If you are asking yourself this question they you are probably thinking about selling your website. Or you want to know what your website is worth so you can make the decision to sell it or not.
Let’s be clear here. The parameters of this argument is a valuation based on what a buyer would be willing to pay you for your website. And those parameters are defined by sites that are owned as businesses or investments, not clients websites.
Now traditionally the value of your search engine rankings has been calculated by the traffic amount x the adwords CPC. Market Samurai calls this their SEOV (SEO value) metric.
A simple formula would look something like this:
Traffic x CPC = SEO Value
And example might be for Boston Injury Lawyer.
2000 x $40 = $8,000 per month.
Why Traditional SEO value is wrong
In the context of selling a website the traditional valuation of traffic x CPC is not relevant. Value is derived specifically from profit generated by your website. All the assets combined generate profit and it is that profit that has value. In simple terms, your domain + traffic + content + your income does not equal your websites value.
Let’s say you had a website called howtomakemoneyonline.com and it was ranking number one for “how to make money online”
Hypothetically. Let’s assume there are 40,000 exact match searches for “how to make money online” at a CPC of $4.00 and that is the only keyword that you rank for. Assuming you are getting 40% of that traffic ranking number one in Google. Using traditional SEO value the website is worth $64,000 per month in SEO value traffic value.
Website valuation method
Let’s say that the same website generated $100,000 per year in profit from advertising and affiliate income.
If you applied a multiple of say 2.5 times to that website the valuation would come back as $250,000.
One would argue that the website is worth $64,000 per month because of the traffic value. The facts are that from a website buyers perspective the profit that site can generate is what determines value. So they value the website at $250,000.
Tips When Considering Selling Your Website
By definition, you should really be viewing your website as a business because that is what it is, an income generating asset that generates income and profits.
So if you are thinking of selling your website then let’s canvas some website selling factors.
1. Make Your Traffic Defensible
Buyers want to reduce their risk when investing. Their main goal is to get a return on investment. The more risk an asset class the lower they are going to pay. Hence why government bonds are seen as the safest investment (lowest return). Generally buyers look for diverse income and traffic. That is why your traffic must be defensible. This is summed up well by Matt McGee. As Matt points out having defensible traffic means having a variety of sources including search, PPC, social media, direct traffic. This is a big challenge for search based sites that rely heavily on search engine traffic. Especially with the recent Google updates sites that had great value a few years ago have been completely wiped off the map and have no value today.
2. Establish A Selling Price
Do you really know what your website is worth? I’m sure you have some idea but there is normally a big difference between what you ‘want’ to get for your website and what you will ‘actually’ get for your website.
Selling a website is nothing like selling a business. Questions that normally get asked like “how long’s your lease agreement? And “what are the contract terms for your suppliers?” becomes “What is the websites traffic?” and “What percentage comes from Google”
Your selling price is usually based on the following:
- Your individual website and it’s unique assets
- What similar websites have sold for before
- What the market is currently bearing for web businesses
A general rule of thumb is that websites sell for between 1-3 times earnings and the majority of sites sell in the 1.5×-2.5x earnings bracket.
Some good valuation resources:
3. Produce A Selling Document
Commonly referred to as an information memorandum or “the book”. This document is prepared to help sell your website. It includes such things as:
- An overview of the website
- The financial history
- Traffic history
- Synopsis on how it generates income
- Summary of operations (what is required to run it)
- Profit and Loss statements
- Client Interview (general FAQ’s buyers will have)
4. Locating Qualified Buyers
The number one challenge webmasters have when trying to sell their website is locating qualified buyers.
There are a few options that you can consider:
- Sell it yourself
- Private network
- Business classified sites (e.g. businessforsale.com)
- Internet investment companies (like internetbrands.com)
- Use a broker
- Their list of buyers
5. Don’t Drop The Ball
Don’t underestimate the importance of this fact. Stop looking after your website for a month and you may lose 5-20% of your selling price. Let’s use this example:
A website is currently making $5,000 profit per month. It has made that amount of money give or take $200 for the last 12 months. You as the seller put your website up for sale. You stop ordering content to be put on your blog, you scale back your SEO campaign and mentally clock out of the business.
What happens over the next 8 weeks while you are selling your website is traffic starts to drop slightly and revenue falls to $4,300 for that month. Suddenly this is a massive red flag for buyers. They will be thinking, “What’s happening to this business?” “Why has the traffic dropped?” “What’s going on with the revenue?”
Suddenly what you were expecting; offers in the $115-$135,000 range becomes offers in the $90,000 to $100,000 range.
That is why it is important to make sure you continue running your website at maximum efficiency and profitability while selling it.
7. Buyers Want The Lowest Price: Don’t Let Them Get It
Most corporate and financial buyers have bought many websites in their career, while most webmasters have never sold a website.
Let me give you an example. A first time seller who received the highest offer from a buyer who had purchased 15 websites. A buyer is always going to want the lowest price and the best terms. They are always going to pull the wool over the sellers eyes and make up any excuse to justify their lowball offer “this is all the market is paying at the moment” or “this is how we did it in our last 4 deals”.
Get yourself up on the terminology used by a buyer. And be ready to keep strong on your asking price. There are a lot more buyers than sellers in the market in general; especially with the market awareness from flippa.com the market is being educated on the prospect of investing in websites. Educate yourself on the process of valuation and look for multiple offers.
8. How To Keep Your Sale Confidential
If you try to sell your website by yourself you are probably going to have to advertise it for sale. There is no stopping the fact that customers, employees, suppliers and competitors might find out. If you go around emailing people that your website is for sale, unless you are really sneaky, there is a small chance that you will be able to keep your identity hidden.
To protect confidentiality, if that is important to you, the normal process is to develop a generic, non-revealing advertisement to send out asking for potentially interested parties to contact you for more information. As the seller you have the right to screen all those enquiries, so if there is someone that you don’t want rummaging into your business financials and info you can decline them receiving any further information from the broker.
This system generally weeds out the tyre kickers as well as the ‘snooping’ competitors looking to steal your sensitive website data. Aaron Wall wrote a great piece on giving away your website data here. The next step is to ask them to sign a non-disclosure agreement (NDA) to allow them access to your information memorandum. And the final stage is to get them to sign a letter of intent (an offer to purchase), which allows them into the final stages of due diligence giving them access to all data.
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