Would You Buy This Website For $164,914?

Income (US$)
Adsense – 450.00 per month
Affiliate commissions – 630.00 per month
Text link advertising – 180.00 per month
Independent Ads – 500.00 per month
Adbrite – 20.00 per month
Total Monthly Income – 1,780.00
Annual Income – $21,360.00

Expenses (US$)
Hosting – 14.95 per month
Webmaster(3hrs/wk) – 360.00 per month
Other fees – 30.00 per month
Domain – 9.20 per year
Annual Expenses – $4,868.60

Net Annual Income – $16,491.40

No. It’s not the www.grandstart.com. And I’m not selling it in six months. The revenue figures above are for illustration purposes. In this post I’ll show what might be the possible selling price of a website which generates the above revenues.

If you’re thinking of selling your website or if you’re online strategy includes buying and selling websites, then this article might suit you.

How do you value a website?

While there are no standard or clear-cut methods in determining the value of a web site, I would liken it to buying and selling shares of stocks.

We could use what brokers call “profit multiples”. This valuation method is one of Wall Street’s tested measuring tools in valuing a business.

The “profit multiples” formula is quite straight forward. A multiple of 10 would put the price of the hypothetical site we featured above to $164,914.00 ($16,491 x 10) and a multiple of 17 would put it at $280,353.80 ($16,491 x 17)

A multiple of 10-17 is the range for many companies and is considered fair value at Wall Street. Multiples of 17-25 is considered high and analysts would say stocks falling under this category are overvalued. But for growth stocks that would be okay. Multiples of 25 and above are considered speculative bubble and would drop like a hammer once the bubble burst.

Well, if you rewind and look back at the time of the dotcom craze, the multiples were from 40 to 100. You may say foolish, but investors were buying then.

Being that simple, the “profit multiple” formula does not take into account other things which are also extremely important like domain name, traffic,subscribers, etc.

Now here are the things that the seller or potential investor of a website should look at:

1.Domain name. There are buyers who are not interested with your content or the miniscule revenue that your site is generating. They will buy your site solely for the domain name. MXN Ltd recently bought the domain name porn.com for $9.5M. Amazing! But this sale was only the second highest price as the domain, you guess it right, sex.com fetched $12M. What else?

Previously, the most expensive was business.com which was bought for $7.5M. That was about six months before the dotcom bubble burst. (Are we nearing the burst of internet bubble 2.0 ? – knock). But in July 2007 business.com was sold for a whopping $345M. Well, that amount was not for the domain only but it included everything. (business.com at that time had 100 employees and was generating $50M annual revenue. It also served 6,000 business-to-business advertisers).

2.Traffic sources. If your source of traffic is mainly coming from Google, then you’re in jeopardy. I mean your site’s value would be lower. What if Google changes its algorithm? What if you get johnchowed?

A site which has a varied source of visitors, say, 45% coming from search engines, 30% from links and referrals, 15% from paid advertising and 10% from direct type ins would have a higher chance of survival when other sources stop pumping in visitors.

The strategy is to have as many sources of traffic as possible. Get it from referral sites. Get it from linking partners. Get direct type ins by advertising your site offline.

It’s also a big asset if your site ranks without fail on page one of Google for specific keyword phrases of the industry you are in.

3.Traffic volume. How many unique visitors per month do you get? If you’re the seller, be ready to provide the buyer with your site’s statistics. You could install a third party software or just use the awstats or webalizer of your host.

4.Number of newsletter subscribers. This depends on whether the list of subscribers is included in the sale.

How many subscribe to your newsletter? Internet marketers call their list of subscribers “the list” in fact, they say, “the money is in the list” It is often said in the internet marketing circles that the value of the list is around $1 per subscriber per month (Willie Crawford earns $1-$3). That is, if you have, say 10,000 subscribers, your income potential from that list would be around $10K per month.

So the more subscribers, the more income potential you’ll have. Even if you just say $5 per subscriber per year. The amount is still substantially high for a list of 10,000 subscribers (10,000 x $5 = $50,000 annually)

So, if you factor this in into the selling price or the buying price if you’re the investor, then you can get a fairly good calculation of the amount during the negotiation.

5.Number of RSS feed subscribers. Here’s another profit potential in this one too. You now can monetize you RSS feeds. Just go to http://www.text-link-ads.com/feedvertising/

6.Niche. How large is your market? Of course, the bigger the market, the higher the profit potential. There would still be plenty of room for the buyer of your website to expand the business. However, if you’re into microniches, this is your downside.

Is your niche shrinking or growing? If you’re into a growing niche, you could, without doubt, command a higher profit multiple. You can check Google trends to find this out at http://www.google.com/trends

7.Revenue streams. A diversified source of revenue as in our example above would be very helpful in increasing the price of your site. You cannot brag of your income if it comes from Adsense alone. Who knows, the next day you’ll get an email from Google informing that your account has been suspended.

Smart buyers would analyze a site and look for the potential sources of expansion of a site they are contemplating to buy. If they feel that they could still expand on it, then they’ll buy.

Okay, I’ll see you six months from now and check out if you have some websites ready to be sold.