How much is my website worth?

April 9, 2009 3:30 AM

How much is my website worth?

I started a website a few years ago. Through a combination of good fortune (mostly) and good management (a little), it's now making between $US1,000 and $US1,500 per month in affiliate sales.

Last month, the site attracted nearly 500,000 pageviews, and its domain has a Google Page Rank of 6.

The site is not for sale but has nonetheless attracted the interest of someone who appears to be a potentially serious buyer. I'm not really looking to sell the site, but nonetheless figure I should be open to an "offer too good to refuse".

My question is: what's a good offer for the site?

(If you need more information to answer that question, let me know what.)

Also, any tips on anything I should do before revealing detailed information to the buyer? I briefly thought about non-compete and non-disclosure agreements but this seems kind of over the top.

posted by puffl to computers & internet (12 answers total)

what's a good offer for the site?

A lump sum big enough that if you were to put it in the bank and draw interest on it, you'd end up with the same income stream you're currently getting from the site, for the expected lifetime of the site.
posted by flabdablet at 3:53 AM on April 9, 2009

I'm not sure you're asking the right question. Something's only worth as much as somebody is prepared to pay for it. If you've only had one person show interest, that indicates the demand is pretty low.

There is such a thing as consensus. If my neighbour's house sells for $100,000 then I can assume mine might too. But you're talking about a unique creative endeavour. To work out values, you'll need to find sufficiently similar website sale prices, and I doubt you will.

That said, I have a feeling there may be a formula for working out value of a revenue-generating property based on earnings — the kind of thing that MBAs get taught. Your website might be worth something like a third of its yearly earning potential, for example (although I'm just making that up — I have no idea). Try searching for such a formula on Google.
posted by humblepigeon at 4:07 AM on April 9, 2009

Also, if anybody is serious about buying the site (above and beyond just purchasing the domain name), they're going to want to see paperwork. They'll want proof of that earning potential, and visitor counts. Can you produce that kind of info? Do you want to?
posted by humblepigeon at 4:09 AM on April 9, 2009

You can use this site to what's called a discounted cashflow calculation. For the discount rate, pick something like 6-7% (a higher rate will lead to a lower, more conservative, calculation).
Then enter your yearly profit. You can speculate using different annual growth rates for your business, again to be super-conservative you could assume zero growth. The problem is that this calculator is able to go up to 20 years, no-one would value a website based on a 20 year basis because who knows if the business model will still work in five years?
posted by atrazine at 5:33 AM on April 9, 2009

flabdablet: A lump sum big enough that if you were to put it in the bank and draw interest on it, you'd end up with the same income stream you're currently getting from the site, for the expected lifetime of the site.

That is not how websites are most often valued. Generally I have seen them go for 2 (common) to 5 (uncommon) times their annual turnover. Exceptions are extremely high brand value websites, ie where the brand has value separate from the website.
posted by DarlingBri at 5:51 AM on April 9, 2009 [1 favorite]

How much work are you putting into it? $1000-$1500/month for 20 hours of work per week is an OK-but-not-well-paying job, and since you, presumably, don't come with the site, any potential buyer would have to pay someone to "staff" the site, or spend his/her own time on it.

After acknowledging that sites don't run themselves, a figure of 20 hrs/week at $10/hr will cost a potential buyer $800/mo to operate the site, which cuts deeply into the profits, before even considering server costs.

The honest truth is that the site itself is not worth very much at all, so as long as you're enjoying it, I wouldn't even think of selling it. If someone does want to buy it, make sure you're getting a decent chunk of money, as they'll probably ask you to sign something that prevents you from just making a new website as a direct competitor.
posted by explosion at 6:04 AM on April 9, 2009

There are a lot of ways to value businesses and you can search for those on Google that are appropriate to your business based on what you are selling, how much you make, and how much work goes into it.

The seller should want proof of the business' value and that includes things like what you report as income from the site on your tax returns, profit and loss statements, and a balance sheet for the business. It sounds like this is more of a side venture and you don't do separate accounting for just this business so you might not have those reports and information.

There are business valuation experts, who might be lawyers or accountants or both, but their services likely cost more than you're willing to spend to value a business of this magnitude. You can do most of the things they would do if you Google "business valuation," and determine exactly what type of business you have (retail or wholesale) and then use what is called a multiple to value your business.

