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How to Determine a Website’s Valuation

To get into the business of website trading, you need to know how to determine a site’s value. Whether you want to place an offer or set a price for your site, you’ll need to know its worth. On average, a website sells for two to four times its annual profits. Where a site ranks of that scale depends on a number of factors.

When you visit a broker, you’ll notice a common trend. Website owners often overvalue their sites. That’s because they’re taking into account all the personal effort they put into growing their brand. They’ve made an estimate based on emotional investment instead of objectively evaluating the assets the site offers. As a buyer, you have to negotiate.

Overall, you can estimate the value of a site using ten factors.

1.  Growth trends

Trends for web traffic over a significant period increase the value of a website. How do you determine this? By getting the site’s Google Analytics records. You need two sets of data.

First, you need web traffic records from recent months. Part of a site’s value is how much audience it has at the time of sale. This also lets you eliminate the possibility the site is on a downward turn. If the site faced a Google penalty or is losing business to a new competitor, the analytics will show that. Downward trends reduce the value of a website. Once you’ve looked at these numbers, you’ve done your due diligence.

Second, you check the long-term analytics from the past year or longer. If a site is only a few months old, it will be harder to sell. The more data an owner has for traffic and revenue, the better placed they are to ask for a higher price. Any website with one or more years of data is worth more. A site with two years showing an upward growth trend will have a high price.    

2.  Quality of traffic

Google Analytics records aren’t the only ones you need. You also need to ask for proof of earnings. That means profit reports, AdSense, Ezoic records, PayPal reports, and other earning methods like affiliate marketing. As a buyer, you cannot look at web traffic or profits records in isolation.

You need to view traffic in the context of the site’s sales. That way, you see how many potential leads convert into paying customers. The conversion rate helps determine the value of a website. It answers the question of whether the site is reaching its target audience and converting them into buyers.

If a site has high traffic and low sales, that’s a red flag. It shows that a website isn’t reaching its target market. As a result, the audience is worth a lot less. A new owner can change the marketing strategy or add SEO value. But, if a website isn’t reaching the right viewers, there is no solution. You cannot alter the audience of a site. How if you think you can convert those wasted leads into potential buyers then the website may be a potential investment.

3.  Sustainable SEO Use

A website sells for a higher price if it has sustainable SEO use. That’s when the keywords used keep their position in the rankings with little upkeep. When a site gains a good portion of its traffic through a solid SEO strategy, it is worth more money. A new owner can sustain these profits at a low cost and with little effort. And the net revenue is a lot more than what you’d get from a different strategy like paid advertising.

When it comes to SEO value, you also have to look into whether a site uses white hat or gray hat SEO. If you aren’t an expert on the subject, its best to stay safe. Based purely on the risk of Google changing its algorithm and current market value, sites with white hat tricks are worth more.

4.  Multiple Income Sources

A website is worth anywhere between two to four times its yearly net profits. Overall, the income of a business can be because of many reasons. When you’re looking into buying a site, you need to find out how it makes its money. Are all, or most, of its profits because of one product? Or is the total profit evenly divided between multiple items? Do some products do better than others?

If a site has high traffic, high revenue, but only one sellable item, it is a bad investment. Because what happens if that product loses value? Your site goes bust in a single day. That’s why the more sales opportunity a website offers, the higher its value. Any website with multiple products costs more. Ideally, a site should have at least three to four top-selling items.

However, ‘varied income sources’ doesn’t always mean products. It can also refer to multiple versions of the same service, depending on upgrade options. Additionally, find out whether the items in question are trend-based or ever-green. If you think a site will lose value over time, current profits don’t matter.

5.  Active Email List

When it comes to the true worth of a website, profits and traffic are surface-level factors. To a beginner, they may seem like the things to look for. But, in reality, they’re simply smoke and mirrors. The real value is in the things that hold up the foundation of the business. And nothing bumps up the price of a website more than an active email list.

The mailing list draws in the viewers so you can build traffic and sell the products so you can make profits. As a buyer, you want to buy a site with the systems in place that get you the results you want. Buying the end product isn’t your goal. So, make sure your priorities are straight before you get started.

