You’ve worked hard on your website for years. You’ve invested your time, effort, expertise, and resources into building an online presence. And now – you feel it’s the right time to cash out. Whether you feel is the time to move on to another project or you simply wish to collect the pay-off and spend some time chillin’ in Cuba, it’s crucial to approach the sale of your website strategically, starting with determining its worth.
That involves a bit more than back-of-the-napkin calculations. It might take some time to estimate the worth of your digital asset and do a few things that can actually boost its value.
But trust us – it’ll be worth it.
How Much Is A Website Worth?
There are several equations you can resort to work out this number. The most famous formula is the one Greg Elfrink from Empire Flippers speaks of – the Business Valuation Formula that is at the core of any valuation:
[12-month avg. net profit] x Multiple (any number from 20 to 50)
So what you have here is an average 12-month net profit which you multiply by a multiple. The multiple itself depends on several factors (which we’ll talk about in a second).
Some website brokers use variations of the equation, like the worth being equal to 24 to 36 times the monthly revenue, or the annual 2x to 4x EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization). It’s good to know that different brokers use different ones.
Choosing the right formula really comes down to your personal preference and the way you want to present the numbers. However, if you need more detailed insight into how the business is doing and how it’s trending, the monthly formula seems like a reasonable choice.
The multiple and how to increase it
The multiple can assume any value between 20 and 50, and it is actually more of a set of different factors that add up and can work to your advantage. There are a lot of things you can do to bump up this number by working on all the factors separately.
The two major building blocks of this magic number are the average net profit and the length of (profitable) history.
Average net profit
The multiple depends on your average net profit to a great extent, which makes working on increasing that number and cutting down on expenses your top priority. A few aspects you need to look into are:
These are the expenses you associate with your business but are not really necessary for running it. For instance:
- The expenses a person running an eCommerce website charges to their business when they want to attend an eCommerce meetup;
- An SEO tool subscription that a business uses periodically to work on a strategy but not for running the business.
Not all expenses will be considered as add-backs but keeping track of them can grow the sales price.
Content and Link Building
Both content and link building represent major investments if you’re looking to increase traffic to your website. As the sales date closes in, you might want to decrease the funds you allocate to content creation and link building services to save on your expenses and increase your overall profit.
Cutting down expenses – not always a good thing?
Cutting expenses drastically might be a turn-off to potential buyers.
How’s that? Think of it this way:
If your potential buyer is someone who’s constantly on the go and travelling around the world, they probably wouldn’t want to settle down in one place just because the business does
So, even though cutting down on expenses such as storage and shipment did well for your revenue, it might not seem so to someone looking to buy a digital asset.
Conclusion: Outsource the grunt work and turn your website into an investment and not a job someone needs to pay for.
Length of (profitable) history
The length of your website’s history or the data that can be tracked through tools like Google Analytics is something that can definitely give your website that selling oomph. The website’s traffic and revenue and their upward trendi can look great in the eyes of your buyers, especially the savvy ones. That’s why investing in major makeovers, for example, should happen at least 12 months before the sale takes place, as it’s enough time for a major change to settle in and be accepted by your users, and not affect the last 12-month figures that get into the equation. Also, an upward trend mirrors your website’s ability to overcome business challenges successfully.
Other aspects you can control to impact your website’s worth
Trademarked and consistent business name
If you’ve been meticulously working on building a brand around your website, you’ve probably come to an understanding that your business name needs to be trademarked and consistent on all your online and offline channels. That covers everything from your business domain name to social media handles. Also, the more brandable business name the better – so investing in a domain
Minimize critical points
Critical points of failure are an aspect of your business that can affect your operations to the extent of breaking down the structure completely.
Imagine that your business solely depends on organic traffic and then it gets downgraded or penalized by an algorithm update; or the only supplier of your eCommerce business decides to rocket the prices or goes out of business.
You need to identify your weaknesses and try to diversify your traffic sources or chain of suppliers to have a stable and more attractive website.
High traffic is something buyers look for because it gives them the ability to impact the different conversion rate optimization factors. Higher traffic adds up to the value of your revenue, which further contributes to net profit.
Email list and social media following
A solid email list with verified users is very often the biggest revenue provider. And if you can prove that through a great email automation sequence that improves your traffic, you can definitely add value to the multiple.
When it comes to social media following, it is actually considered “less” important than your email list for several reasons: The reach you have on social media is lower, especially because social organic reach keeps declining on social platforms, and you don’t have control over those platforms. And not to mention that purchasing followers and likes is a common practice these days.
Number of product offerings
If your income is based on sales of only one product, you might be in a bit of a pickle. What if the product turns out to be a passing fad (like the fidget spinner)? You need to widen the offer and have several products that bring in a steady income through your website.
The fewer hours you need to put into your website, the more attractive it is to potential buyers.
Why? It’s quite straightforward. Most buyers want an investment with a steady cash flow that they can scale up. Cut down the number of hours you need to spend on working on your website through:
- Systematization, or automating your business processes.
- Organizing a team, hiring third-party players (content, customer service, marketing, etc.) This can affect your average net income but it certainly makes your website more attractive.
- Creating standard operating procedures (SOPs) to simplify the process for anyone who takes over.
Making sure your business is not easy to copy
If you have a business model that can be set up in one afternoon, chances are slim that you’ll sell the website for a higher price. However, if you worked on building a real following and a community around the brand, those chances increase. You can copy-proof your website by niching down, hiring industry experts to write content for your website, creating products you source or negotiating special terms with your suppliers or affiliate managers.
A feature that is important to most buyers is
The general recommendation is to put in the work and start preparing the sale anywhere from one to two years before selling your business. This way, you can work on your profits especially during the last 12 months before the sale and add the amount of time your business has been working, with the ultimate goal of increasing your website’s value.
In any case, best of luck!