Super Mod

How to Value a Website

There are many different rules of thumb about how to value the price of a website when selling it. I'll discuss a few different ways of looking at your website to determine its price. You can also read this article if you're looking to buy a website, but are not sure whether or not the owner is giving you a fair price. Valuing a website is really difficult and worth read up on.

12xRevenue Model

A very popular method is the 12xRevenue Model to determine the price of a website. Using this model, you would take the average of the last three to six months of revenue and multiplying that by 12 to get the price. The reason for only looking at the last three to six months is because this is the most pertinent to the current value. Say the website was making $5,000 a month in revenue seven month ago, but is only making $3,000 a month over the past three months now. It wouldn't make sense to include that $5,000 month in the average. You're only interested in how it's been performing lately. This more of a protection for the buyer rather than the seller.

This model has its flaws, though. For one thing, is revenue the only basis for how much a website is worth? I don't think so, but a lot of people swear by the 12xRevenue Model and won't do business any other way. I like to look at other factors when buying and selling websites. However, for a lot of people this is the only factor that they look at.

Considerations Beyond Revenue

There's no doubt that revenue is the most important when valuing a website, but there are considerations beyond the revenue that you want to consider:

• Domain Name: Quality domain names are nearly impossible to come these days with 99.99% of all dictionary words registered as well as nearly anything of quality. Therefore, it's important to consider the quality of the domain name that's changing hands. Domain names can sell a lot on their own and even more with a website attached to them. You'll want to consider getting your domain name appraised by a third party such as Afternic or NamePros.
• Internet Traffic: The amount of traffic coming into a website is important to consider, because the more traffic usually the better the website is doing. You'll want to look at how many unique visitors and return visitors are coming to the website as far back as possible. Obviously, the most recent months are most important. Make sure to provide logs of your website's traffic if you're selling and to ask for logs if you're buying.
  
• Search Engine Ranking: This category goes along with Internet Traffic. Looking at Search Engine Ranking for a website is important. Does the website appear high in the search engine results for keywords that the website is targeting? Also, make sure to look at how many people are being referred to the website through search engines: the more, the better. However, if it's too many it could be bad if the website was to lose its search engine rankings.
• Web Design: The web design of a website is important when looking at the value. Website designs can cost thousands of dollars and the quality and uniqueness of the web design needs to enter the equation when looking at the price of a website.
• Content: Does this website have unique content that cannot be found on other websites? If yes, this is an important factor in pricing a website. A website with unique content means that it serves a purpose that cannot be found elsewhere on the Net.
• Custom Programming: Does the website have custom programming like a custom Content Management System (CMS)? If the website has any customer programming done that helps the website run then it should be valued higher than if it's using open source or free scripts.
  

Does Potential Matter?

A lot of people argue that the potential of your website doesn't mean jack. A lot of people couldn't care less if your website has the potential to do well or do better and won't add potential into the equation when valuing of a website. However, I only buy websites if they have potential on top of everything else. If a website doesn't have potential, why buy it? You want the website to grow and not lie dead in the water. I think potential is a definite factor that needs to be added to the price of any website. However, this is a matter of personal preference.



© Copyright 2006, Spencer Fry.
No replication or republication in any printed or electronic format is permitted without permission from the author.