleepless nights. You’ve seen it through hard times and good times. And now, like a proud parent of a mature offspring, perhaps you feel the time has come to walk it down the aisle into someone else’s life.

You might very well have strong emotional attachment to your business, but depending on what stage you are in your life — whether you are ready to sell or you just want to have an idea of your business’ current worth, this article is for you.

Making dollars and cents of a website valuation

Before shedding insight into the burning questions related to website valuation, let’s provide some context: Increasing numbers of online marketplaces are helping people buy and sell nearly one billion dollars worth of online businesses each year across the globe.

Empire Flippers is an Inc. 5000 company and is recognized as the #1 curated marketplace for buying and selling established, profitable online businesses. With all their expertise, they have created a reliable automated valuation tool which gives an initial estimate that can be used by any entrepreneur as a starting point for conversations about selling. You can use this tool to get a firm grasp of what your website is worth.

This tool is a great starting point, but any entrepreneur still must go the extra mile and complete their due diligence and this article will help break down the formulas to ensure you have a good understanding of where the valuations come from. That’s where this guide comes in.

The Nitty Gritty

At first glimpse the formula for website valuation is very simple:

12 month average net profit x 20–50 multiple

Finding out your average 12 month net profit is usually a fairly simple exercise. The challenge however lies in finding out the multiple.

For the lay person, a definition of a “multiple” is a useful starting point:

A multiple measures some aspect of a company’s financial well-being, determined by dividing one metric by another metric, for example price to earning.

Generally speaking, a multiple for a business earning a reasonable profit will hover between 20 and 50x on a monthly basis. A good approach is to pay close attention to monthly multiples as it sheds more light into the trends of a business’ performance.

Average net profit

Investors are looking to buy internet businesses that have been earning a pretty profit and are forecasting smooth sailing and continued earnings with few storm clouds on the horizon.

They also are looking for businesses that will not overwhelm their weeks with work. While a net profit is of great importance, so too is evidence that expenses that do exist are intelligent and linked to reducing the strain on time.

A net profit with evidence of outsourcing time-consuming tasks will appeal more to buyers than slightly higher profits but a great deal of commitment in terms of time and energy.

Length of history

Information is power. The more (positive) information you can share with a potential buyer, the more enticing your business will be.

Generally speaking, a business that has a track record of weathering storms, appeals to buyers as it demonstrates resilience and a business model that will likely continue to survive for years to come.

Historic data from Google Analytics or Clicky provide a great deal of confidence to buyers as it provides a clear picture of the business.

People like stories, and for investors, there is no better story than one of continuous growth over time.

Your business is typically valued based on the last 12 months of average net profit.

Website Traffic

Traffic is an excellent sign of a viable business worth a purchase. A good analysis of traffic will shine light on conversion rates, which is a key indicator investors care about. Conversion rates are dependent on a number of factors including price. For example, many people might look at a Porsche but few will buy. But the company remains profitable and the conversion rates are calculated based on the understanding of the product, customer and marketing mix as a whole. Alternatively, a niche product might get less traffic but a higher conversion rate as it offers something very unique.

Email subscribers and Social Media Followers

Oscar Wilde said “The only thing worse than being talked about is not being talked about.” For an online business, having a good list of email subscribers and social media followers will be evidence that people are talking about you, thinking about you, or listening to you. And to have a captive or at least attentive audience is definitely a good sign for investors.

An email list can be paramount to generating profits by sharing updates, upselling to existing customers, and giving product offers. People also want value, so the more value you can provide to them in your content, the greater the customer loyalty.

A social media following is a strong indicator of a decent brand. This is a great opportunity to build brand awareness, cultivate customer relationships and perhaps even develop brand ambassadors and advocates.

Hours required

Time is money and for buyers this certainly applies when considering the purchase of an online business.

No one wants spend a great deal of money on a website that will eat up significant hours of their work week managing.

As an entrepreneur, you can appreciate the blood, sweat and tears that go into creating an online business, but investors who purchase websites are looking to skip the toil and move directly to the riches.

For this reason, a cold honest answer to the question of time that is required to manage your business will be an invaluable piece of data required for a truly honest valuation.

Now What?

There is no wrong answer to this question but the correct answer for everyone will always be very personal and subjective. Perhaps the best starting point is to ask is: Based on the current valuation, does the money seem enticing?

Perhaps you are ready for new challenges and the next chapter in your own (and your business’ life)?

We recommend setting a minimum threshold of what you’re willing to take for your business. That way, you won’t come away with feelings of regret should you decide to sell.

8-Bit Content helps convert audiences into customers. Find out how we can add real, tangible value to your website’s net-worth. Get in touch with us today.