Whether you’re looking to buy or sell a website, you’ll need to know how much it’s worth. The old adage states “something is only worth what someone else is willing to pay for it.” At Flippa, we disagree. And we want to highlight true value.
Our website valuation tool can provide entrepreneurs and business owners with more accurate website value assessments.
- Find out how to determine a website’s value.
- Learn the ins and outs of how online value calculators work.
- Obtain strategies to boost the value of your website.
- Unearth how to exit and sell a website.
How much is a website worth?
By website, we mean an online business, where the website in the digital space is the only mechanism through which the company makes money.
We’re not evaluating businesses whose website is merely one element of their companies’ assets alongside other offline locations. So, how do you put a price tag on an online business? Here’s how we do it. We look at various aspects of the business from earnings, net profit, growth potential, and more.
Earnings multiplier calculation
Many complex mathematical formulas calculate how much an online business is worth. The most simple and widely-used formula in the website acquisition space has long been a valuation method based on an earnings multiplier. This method states that a website’s worth is between 24 and 36 times its monthly revenue.
For example, if a website generates $15,000 each month, you could expect to sell it somewhere between $360,000 and $540,000. This calculation, of course, is an oversimplified, rudimentary method to find a quick estimate of what the website could be worth. To get a more precise estimate, you need to assess several other factors to build a better picture of the business.
What can affect website value?
Let’s look at the various aspects that influence website worth, keeping in mind that, in the end, a person must make the final decision to invest. As we go through these, remember that we’re evaluating risk, which can be both a numerical and emotional metric.
1. Net profits/net margins
An online business’s net profits and net margins will significantly affect how much it is worth. Though we referred to a business’s monthly revenue in the simple formula outlined above, looking at income alone can be misleading.
At Flippa, we base most website valuations on Seller’s Discretionary Earnings (SDE). SDE is effectively the business’s net profit. The difference between revenue and expenses over a specified time, usually the trailing twelve months (TTM). This excludes income taxes, one-time expenses, and owner’s compensation.
It’s not a particularly complex notion. For example, the revenue of a business could be very high, but the expenses could be huge to generate that revenue. So the actual earnings month to month after accounting for costs may be insignificant. $1,000,000 in revenue means nothing if you’re spending $999,000.
The greater the net profit, the more potential a business has to make money, and as a consequence, the greater the website value.
It’s also worth remembering that average profit margins per industry or sector fluctuate wildly. For example, an affiliate-based website may expect net margins as high as 80%, which would be unrealistic for an e-commerce site that is more likely to see 20-30% as a target.
2. Evaluating traffic
A second factor affecting website value is the quality and nature of website traffic. Assessing website traffic means looking at how a website attracts its daily visitors, which has a more significant impact on net margins than you might think.
For example, if a website relies on paid ads to generate most of its traffic, this can be a considerable expense to upkeep. Conversely, a website with plenty of organic traffic probably has a working SEO strategy built around establishing domain authority.
In other words, customer acquisition costs a lot less for the website with a higher proportion of organic traffic over paid traffic, meaning fewer expenses leading to higher potential profit margins.
Of course, it’s normal for sites to have diversified traffic, but the make-up of that traffic split can have a long-lasting impact on the site’s health. So, determining the traffic split for the website is an essential metric to consider when evaluating website value.
Selling or buying is a transaction. Even though the product is in the digital space, it’s still a transaction between people, and people appreciate things going as smoothly as possible.
As such, the transferability of a website from one owner to another can contribute to the website’s value. For example, if the transition can be seamless, you can likely demand a higher price. Alternatively, if there are numerous complications with a handover, a buyer will expect a discount.
To determine transferability, evaluators consider the following:
- Can the new owner easily take control of any vendor contracts in place?
- Are systems in place to quickly and easily transfer day-to-day website management to the potential buyer?
- Is the website using an open-source CMS, like WordPress hosting? If not, how challenging/expensive is migration likely to be?
- Are customers drawn to the brand, or have they bought into the owner and their ways? This one’s more challenging to assess.
In any business exchange, minimizing disruption will help secure a higher price. If there are several obstacles a buyer has to overcome to transfer ownership, they will expect a significant discount on the website value.
4. Growth potential
Potential buyers want to assess the growth potential of a website. After all, they are investing by making the acquisition, so they want to see their expected ROI over time. Again, we refer to the notion of risk. How protected is their investment?
