Valuing a website is not an easy task. Even if the same valuation methodology is applied, still the values assigned to websites could vary as no two websites are alike.
Valuing a website is even made more difficult because there is no hard and fast valuation rules. There are no standard valuation methods which can be applied to websites. The traditional valuation methods like value being the equivalent of a multiple x annual sales or multiple x annual profit would not be appropriate methods, especially on cases of popular websites with no established revenue or profit stream but with a growing and loyal membership base.
Given this background, one approach which I find worth exploring is the technique employed by a company in valuing a client’s web publishing business using unique visitors as a principal price determinant. What the company did was to calculate the average monthly unique visits of the web publisher’s sites over a period of three months and apply a certain dollar value to the average monthly unique visitors. It reported:
For the current crop of web 2.0 websites, the kind of multiples being paid to buy companies is around $30-40 per unique visitor. (Note that unique visitors should be counted over a period of one month, usually the most recent). This well known and oft-quoted article from November 2005 establishes an average of $38 per unique visitor based on a range of different website sales.
The trick in valuing your own company is to choose a suitable multiple and here it is best to be conservative. Unless you really are the size of a YouTube, Twitter or Facebook, it’s unlikely you’ll be able to justify such lofty valuations. Within our diversified web publishing company for instance, we use multiples in the range of $3-8 depending on the site in question.
Digression
Assuming that the only consideration is unique visitors or membership base, does that mean that a website with a reported 175 million users like Facebook would be valued $5.25 – $7 billion?
Recently, Facebook was reported to be valued at $3.5 billion, but using Facebook as an example in this case is not a good example. It was also reported that Facebook had a revenue between $250 million and $300 million during year 2008, and that the price may be depressed on account of the current worldwide economic condition.
Valuing a website using unique visitors: a modified approach
Back to the site valuation using unique visitors: One feature which I like in the unique visitors valuation approach is its simplicity and understandability. The issue I have however is that even assuming that the buyer and seller can agree on valuing a website based on unique visitors, still negotiations could bog down from disagreements on (a) the basis of calculating the average unique visitors or membership base. Should this be weekly, monthly or quarterly? On what basis should the average unique visitors count be calculated as such? (b) how much value would be assigned to each unique visitor. How can that value be justified?
Is there another way of valuing a website using its traffic stats like unique visits, yet the stats reflect verifiable effectiveness of site promotions, loyalty of members/visitors, age of the site, costs of replicating the website, and prevailing market charge rates?
We will attempt an alternative valuation approach in our next article.
Meanwhile, how much is your website worth?
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Hey Romy, what do you think of site value calculators? You know those ones which factor into one calculation Alexa ranking, page ranks, etc.
IPB – Like other calculators, unless you know the logic behind their calculations, unless you can verify their underlying bases, and unless you can determine that the assumptions are reasonable, I am unsure how much reliance we can place on them.
You can value a website by using its fundamental features which make it up. These features are things such as traffic, backlinks and link popularity, pagerank, content, revenue and the demographics of users.
To get a quick estimation of a website value you can use online estimation tools to get a instant estimation of your site worth based on half of the key fundamentals of website valuating and mentioned above.