Our initial engagement with a potential client always involves these two questions: “Can you help me sell my website?” and “what is my website worth?” While it’s impossible to give within the context of this article a definitive answer to that question we thought some guidelines would be appreciated by our readers.
I often see the phrase, “It’s worth exactly what someone will pay for it”. Great, but how does that answer help a person build a strategy around taking his/her company to market? It doesn’t. I have seen a website valuation calculator and business valuation calculator out there too, I’d advise you steer clear of those base on our testing of results. Buyers will often ask us as well, “I want to buy a website, what should I expect to see for website value”?
In the online marketplace the valuation multiples for internet companies generally range between 2 and 5 times their trailing 12 earnings. Simple research will show you there are many ways to value a company. Discounted cash flow modeling, Return on Capital etc… Most often, buyers are looking at what we call normalized income as the lynch pin in a website valuation. Normalized earnings is simply the net earnings of the business and adding back to certain expenses to arrive at a “normal” cash flow from operations number.
I will assume many readers will say, “that’s a pretty wide range of valuation multiples, 2 to 5?” So what factors determine where a company will fall? Listed in no particular order are some of the variables:
- Gross and Net margin on sales
- History of earnings growth
- Niche factor (are there thousands of competitors or just a few)
- Barriers to entry
- SEO, are you showing high organic rankings for key words
- Traffic to your site
- Customer data such as repeat business stats, demographics etc…
- Domain name
- Legal concerns within the specific industry
- Stability of the industry as well as overall economy
There can be wide variances with the type of internet company you own. For example, Content related sites that drive enormous amounts of traffic often fall under a much different criteria. A buyer looking at a content driven internet business for sale will certainly review everything but may emphasize organic traffic more so than someone buying an ecommerce company.
It is important to note, every situation is unique and iMerge Advisors has helped to sell websites and internet companies valued below 2x and well over 5x. These guidelines are given to serve as a guide only to the most common approaches and valuations. We recommend you engage a professional with experience to help walk you through the process and that can make observations that sometimes are not clear to the people that run the business every day.