When determining website value, evaluators try to gauge the growth potential of an online business.
- Has the business maximized its growth and reached a peak? Or is there an opportunity for further expansion?
- How does the market look? Is it oversaturated?
- Does the online business have a sustainable competitive advantage over its competitors?
- If there are growth opportunities, what kind of future investment might be needed to take the online business to the next level and increase revenue streams?
- How likely can the business maintain the upward traffic and revenue trend if the business is growing?
- Based on valuation-based calculations, what is the monthly profit? And, how using predictive analytics, how will the revenue sources continue to grow?
People looking to buy a website need to know its market value – how much it is worth related to its competition.
How does the site make money?
How a business monetizes its website can affect website value. If an online business is overly reliant on one moneymaking method, this is a risky business model, and evaluators will generally deem a website with multiple revenue streams less risky.
For example, if your website makes money from one specific type of transaction, and new laws, algorithm updates, or other changes make that transaction less convenient for customers, your business is likely to lose money. A business with multiple revenue streams is more likely to be able to offset any negative impact from those changes.
A seller may need to sign a non-compete agreement when handing over a website to a new owner. This agreement protects the buyer’s investment.
It means the seller won’t launch a new online business that competes directly with the one they have sold, especially considering they may have a competitive advantage since they are aware of its intricacies. Having an agreement in place may help get an acceptable price for the website.
Working out website value
Examining these factors to determine a website’s value is a mammoth task you shouldn’t consider tackling without expert help.
Image credit: Flippa
We’ve created our Intelligent Valuations Engine to assist. Use it to determine your website’s worth or evaluate a prospective online business you’re looking at buying.
With many website evaluation tools out there, why choose Flippa? Flippa is backed by the most extensive data bank of sales data, leveraging that to give an accurate assessment of an online business.
Flippa cross-references all the information you supply with its extensive sales data. It gives you the world’s most accurate website valuation through sophisticated machine learning tools — the best possible indication of what a buyer will pay for a website.
Using over ten years of transaction data, you can receive an indicative valuation with one click in less than three minutes.
Without going in-depth into the mechanics of algorithms, looking at the numbers helps explain why our intelligent engine is the best in the business:
- Since January 1, 2021, Flippa has collected more than 29,000 online business valuations representing $11 billion in asset value.
- Flippa crunches over 40 valuation metrics per valuation. These include business model, age, domain authority, growth rate, competition, niche, etc.
- Flippa values websites for the broadest range of digital businesses on the market, with over 15 asset types and growing.
We feed the data back into our state-of-the-art machine learning tool that makes our valuations ever more precise with each new valuation. We’ll use each future sale to retrain the model to improve accuracy further.
In a recent example, our machine learning tool evaluated the online business ToyUniverse at $876,000. The company ended up selling for $850,000. That’s a 3% prediction within the sale price.
You want a reliable website valuation when making a purchase or a sale, and our system gives clear expectations about the transaction. The tool is free and easy to use, so get started and evaluate your business today, with help and guidance from our in-built chatbot if necessary.
How to increase a website’s value?
So, you’ve used Flippa’s evaluation tool to estimate your website’s value, but before selling, you want to increase the value of your site. Here are some tips for doing so:
You can build a more substantial website presence by ensuring the traffic to your website has a healthy balance of paid and organic visitors.
Image credit: Moz
If you can demonstrate that a significant percentage of your website traffic is organic, you can demand a higher sale price. By showing the buyer, they have a solid base to work from, and they won’t need to rely too much on paid traffic to bring visitors to the website or invest in a time-consuming SEO strategy.
However, organic traffic isn’t immune to algorithm updates, so you should also demonstrate a successful paid strategy.
Secure domain variations and social media profiles
To secure the highest price possible for your website, ensure you have all the domain variations and all leading social media profiles relating to that domain.
Image credit: WPbeginner
For example, you don’t want to explain that somebody else owns your domain name’s .us or .co version. This lack of foresight would reflect a potential hindrance to your brand growth, lowering the value of your website.
You’ll present a neat, all-bases-covered package by securing all domain variations as a purchasing option.
Build a brand reputation
What asset are you selling? Is it a simple website or a website with a brand attached? It takes time, but building a brand with an excellent reputation will allow you to demand a higher price.
