I. Buying and Selling Websites

1. The Problem

   So. . . you’ve worked hard at building a web site from scratch. You started back in 1995 in the web’s “early days”. You built content, built the databases, designed graphics, and wrote software. You promoted your site every chance you got and added e-commerce to generate revenue. The last years seem a blur of staying up late nights, midnight snacks, working odd hours, tweaking code. However, now all the hard work has paid off and you are getting 50,000 visitors every day viewing about 15,000,000 pages the month. One day you get a strange e-mail. It is a well known publicly traded company that wants to see if you are interested in selling your web site. They ask you to name your price. You smile. Wow. Someone wants to buy your web site. Then the smile disappears as you realize that you have no clue as how to value a web site. After all, this is not just like any other business. What do you compare it to? It isn’t like real estate where you can easily check to see what the market is like or what comparable properties sell for. How do you measure your hours or hard work, sweat, frustration, and money that you have poured into the web site?

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After a few almost sleepless nights and a lot of help from other members of our team we were finally able to release the first beta version of our new website valuation tool. This tool is a free online web site value calculator that can help you find the value of a website you want to sell or are interested in buying. Give it a spin and let us know what you think. We are always looking for suggestions to improve this tool.

Unfortunately, we were a little busy to create the tool that we still have not had a chance to create any documentation for the tool. However, it is pretty self-explanatory and is pretty easy to figure out.

There is no established formula for the valuation of a web site. However, there are several factors to consider when valuing a website. These items are discussed more fully in our website valuation article, but we wanted to provide you with a brief summary:

A. Profits and Cash Flow (This is really revenue minus costs)

• 1. Source of Revenues
  • a. Monthly products or services sales from site.
    b. Monthly membership dues
    c. Subscription
    d. Commissions from other sources
    e. Revenue from partnership deals
    g. Advertising
    • i. Sell through rate
    • ii. Does the site have an ad delivery system in place

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According to some publications Venture capitalists look at the following metrics when valuing an Internet property:

Cost of Acquisition: At the most prized content sites, at least 35 percent of new users are enrolled by existing users. In other words, they are added “virally.” The best example of this is MySpace.

Site Stickiness: A site becomes more valuable if frequent repeat visitors make up a high percentage of its traffic. At Facebook, for example, nearly 65 percent of users visit the network daily. User-generated content - such as photos, reviews, and links - tends to increase the stickiness of the site and will increase it’s value.

Add-on Services: Sites that offer fee-based premium accounts have more opportunity for future revenues and will command higher valuations. Even a 1% take rate on premium services is considered healthy.

Although there is not much written about the valuation of websites, in the last few years some have attempted to establish some methods for valuing an already established website. These methods range from the simplistic to the overly complicated.

Even I wrote a lengthy (still in progress) article about web site valuation but while the methods set forth there are extensive, they are currently a little outdated and they don’t help properly and quickly valuing a website today.

Here are some tips on how to come up with a general value for a website you might want to sell.

You will need the following information: (1) unique monthly visitors (2) number of monthly page views (x) number of members (3) dollar amount of monthly income from all sources (4) total expenses to run site.

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When we originally launched WebsiteBroker.com back in late 1997 the Internet was a different place. It was before the now infamous dot com crash. No one had even heard about blogs back then. Google was not even on the radar. Even back then, the valuation and price tags of websites with very little revenue or even prospects for revenue was astronomical. Eventually these high valuations were part of the reason that led to the crash.

As the commercial Internet evolved and matured things eventually turned around and valuations started being based on more concrete metrics and revenue started playing a bigger role in the actual calculations.

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