Determining a website’s worth can be challenging. Without helpful pointers, it’s easy to underestimate its value, potentially costing you a lot of money.
If you’ve managed your site for many years, there’s also an emotional component attached to the whole process.
You may look at your online business through rose-tinted glasses or be hard-pressed to sell it to anyone but a specific buyer. It could put a spoke in your wheel — assuming you’re actually planning on selling the site sometime in the future.
Apart from these, you can run into countless other problems when trying to pinpoint just how much your website is worth. For instance, you might need help determining which valuation method to use or how to calculate a website’s income statement.
This article covers these problems and offers a handful of valuable tips, providing an excellent starting point for conducting a precise site valuation.
Podcast Videos On Website Valuation & Due Diligence
The General Method
As a rule of thumb, a website’s value is 30 to 45 times higher than its average monthly profit. It means that if your site’s monthly average profit is $2,000, you should expect to gain between $60,000 and $90,000 for selling it.
The exact amount depends on many constituents, such as your niche, backlink profile, and other aspects. Consequently, you should take these elements into account when selling your website.
For example, if your site has a single income stream, poor ad revenue, and only a few traffic sources, it will likely sell for less than an average website from its niche.
Two levers involved in almost every website valuation are:
1) its average monthly profit,
2) monthly multiple.
You can calculate the former by adding revenue from the past few months and subtracting operating expenses for the same period. These expenses include hosting and domain fees, content costs, and must-have subscriptions.
Then, divide the total by the number of months you used to make prior calculations. The amount you’re left with is your average profit.
The latter is a bit more tricky to figure out. It’s determined by many factors, like the industry-based on-site quality, site assets, and current trends.
Correctly calculating your monthly multiple requires you to be in the know. You need to be insightful and possess extensive knowledge of your industry. Otherwise, you can have difficulties coming up with an accurate number.
Two Valuation Methods
Valuing a niche content site without the right method to rely on can be daunting. That’s why you must consider your options and select the appropriate strategy before calculating your website’s worth.
Generally speaking, there are two approaches to valuing a site: profit-based and cost-based. Let’s examine these in greater detail to understand how they work in practice.
The Profit-Based Approach
This approach is the most popular way to estimate your website’s worth. Many brokers in the content website industry use it with great success — and you can join their ranks. The method is relatively straightforward, consisting of only two components.
The formula is as follows:
Last-Six-Month’s Profit x Monthly Multiple = Site Valuation
The above quantities are ideal markers of your site’s success. As such, they can help you estimate how valuable it is to potential buyers.
Here’s a brief explanation of these quantities:
- Last-six-month’s profit: It’s a value determined by your revenue and operating costs for the last six months. You can calculate it by first adding your generated revenue and then subtracting the operating costs. Divide the result by six (the number of months you calculate the profit for) to estimate how much profit your site brought over that span.
- Monthly multiple: It’s the number you come up with after evaluating your site’s strengths and weaknesses, as well as the current state of the industry. This value can fluctuate as it depends on a lot of variables.
How to Increase Monthly Multiple?
Many people using the profit-based approach look for ways to increase their monthly multiple. It’s understandable since the higher it is, the more money you stand to gain when selling your website.
Usually, the monthly multiple is set within the range of 30-45. But various external and internal factors can cause this number to increase or plummet.
As a website owner, you can improve your monthly multiple in several ways, including:
Building Multiple Income Streams
Having more than one income stream can significantly boost your site’s value. When your website doesn’t depend on a single source, it’s more attractive to buyers.
Besides Google AdSense and Amazon Affiliates, income streams worth considering include selling physical or digital products, publishing sponsored content on your site, and offering premium content behind a paywall (or running another type of subscription model).
Creating Comprehensive Standard Operating Procedures (SOPs)
Standard operating procedures are useful for physical and digital businesses alike. As such, if you haven’t created them yet, it might be time to do so.
These documents include details regarding how to run your website, ranging from writing, editing, and publishing articles to how you approach building links.
Once potential buyers notice you have a bunch of SOPs describing the vital procedures, they’ll take you more seriously. Additionally, it will make the takeover process much smoother for the new owner, potentially raising the sale price.
Having an Uncomplicated Paid Advertising Structure
Let’s face it — no one wants to deal with overly complex processes. Occam’s razor says that simplicity is a virtue, and experience proves that simpler often equals better.
While complex answers may sometimes require complex solutions, your advertising structure isn’t the best area to indulge in excessive intricacy.
