How to Value Your Website Before Selling

Are you considering selling your website and want to know how much you may be able to get for it when you sell?

Perhaps someone has made an offer for your website, or you have just lost passion for the website itself or the market your involved in. Or it could be that you’re just happy to cash out and do something else with your money.

Whatever your motivation you need to know how to value your website and come up with what it’s worth before selling so you don’t get ripped off and leave money on the table.

Why Do Websites Have Value?

But before we get into the nitty gritty of valuation formulas and multiples, lets canvas why websites have value in the first place.

Value by terms of definition is the monetary worth of something. The reason that a website has value is because a potential buyer can make a profit from it. Nothing more, nothing less.

Buyers are solely motivated by return on investment, so anyone out there thinking “but my website has so much potential” strike those thoughts from your vocabulary. Normally what you think your website is worth and what someone is willing to pay for it are two completely different things.

Some website owners and bloggers struggle with the idea that just because you’ve put all this effort into creating content and doing SEO, your website inherently has value. I’m sorry to tell you this, but in terms of valuation 1 + 1 doesn’t equal 2. All the assets of your website (your domain, content, marketing, SEO, systems) are designed to create profit and it is that profit that buyers base their calculations on.


What Is Value In The Eyes Of Website Buyers

Website buyers typically pay a multiple of earnings for a website. That is they pay a multiplication of how much net profit the website makes per year.
For example if your website makes $100,000 per year. A buyer may adopt an earnings multiple of 1.5X thus they will offer you $150,000 for the website.
Generally the higher the risk the website holds, the lower the multiple they will offer.

Below is a list of items that will lower the risk of a website and thus attract a higher multiple offer from buyers:

  • Increasing growth
  • Stable earnings
  • Automated systems
  • Diversified traffic streams
  • Diversified income streams
  • Unique Selling Position

Valuations Methods

There are a few different types of valuation methods that buyers will use to value your website.

1. Revenue Multiple – You have most probably heard the statistic that most businesses sell for 2-3 times earnings. Basically a buyer will take the current net profit of the website for the past twelve months and then multiply it with an earnings multiplier to get a final valuation figure.

2. Comparable Sales – Buyers will use this method if there is sales data available for similar websites. They will then adopt a similar valuation and make an offer based off that.

3. Asset Value – sometimes buyers will ignore the revenue of a website and instead look at the assets of the site (the customer list, or email database) and make a calculation on that instead. They do this because they may be able to leverage those assets better than the existing owner with a new product or making alterations to the system etc.

How To Determine What Your Website Is Worth

So now that you have the perspective of buyers you can then calculate the value of your website.

Remember a valuation is just an estimate of what a likely buyer will pay. At the end of the deal the real value of your website is what is sitting in your bank account once you’ve closed the deal.

First you need to determine your net profit. You calculate this by taking your total sales/earnings and then subtract all your expenses from that figure, which will give you your net profit. Do this for the last twelve months earnings, known as trailing twelve months earnings (TTM).

Then you need to apply a multiplier to your TTM earnings.

Generally newer sites will sell for 1-1.5X earnings. More established sites 1.5-2.5X earnings. And high risk sites 0.5-1X earnings. Websites can sell for out of those ranges however they are normally an exception to the rule.

This data is based off over $1,000,000 worth of transactions over the past few years.

About the Author:

Jock Purtle is a website broker for brokercorp.com. He is the author of the ultimate website selling guide.

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13 Responses

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  • Bill, February 3, 2013

    Regarding the “How to Value Your Website Before Selling” article, while Jock has very valuable contributions to make, he bases them all upon a single premise that is NOT always accurate, and that is:

    “Value, by terms of definition, is the monetary worth of something. The reason that a website has value is because a potential buyer can make a profit from it. Nothing more, nothing less.”

    Value isn’t solely about monetary worth, but is also defined by the importance or usefulness of something to someone. Allow me to extend an example.

    I have a client whose business goal is not based on the making of money but rather the marketing of a message or campaign towards better health (the agenda often associated with social marketing). This particular client is financed by the government but the concept can easily be transferred to other client’s whose business is that of social marketing such as churches, blogs, or other communique-oriented establishments.

    The value of such websites is NOT based upon how much money it can generate, but rather, how well it is able to assimilate information to it’s visitor and maintain an active, and ongoing, interaction with it’s visitors.

    It’s true that many companies rely on the monetary exchange in order to stay in business and hence, Jock’s summary is . . . well, invaluable. However, not all websites are about business (in the sense of exchanging money for services or goods) nor should they be; and I believe that nuance is an important concept to consider when evaluating a website that you are selling (or buying).

    • Steven Snell, February 4, 2013

      Hi Bill,
      I agree with you that websites can have value aside from the exact amount of money they make, but personally I have never heard of a church or government agency buying or selling a website. The context of the article is for website owners who want to sell their site for business purposes.

