Web Site Valuation Methods
Revenue Multiple Method
Many Internet experts determine a web site’s value using a straight revenue multiple formula. For growing web sites a typical revenue multiple is 2-5. For web sites with revenues of $100,000 and more a year the multiple can easily be 10 or more.
Assumed Revenue Multiple Method
The assumed revenue multiple utilizes the web sites traffic analysis and or ranking analysis to establish a value. If web site statistics are available an analysis of the keywords the web site is receiving traffic for can be conducted. This data can then be compared with publicly available data from Yahoo and Google. to see how much the search engines would charge for paid inclusion for these keywords.
For example if a web site receives 101 hits per month from Google for the keyword ‘san diego car rental’ an Google charges $2.50 per click for this keyword if advertised using Google’s AdWords program, the value of this traffic would be at least $3,030/year.
If the an analysis has to be conducted using ranking data only, all potential keywords and the ranking of the site for these keywords throughout the leading search engines have to be taken into consideration. For example:A web site ranks first within Google’s organic search engine results for the keyword ‘san diego car rental’. And we know that the search term is used 300 times throughout all search engines. We also know that Google receives about 56% of all searches and searches will click on the first organic Google result in about 60% of all cases. In this case we can assume that the site will receive 101 searches for the term ‘san diego car rental’:
Search Engine referrals = Number of searches * Percentage captured through specific search engine * Allocated Rank Percentage
User or Subscriber Base Method
For a lot of online businesses it can make sense to use the number of users or subscribers as basis for a valuation. Business subscribers will usually yield a higher value. Common numbers for business subscribers are $10-$15/subscriber, common numbers for individual subscribers are $0.10-$1.00 for quantities below 100,000 and $2-$5 for quantities higher than 100,000. For subscriber bases of more than 1 Million subscribers the valuation can grow exponentially (see Google’s purchase of YouTube).
Recreating Cost Method
If there is no revenue to speak of, no subscriber base and no traffic the valuation of a web site can be determined based on its inventory and assets, similar to a typical brick & mortar business. For a website, the inventory & assets would include the quality and quantity of its content and images, as well as scripts or applications that may have been purchased or developed specifically for the web site.
The Value of a Domain Name
Some times a buyers may not have no interest in the current content of the site and focuses solely in the site’s domain name. Especially in the ‘DOT COM’ boom area domain by themselves were able to trigger million dollar valuations – but this is a different topic.
If you need a valuation for a web site you want to buy or sell send me an email.