One of the best ways to embody the spirit of simplicity is to make your paid advertising structure as transparent as possible. Ideally, it should be straightforward enough for a non-expert to run it without a hitch.
The Cost-Based Approach
This method is an excellent alternative to the approach outlined above. Instead of using your site’s profits, it focuses on the costs it generates.
Imagine you want to recreate your existing website from the ground up. How much time and effort would it take to rebuild its backlink profile? How fast can you rewrite the content published on your site? What would be the cost of building the site (buying a domain name, setting up a server, etc.)?
Answering these questions will help you estimate the value of your website. The more money you put into making it what it is today, the more money you can expect to go away with when selling it.
That said, your website’s market value won’t simply equal the expenses it would take to rebuild it from scratch. Two critical factors can drive its valuation to the moon: (1) the effort you spend creating your site and (2) the organic traffic it generates.
Effort
Building a profit-generating website is demanding. In fact, it might be one of the reasons why you are looking to sell it in the first place.
Finding new ways to improve your site’s traffic and overall performance, solving partnership disputes, and dealing with potential burnout, can put a damper on further efforts. Ultimately, it could force you to reconsider your priorities and try your luck in another venture.
However, putting the finger on the exact amount you should ask for the blood, sweat, and tears invested in building your website is a different can of worms. After all, how to assess the value of something as vague as effort?
Surely, you worked your socks off to build a website that drives revenue. But that’s what most website owners can say about their sites.
The truth is that there’s no surefire way to estimate the worth of your efforts. Instead, you must use common sense and industry insights as guidelines to come up with a suitable price tag. It’s far from ideal, but it’s your best option.
Organic Traffic
Another element affecting the calculations is the amount of organic traffic the website gets. The higher it is, the more valuable your site is.
When using the cost-based approach, determining the value of the organic traffic generated by your site is one of the essential and, at the same time, most challenging tasks.
Since organic traffic takes longer to build than its paid counterpart, its value is exponentially higher. But where is the cut-off point? Is there even one to begin with?
It’s worth noting that organic traffic is a unique metric because it’s more arduous to replicate than other components of your site.
Even if you were to rebuild your website from scratch following the exact blueprint as before, there’s no guarantee it will get as much organic traffic as the original.
The reason for it is simple — growing organic traffic takes time. Creating high-quality content and building links are both time-consuming undertakings, impossible to complete overnight.
As a result, organic traffic is a valuable asset. The only question is just how valuable it is in your case.
To estimate how much worth your organic traffic delivers, you should compare it with that of your direct competitors. Are you ranking well for the most pursued keywords from your niche? What’s your average conversion rate, and how does it correlate to your organic traffic?
On top of that, consider how important it is in your marketing strategy. Is organic traffic your primary source of attracting new customers, or is it just a minor cog in the marketing machine?
Once you evaluate its role in your online business and compare it to the same metric from other sites in your industry, you can better grasp the value of your organic traffic.
How to Calculate a Website’s Profit and Loss Statement
Correctly estimating your website’s profitability and operating margins is crucial to establishing how much money you can get for it. Without it, you’ll have to make a shot in the dark — a substandard alternative.
When every mistake might cost you thousands of dollars, it’s a massive incentive to avoid any hiccup possible.
With that in mind, let’s examine the best practices for calculating your website’s worth:
Determining Your Revenue
Going through all your income sources can be a chore, so it’s strongly encouraged to start the process by creating a financial spreadsheet. In this spreadsheet, you can sum up all your revenue and expenses to estimate your business’s ability to generate profits.
Remember to gather all your banking and cash transactions, no matter how small in scale. After all, many a little makes a mickle. It would be best if you also created separate columns for each month.
Once you’re ready, begin by adding the revenue generated via passive sources. These include the Amazon Associates Program, AdThrive, Ezoic, your other affiliates, etc.
Next, add the revenue generated from things you actively participate in, like publishing sponsored blog posts. You can cut this revenue by half since it reduces your site’s appeal on the market.
Following these steps should leave you with a sum that represents your revenue.
Ascertaining Your Operating Expenses
Now it’s time to estimate the cost of operating your business. Once again, creating separate columns for each month would be most reasonable.
Listing expenses like hosting and domain renewal fees is an excellent place to start. While they may seem negligible initially, they still play a critical role in calculating your site’s profitability.
At the same time, you cannot forget the fees you pay for subscriptions, tools, and the software you use. These can quickly add up, costing you a pretty penny.
Content creation and link building are two other areas where you can spend a lot of money. Whether you take care of these yourself or outsource them, it’s most likely a considerable expense. Thus, it would help if you thought about it while estimating your operating costs.