The multiple is the number you use to multiply whatever yearly number you come up with for money generated by the business. Some business valuations use gross revenue or the total amount of money it generates regardless of the cost of doing business. Some valuation models use EBIT or EBITDA (earnings before interest, taxes, depreciation, and amortization) which is closer to a measure of the net profit. You take whichever number you generate and multiply that number by the multiple to arrive at a value for your business. For example, when we were buying a retail business we were advised that the business model our accountant was going to use was EBITDA times the retail multiple of somewhere between 3 and 5. If the business is trending up or has something else particularly positive going for it the multiple is closer to 5. If the business is flagging, there is a recession, or the business requires more work to produce that result than average, the multiple would be closer to 3. But knowing the appropriate multiple for your business type is the idea.

Keep in mind that small businesses generally aren't worth as much as you think. Owners routinely overestimate the value of their business since they built it and it's their baby. There are very few buyers for these types of business and so there is less competition if any competition for the sale. These businesses are also seen as a greater risk for your investment dollar than stocks or bonds and so the expected return on investment must be commensurately higher. It wouldn't be outrageous if the buyer wanted to recoup the entire investment in fewer than 5 years (purchase price equals profit times 5 or less) or about a 20 percent return on investment each year (that is just an example and it could be higher or lower).

The last thing to consider is whether the buyer's offer is worth it to you. Maybe this is easy money. Maybe this is a lot of work you don't want to do. I don't know and that's for you to decide. Business valuation just gives you an idea and some supporting information about your business that may help you negotiate with the seller.

Either way, good luck and feel free to mefi mail me if you have any questions.
posted by battlecj at 6:17 AM on April 9, 2009

One more thing. You can get confidentiality agreements and and non-compete agreements online if you're worried about those things and want the most basic protections. It's not likely worth the cost getting a lawyer to draw those documents up for this level of transaction. You will want a lawyer to draw up the sale contract though.
posted by battlecj at 6:21 AM on April 9, 2009

$100,000 is a good amount.
posted by lee at 7:09 AM on April 9, 2009

Simple answer:

3 times annual revenue would be a fair offer.
10 times annual revenue would be an offer too good to refuse.
posted by alms at 7:23 AM on April 9, 2009

puffl: (If you need more information to answer that question, let me know what.)

- What area is your site in? Will that area still be of interest in 5 years? Next year?
- How does your site create content? Is it a blog, where it's just you writing, or is it an app that doesn't require constant feeding?
- Is there a logical buyer for your site other than "some random person"?
- How easy is your site to replicate?

puffl: Last month, the site attracted nearly 500,000 pageviews, and its domain has a Google Page Rank of 6.

Devil's Advocate questions: Were you predicting that many views based on traffic trends, or is it a spike based on a couple timely events? Will you sustain that traffic?
posted by mkultra at 8:27 AM on April 9, 2009

Thanks to all for the replies. Looks like I need to do some research on business valuation (thanks battlecj), or simply not bother with the potential offer, since I'm really happy to hang onto the website unless the offer truly is too good to refuse.

@humblepigeon:

I'm not sure that only having one approach necessarily indicates demand is low, since I haven't actually put the site up for sale. If I had someone knock on my door and say they wanted to buy my house (even though it wasn't for sale), that could actually suggest demand is pretty high.

@mkultra:

1. I'd prefer not to say what area the site is in but interest seems to be on a consistently strong growth curve.
2. The site is blog-like, although not exactly a blog if that makes sense. It does require the creation of content, although my time spent on the site is minimal (maybe 1 hour per week).
3. I imagine there are many possible buyers for the site but since it's not for sale I haven't really explored the options.
4. The site would be relatively easy to replicate but it has a good domain name and ranks highly for some relatively well-trafficked search terms.
5. Pageviews for the month were 490,000, according to Google Analytics. That figure has been showing consistent growth month-on-month for a couple of years now. It wasn't a massive spike on the month before, or the month before that.
6. Yes, the site will sustain that traffic, looking at early figures for April.
posted by puffl at 10:00 PM on April 11, 2009