It also isn’t enough to just build an email list. You have to monetize it. And when you’re buying a site, you have to find out if the mailing list is a part of the deal. If it isn’t, ask for it. A quality email list will increase the price of a website, even if other factors aren’t being met.

6.  Social Media Presence

Metrics aren’t the only measure of the value of a website. When you calculate the overall price of a business, you have to consider soft and hard factors. Having a strong brand identity elevates a website’s ability to sell products. The value of this factor is similar to that of the email list and works in tandem with a site’s social media presence.

If a business has a huge social media presence and can interact with its viewers to create a strong brand identity, they can sell to them again and again. That relationship between a website and its audience is very valuable.

However, a strong online presence only adds value to a site if they’ve properly monetized it. Like previous factors, you need to view it in the context of the hard data that shows profits and leads generated from social media. Whether on Facebook, Instagram, or Pinterest, figure out how much value it adds in return sales.

Before you buy a site, you need to find out what their marketing methods are. You also need to confirm that these accounts are a part of the sale or the price quoted.

7.  Advertising

A lot of websites depend on advertising to increase their profits. But, when it comes to evaluating the value of a website, this lowers the selling cost. This is another example of why it is crucial to know how a website is making money. If all of a site’s profits are due to a massive ad budget, any sales will take constant daily effort and money to maintain. Hence, those growth trends don’t hold value.

As a buyer, you want a site that makes profits at little cost for upkeep. Whether their trump card is quality SEO, a huge social media presence, or an active email list, it must be self-sustainable. A website owner with high profit and traffic values may try to sell their site at a marked up rate. If you haven’t looked into whether those numbers are solely off advertisements, you will lose money on a bad investment.

8.  Transferability

A valuable trait that is often overlooked is the site’s ease of transferability. If you’re buying a website, can the owner simply hand over the reins? Or will it involve the transfer of vendors, assets, workers, freelancers, and other resources? You also need to find out what and who is involved in running the website. If the company hires outside workers, find out if you can keep them on.

Additionally, will you need a handover period where the old owner shows you the ropes? How will this affect the running of the site? Is the current owner handling tasks that require technical knowledge that you don’t have? Can you outsource these tasks? And how much will that cost? You have to ask all of these questions before you decide to buy a site.

Another important but often overlooked question is what platform the site uses. Is it an open-source CMS, or will you have to deal with the hassle and expense of changing web-builders? If the site is on a basic plan, will you need to change hosting as well? Was the domain bought through the site builder or independently? If the platform is restrictive, it can become near impossible to change, and you lose a lot of money in the process. A website that can be handed over without issues costs more.

The final aspect to consider is whether the sale will affect customers. For some sites, the clients never need to find out the company changed hands because the product remains the same. However, for others, the process can affect sales and profits. Find out whether the owner used a personal approach to market their brand. If a site’s marketing strategy is based around the owner’s Facebook Lives and IGTV videos, a change will disrupt the entire process.

9.  Growth Potential

Growth potential refers to the subjective value of a site. The earlier points refer to the objective value of a website for any buyer. However, in some cases, a certain company is worth more to the buyer because of personal reasons. Often this happens when you already own a site in a particular niche and are buying a second website. If this is the case, then it may be worth your while to spend more money than another buyer because the site is worth more to you.

There are many reasons why such a purchase can pay off for you. For example, if you purchase a company as a “sister site” you can cross-market your products and double your sales for both. Alternatively, if a website has an active email list but does not make significant profits because they have a poor marketing strategy, you may want to spend more money simply to get your hands on the mailing list.

At the end of the day, this is a subjective point. How badly you want a certain website should play into your final decision, but only if it will directly impact your profit margins.

10.              Active effort

As a buyer, you have to take into account how much time you’re going to put into your website. It’s easy to look at an earnings report and convince yourself its the business for you. But owning a website isn’t easy. If a current owner is putting in eight hours a day, you will need to do the same to make their projected profits. And if you cannot, then their site is not the one for you.

A website that makes passive income with little effort has a higher value than the one that requires constant upkeep. When buying a site, find out:

  • how much work the current owner puts in
  • whether you can outsource or automate tasks
  • how that will affect your bottom line

If you’re buying a business, you will need to put some time and effort into it. Just make sure your purchase meets your requirements.

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