Finally, you should add owner salaries to the spreadsheet.
Considering Add-Backs
Add-backs, also called discretionary spending, are all the non-essential expenses the new owner won’t incur in the future. These include things like the cost of building a new website from scratch or creating tons of content to keep the business growing.
This category also includes the costs the new owner would have avoided if they were running the business. It involves stuff like owner salaries.
Add-backs are essential because your expenses would be much higher without them. In some cases, the difference between expenses before and after add-backs is so vast that it can prevent your business from being in the red.
Calculating Profit
The final step of this process is calculating profit. You can do so using the following formula:
Revenue – Expenses + Add-Backs = Net Profit
As you can see, you need to subtract expenses from your revenue and add discretionary spending on top. Thereby, adding add-backs to the mix increases your site’s profit.
To get the average monthly profit, add your revenue for the last 12 months, subtract your expenses for the same period, and add any add-backs from that time frame. Divide the result by 12.
By following the profit-based approach, you can use this number to determine how much your website is worth.
7 Ways to Increase Your Website’s Value
How much a particular website is worth may vary depending on the market conditions, recent events, and many other factors. It makes the task of successfully selling an online business much more challenging.
Nevertheless, you control powerful aspects that can affect your site’s valuation. It allows you to pump up its value and, later on, enjoy the fruits of your labor after closing the deal.
Usually, brokers uncover those aspects during the due diligence phase. The reason for this is twofold.
First, if an owner displayed severe negligence in addressing the factors that could improve their website, a broker knows it’s best to forgo doing business with them.
Second, acknowledging how well these aspects were met can help brokers do their job — estimate a site’s value.
Let’s look into a few examples of how you can improve your website’s value in the eyes of others:
Consider Your Website Type
If you already own a site, this advice might seem inadequate. Yet, it’s an invaluable tip to keep in mind if you’re in the content website industry long-term.
Remember that your site’s niche and the type of content it features tremendously impact its monetization value.
Not all websites are created equal. For instance, eCommerce sites are usually easier to monetize than portfolio or event sites.
It is due to one critical detail — websites with high growth opportunities are more likely to drive revenue. And driving revenue is what piques the interest of investors.
People don’t want to purchase a site still in development or with zero potential to attract organic traffic. On the contrary, they are looking for websites that are yet to reach their development peaks but are well on their way to achieving this mark.
Establish demand for the type of site you own. Even when your website operates in a very niche market, it might be worth a lot of money if it’s among the best-ranking sites on the subject.
Moreover, you can search for other specific features that increase its value. Feel free to explore the available marketing opportunities that could gain you more publicity and push your website ahead of the competition.
Besides, it would be best if you make the takeover process as smooth as possible. Will your team stay or leave? What about your suppliers? Are they on board to work with the new management?
Taking care of aspects that might cause problems for the future owner will help your offer stand out from the crowd, making selling your site more manageable.
Diversify Your Income Streams
Similar to how diversifying your income streams can positively affect your multiple, it can also do wonders for your site’s overall worth. Investors love websites that offer numerous ways of generating income since they are easier to run and bring more revenue than others.
Having multiple income streams is a general rule that works for all types of investments. For example, you shouldn’t invest solely in hedge funds or government bonds.
Instead of putting all your eggs in one basket, expanding your portfolio for stable returns is the most profitable approach.
As such, consider making some adjustments to your financial strategy:
- Add display ads to your site — If you aren’t already taking advantage of advertising through a display network like Ezoic or AdThrive, it’s an ideal time to do so. This income stream is straightforward to set up and can provide great returns.
- Sign up for alternative affiliate programs — While Amazon offers one of the world’s largest eCommerce affiliate programs, it’s not the only option you have in this regard. Branching out to other affiliates could prove highly beneficial and help your website grow.
- Develop a membership program — If you have an engaged audience, why not develop a unique membership program where you can share breadcrumbs of knowledge for a reasonable fee? Besides helping you to diversify your income streams, it might be just the thing you need to build long-term relationships with your audience!
- Sell digital products or services — Whether you want to sell a digital product or service, it’s an excellent method to give your site that extra boost in revenue it needs. Because it has a higher profit margin than, for example, affiliate marketing, it can bring you surprisingly high returns.
- Create a course — In one of the most memorable portrayals of comic book villains on the silver screen, Heath Ledger’s Joker exclaims, “If you’re good at something, never do it for free!” A natural extension of this philosophy is to create a course about something you know in and out and sell it to your audience. It can be a highly fulfilling and profitable endeavor.