  • Justin Gilchrist, February 5, 2013

    Hey Jock,

    Great primer. Valuations in this niche are tricky especially when you try to apply it to sub $250K sites (where the bulk of volume tends to be).

    Some online brokers lean towards Net Present Value for valuing smaller internet businesses. IMO this relies too much on assessing the risk (discount rate), which for a business model with so many unknowns (Google often being the biggest) is a pointless exercise.

    Internet business also have a major disadvantage compared to offline ones, where you have comparable sale data going back several years versus very little published information probably only spanning the last couple decades.

    My solution has always been to establish a core value first, add or subtract based on several factors unique to web business and finally consider it all in context.
    There’s some notes from a presentation I did last year here -

    http://www.slideshare.net/JustinGilchrist1/valuations-in-buying-selling-export

    This helps address and provide a valuation for sites that have no revenue, but still have a value in other areas like traffic or user engagement.

    All the best

  • Jock, February 7, 2013

    Hi Bill,

    Thanks for your input.

    Value in the terms of selling a business is solely derived from the profit that it makes or the profit that it could make for it’s potential purchaser.

    Steve has pretty much summed up any further response.

    Jock

  • Paul D. Mitchell, February 9, 2013

    First of all, try to consider the value of hard work that you invested in creating your blog or site and the time you devoted. Think, whether you will be able to fetch money to compensate for all the work done on your site.

    • Steven Snell, February 11, 2013

      Paul,
      I would agree that this should be a consideration when you are determining the value of the site to you, but if you’re trying to determine how much you should ask buyers to pay for the site they aren’t going to be very concerned with how much effort went in to creating the site.

  • Hayden Kho, March 22, 2013

    I was given a website during my college days and I never had any idea about it on the technical side. I am a blogger and that’s it. A friend told me that I could use a valuation tool or site such as howmuchismywebsite.com, digsitevalue.org and so on and so forth. Are the results produced in those sites for real? I tried your website and here is the result. http://www.howmuchismywebsite.com/vandelaydesign.com What Im trying to say is, can I use this as an idea for my site’s potential value? Sorry for the lame question, I’m just not that experienced in selling websites. Hope to hear responses guys. Thanks!

    • Steven Snell, March 23, 2013

      Hayden,
      No, you can’t rely on those tools for any kind of relevant valuation. The reason is, no on that is interested in buying the site will care what those tools say a site is worth, and the site is only worth what someone is willing to pay.

  • Jock, March 30, 2013

    Hi Hayden

    Most automated valuation tools use poor data sources to calculate measures of traffic and then value off that.

    A real valuation uses net profit as the main valuation factor and then other variables to may effect that base rate

    Check out the article I wrote about website valuations here:
    http://www.brokercorp.com/ultimate-website-valuation-guide/

  • Uh, April 6, 2013

    Hi there. I own a successful website that earns low six figures. It’s 10 years old, well-established, not going anywhere.

    There is NO WAY IN HELL I would sell it for 1.5x or even 3x or heck, even 5X the yearly earnings. Why would I? Why would anyone? If you OWN A JOB, and you can make 100K or more a year off it, and nobody can take that job away from you, and unless you screw somethign up you can potentially live off the website for the remaining 50 or so years of your life, why in hell would you give it away for just a few years of income?

    Therefore, I find this article to be absurd.

    No sane person on this planet would sell a site that makes 100K a year for just 200K or 300K. Heck, 500K sounds low/stupid.

    • Steven Snell, April 8, 2013

      Uh,
      There are a number of different reasons for selling a website. There’s certainly nothing wrong with holding on to the site and continuing to make money from it, but to say no sane person would sell doesn’t take context into consideration. Some websites take a lot of time and work to manage and people’s situations and interests change. Other times people may find themselves in a position where they need a larger amount of cash very quickly. Or maybe they don’t think the future earning are going to continue for ever. A lot of sites are dependent on Google rankings for traffic, and with all the changes that Google has made the last few years that can be taken away at any time. So I agree with you that holding on to a profitable website is the ideal situation, but it totally ignores context to say that no one should sell.

  • Jock, May 6, 2013

    Hi Uh,

    I have listed all the reasons that you may want to sell your website in this article:

    http://www.brokercorp.com/ultimate-sell-my-website-guide/

    Some of the more common ones are

    -Ready to try something else
    -Need the cash for another project
    -Your desperate for cash
    -The business is risky

  • Jock, May 6, 2013

    Also another thing.

    The market (what people are buying websites for) is currently at 1.5-2.5x yearly net profit.

    Some sites achieve a higher or lower multiple due to the websites unique attributes.

    Yes it is possible to sell your website for 5 times earnings, there are a few documented case studies on the internet about that. However they are the exception, not the norm.

    If you are interested in selling your website I would suggest getting a valuation beforehand to see whether your site has some of those unique atributes that will attract a higher offer from a buyer.