A business built around a positive brand can leverage that brand potential, and a potential buyer recognizes this. It shows a brand’s perception in the audience’s mind instead of just being another affiliate site they could easily cast aside.
Build your brand through messaging, offering great customer experiences, and customer support in whatever your industry may be.
Diversify your monetization methods
Whether it is affiliate revenue, Adsense, eCommerce sales, or other ways to monetize a site, try to diversify your monetization methods.
A website with diversified revenue streams represents a less-risky investment to a potential buyer. Any time you minimize risk, you put yourself in a better position and can demand a higher price.
Even after you do everything you can to increase the value of your business, you’ll still benefit from some careful exit planning.
Exit planning works on the premise that an exit should be methodically planned and implemented at the optimal time rather than a rushed sale of your business and its assets. This foresight will enable you to secure the best possible sales price.
To plan for a successful exit, base your exit strategy around three questions:
- What is my website worth right now?
- What do I want to sell it for?
- How can I increase the value and reach my target price?
It is critical to have patience when selling a website and allow for time to make necessary changes to get the highest price possible. If your business is seasonal, wait until your recent monthly sales are at their peak.
Determine what you need to implement to achieve your target price, and be patient enough to allow for your changes to take effect before you sell your website.
Determining the value of an online business is a must, and this will help you set clear expectations for what the website should be worth. If you are considering selling your site, the best way to determine how much your website is worth is by using a valuation tool like Flippa’s free business evaluation engine.
The engine leverages past data to crunch all the numbers and give you an accurate estimate in less than three minutes. Flippa’s website valuation tool assesses over 40 different metrics related to website traffic, business model, domain authority, the business’ growth rate, and its competitive position in the market to generate a reliable price guide.
Flippa is the best marketplace for buying and selling websites. You can use Flippa to find your estimated website value in no time. Utilize our website worth calculator, and browse websites, apps, and domains for sale. or list your online business for sale.
Frequently asked questions
How do I calculate net profit?
It is as simple as taking total income for a specific period (monthly, annually, etc.) and subtracting total expenses over the same period. You can use this formula to calculate net profit:
Net profit = total revenue – expenses.
How do I calculate website value?
Don’t try to calculate website value without a website value calculator to crunch all the metrics. However, there is a simple formula to get a rudimentary estimate:
Annual net profit (cash flow) x multiple (years) = website value.
What is the domain indexed age?
The domain indexed age of your website refers to how old your domain is — when Google first crawled your website after it was ‘live,’ not when you purchased the domain. A domain indexed age of 10 years is generally a milestone for a website to build SEO domain authority.
How can you improve domain authority?
A good SEO strategy will improve your domain authority, which results from calculations that test the relevancy of your website’s content.
Building domain authority is a complex process. You can improve domain authority by getting high-quality backlinks to your website, internally linking between relevant content on your website, ranking for keywords, optimizing your website structure for pillar pages, and creating great, shareworthy content.
What is a brandable domain?
A brandable domain is a domain name that isn’t usually descriptive, meaning that it doesn’t include keywords. For example, Flippa, Google, and Amazon are good examples of brandable domains.
What is a website broker?
A website broker is a company that facilitates the exchange of websites, putting buyers in contact with sellers and vice versa. They will usually offer other tools, help, and guidance related to buying or selling a website. Flippa is an example of a website broker.
What is website traffic?
Website traffic is the term used to describe any of your website visitors. We measure web traffic in visits, sometimes called “sessions,” and it’s a common factor in determining a website’s value. Generally speaking, we split website traffic into paid traffic and organic traffic.
Paid traffic refers to visitors entering your website through paid advertising methods, like Google Ads.
Organic traffic refers to those visitors who land on your website from unpaid sources. Organic traffic is essentially free traffic, and you get more of this with a well-thought-out SEO strategy to build domain authority (see above).
What are affiliate sites?
Affiliate sites run on an arrangement with an online merchant. The online merchant pays an affiliate site-owner a commission on eventual sales for sending traffic to their site.
If a link on an affiliate site brings traffic or money, the merchant site pays the affiliate site according to their agreement. Amazon associates is an example of this, where Amazon pays a percentage of the profits if someone clicks on the link on the affiliate site, which then leads to a sale.