WWW FAQs: What is my web site worth?

2008-02-07: How do we assign a dollar value to a web site?

The right answer depends on three factors:

1. The popularity of the site. If your page receives 5 million page views in a month, then you have roughly 5 million opportunities to display advertising. Your web host's reporting software tends to overestimate these figures, due to traffic generated by web-indexing spiders and so on. If you are already using Google Adsense to monetize your site, then you can find more realistic figures in your Google Adsense reports.

2. The quality of the audience. Who is visiting your site? If your audience is made up of kids playing Flash games, your opportunities to advertise are limited (and perhaps legally constrained as well). If your audience is made up of adults playing games, you are free to advertise as much as you like, but your audience may not be paying attention to anything but the aliens they are blasting. But if your audience is made up of successful adults searching for information— and finding it in your original articles— then the chances are much better that they will respond to relevant advertising.

3. Products and services sold directly by your business. If your business does more than give away information and services— if you are actually selling products and services on your site— then of course these contribute to the value of the business as well.

Estimating the Sale Price of the Site

Now that we know what the relevant factors are, how do we put a price on the site? First off, we need a reasonable basis for estimating the potential advertising revenue. The best basis, of course, is actual experience. For instance, if you are already monetizing your site via Google Adsense, just multiply your average monthly Google Adsense check by 12 to arrive at a reasonable estimate of the site's annual gross income.

If you are not already earning advertising revenue, or you have not yet fully exploited your site's value in that way, then you'll have to estimate the potential. Experiences reported around the net suggest that a site with one million page views per month can gross approximately $1,000 US per month from text link advertising... if the audience is of reasonably high quality, that is. A Flash-gaming site, for instance, cannot expect to earn as much.

A site generating one million page views per month will therefore earn approximately $12,000 US per year in advertising revenue. Of course, there are other ways to earn revenue from a web site, notably affiliate programs, merchandise sales and directly negotiated sponsorships. These can approximately double the revenue of the site to $24,000 US per year.

Assuming that the site does not also sell products of its own— that is, assuming that the site gives something away— this is the estimated annual revenue potential of the site.

But how does this relate to the sale price? The sale price of a business is usually based on its annual revenue multiplied by a factor that reflects the stability of the business and the buyer's confidence that it will retain its value. Since web sites come and go on a regular basis, this multiple tends to be small for the web. If I were the buyer, I typically would not offer to pay more than two years' revenue for the site, in the case of a well-run site with reasonable expectations of ongoing success. In this situation, I need to run the site successfully for more than two years to recoup my investment. So we can assume a sale price of approximately $48,000 US for a site which generates a million page views per month.

But My Site Is Worth More Than That!

Don't forget: as a potential buyer, I know nothing about your business apart from what you can document. For instance, if you can show me that your site has generated a million page views a month for ten years already, I may consider paying four years' revenue for it.

Otherwise, though, one question is uppermost in my mind: why are you selling the site at all? And if your site has potential to earn advertising revenue as-is, that's a question you should be asking yourself. Sometimes the best answers are personal ("I just don't want to do this anymore"). In other cases there is clear potential for a site to be more successful but only with an injection of vastly more content— requiring an investment the original owner can't provide on their own. In these cases it is often advisable to remain involved with the site and find an investment partner who wishes to help you grow your business.

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