- Start a podcast — Podcasting has recently grown in popularity. It’s hardly surprising, given that it offers unique value both to listeners and content creators. For many people, listening to podcasts is a much more convenient way to gather information than reading books or watching videos. For podcasters, however, it is a straightforward way to share their expertise with the world while securing additional income through sponsored segments and exclusive sponsorships.
Negotiate Higher Rates With Affiliates
Sometimes, running an online business involves toeing the line between maximizing your current profits and investing in assets that could substantially grow your website in the future. Negotiating higher rates with affiliates is one of those instances.
While you don’t want to be too pushy, asking some of your affiliates for better rates can help you pocket more money when it finally comes time to cash out on your investment. Provided these affiliates continue working with the new ownership, it’s a win-win for both parties.
If your site is growing and you’re attracting more and more organic traffic, it’s tremendous leverage to convince your affiliates to give you a higher commission. Also, remember to add how many sales you’ve sent their way. It can convince them that maintaining a relationship with your site is profitable for everyone involved.
Podcast Videos On Affiliate Marketing Growth
Acquire Diverse Traffic Sources
More traffic is always good. Even so, relying on one traffic source is ill-advised. Besides limiting your flexibility, it can impose several disadvantages when it comes to selling your website.
Accordingly, it would be wise to search for ways to acquire more traffic sources constantly. For instance, if your site primarily attracts traffic from paid advertisements, it might be the right time to implement some solutions to bring more organic traffic.
Conversely, if your site generates tons of organic traffic, you can enhance its visibility by investing in paid ads.
Social media platforms like Facebook, TikTok, and Instagram are perfect for this purpose. Ads posted on these sites can catch the eye of many users that would be interested in visiting your website.
Podcast Videos On Acquiring Organic Traffic
Select a Proper Domain Name
Domain value is yet another element that can affect your website’s worth. Some domain names are more valuable than others simply by virtue of being similar to popular phrases or words.
Take, for example, entrepreneur.com — a site offering insights and guides for established and aspiring business people all over the world. Since it is identical to the term entrepreneur, which describes an individual who creates a new business, its value is pretty high.
If your site has a domain name of a similar caliber, you can expect to gain a significant amount of money when you decide to sell it.
Ideally, your domain name should be short and easy to memorize. In this matter, it’s best to forgo complex ideas and clever wordplay in favor of simplicity.
An equally important part of boosting your domain value is the domain extension. For a layperson, the difference between .com and .net domain extensions is almost nonexistent. But for a website owner, it’s massive.
The .com domain is the most expensive because it’s the most popular type of domain extension on the web. It also makes the brand look more professional. As a result, it’s probably the best option for your website.
Still, you should do your research to see if another domain extension is more suitable for your purpose. If so, feel free to opt for this alternative instead of relying on the .com domain.
Build High-Quality Backlinks
No matter how much attention you pay to link building, you likely engage in it one way or the other. Most website owners do — it has become a standard practice, regardless of your field of interest or niche.
Nowadays, ranking high in search engines is virtually impossible without carefully managing a website’s backlink profile. This is why you should put some effort into acquiring high-quality links from relevant, authoritative sources.
Only a few niche-relevant backlinks from high-traffic sites can make your site’s value skyrocket. If you spend the time and effort to build them, you’ll have an easier time surviving Google updates and creating new backlinks in the future.
Podcast Videos On Backlink Building
Reduce Your Operating Costs
It might sound harsh, but many website owners incur unnecessary expenses that hold their online businesses back. If you are a part of this group, it could affect your chances of landing the deal to sell your site. After all, no one likes to take over a business that drowns in excessive spending.
Some of the best ways to cut the costs of operating your website include:
- canceling subscriptions that you no longer use,
- switching to a different hosting provider,
- paying for tools and software annually instead of making ongoing monthly payments,
- decreasing printing and mailing costs by eliminating the need for paper invoices,
- investing in technology to streamline more processes.
The Bottom Line
Figuring out how much your website is worth is a long process. It requires you to reevaluate countless factors and look at the issue from several angles. Yet, you can achieve this goal with some valuable guidelines and persistence.
The most important thing to remember is to approach the situation with the necessary care and advance slowly. You don’t want to make a mistake because you were in a hurry to see the results.
Look at the information provided above, assess how it applies to your particular circumstances, and take action. It’s the only way to ensure you’re satisfied with the outcome. Good luck!
