The Ultimate Web Site Valuation Guide

Google claims an amazing 10 million pages for the search term how much is my web site worth. If this is the question you’re asking, you’re not alone! This article will let you in on some valuation secrets to help you judge with accuracy the value of your web business, be it a blog or site.

We discuss the accountancy behind the figures, the math behind the valuations, what adds value to a site, how financial statements are reconstructed for sale valuations, and finally, the main business models and how they are valued by buyers. We’ll demystify the buying-and-selling terms beloved of accountants, but if you find yourself confused by any of the business usages encountered along the way, feel free to check out this glossary.

Heading for the Ball-park

Maybe you’ve recently bought a site, or you’re an entrepreneur made good under your own steam—and now you want out. How much will you get for selling your web business?

There’s no single correct answer, as we’ll see. Valuing a site is a tricky business. Site prices aren’t set in stone; they vary based on buyer, market sentiment, how the sale is presented, and more. There’s no universal formula and there are no comprehensive and accepted standards for valuing sites—but we can make an educated guess.

And it is vital to make that educated guess. It’ll come as no surprise that there is a time-and-money cost to the wholesale process. This ranges from the time spent collating data for interested buyers to listing fees at auction sites. Without at least a rough idea of what is likely to be achieved at auction, you’re not in a position to know whether it’s worth going down that road. You may also need a “ball-park figure” for these reasons:

• to determine a fair BIN (Buy It Now) price
• to set an auction starting price or reserve that won’t be perceived as unrealistic
• to decide whether the value is high enough to get a broker or lawyer involved
• to decide where and how to promote the sale—some marketplaces are economical only for higher sale prices
• to reach an agreement to buy out a partner
• to ensure against underselling—and to help achieve the best price possible!

NOTE: Formal Valuations

These valuations are conducted by accountants, but, of course, may not reflect the price achievable at auction.

People obtain this ball-park figure in a number of ways. Some go to professional valuers, some use self-proclaimed “experts,” some rely upon their local accountant, and some use a multiple they’ve seen mentioned somewhere. We’ll have a close look at the valuation options now. However, before we go any further, it’s worth emphasizing that for the purposes of selling a site, the appraisals that you should be most concerned with are those of your target buyers. Period.

Valuation Options

First, let’s clear one thing up: there are a lot of myths about valuation out there. This situation is perpetuated by the proliferation of valuation tools on the Internet. Some of these tools are automated systems where you provide details and you are given a price on the spot, while others charge for a “professional” 32-page valuation by an expert. It’s worth taking one or two for a test drive, if only to see that you’ll gain nothing from the valuations.

If you try a few of these appraisal sites, you’ll likely find that each one puts a completely different value on your business. For example, see this valuation tool’s strange result: that http://www.google.com is worth $819 million dollars more than http://google.com. Now, would you trust that tool’s evaluation of your site?

Some estimates may vary by a factor of 10,000% or more. Why such a disparity? Because, despite the hype, many of them operate in a way that isn’t much different to operating with tarot cards or astrology charts. But they’ll take your money, thank you very much.

Ah! you argue. But some of them charge nothing at all. Like the ubiquitous Dane Carlson’s blog valuation tool. If it’s altruistic, it’s got to be accurate, right?

Well ... dig a little deeper. The tool consistently offers simply astronomical valuations—so guess what? Webmasters and bloggers who love boasting about value give this tool a link back. At last count, that tool had a quarter of a million such linkbacks! The valuation tool’s game isn’t all about money earned via charging fees. If they don’t charge you, it’s probably all about linkbait.

One of the best-known free valuation sites is dnScoop. dnScoop asks for no more information than your domain name. Yes, even your site’s earnings seem to be irrelevant to its calculation of worth. These charts show some sample dnSoop valuations for sites against the prices those same sites achieved at auction.

There are also plenty of individual self-appointed experts around who are happy to give their opinions on value. They spend their days commenting in forum threads, contacting sellers to offer their services, and generally claiming to be gurus in the fine art of valuation. Yet, strangely, they won’t put their own money where their mouths are.

At the end of the day, for the site seller, the only valuations that matter are those done by people who have both the desire and liquid funds to buy the site.

The maximum price that the seller’s most optimistic potential buyer has in mind is the price you, as the seller, want to target. You may never know that exact figure ... but that’s your target, nonetheless.

And it’s with this target in mind that, with a little help from some friends, I developed EBizValuations, a tool that we believe to be insanely useful.

I know, I know. Another free site valuation tool, right? Wrong.

This tool values your site based on what hundreds of similar sites have actually sold for. As it’s a tool that is grounded in reality, it can offer an reliable estimation of your web business’s value. It can help a sellers decide whether to list their site for sale or not, and it can help buyers in their evaluation of a prospect.

The tool delivers more than just a final number—it uses input from brokers, professional business valuers, buyers, sellers, accountants and other experts to generate an extensive report. It can therefore be used to gain a deep understanding of the listed site and provide considerable due diligence information and guidance on where value may lie outside of the quoted figures. The resulting report explains the caveats, the level of confidence in each price prediction (some sites are easier to value than others) and some background to the valuation.