How to calculate a website’s value
When it comes to buying or selling a website, setting the right price is important. And like with a real estate sale, the owner may have an emotional attachment to their website, to the time they spent improving it and to the potential opportunities for generating income in the future. However, as with real estate, the website’s value is only as high as the price that a buyer is willing to pay.
Consequently, before you consider buying a new domain, or selling your current website, you’ll need to know its value.
Important elements to consider when determining value are net profit and net margins. They help the buyer to estimate what they can expect as a future potential income. The amount of work that comes into play for transferring the site to a new owner and/or new web developer is an important consideration too, as well as any future opportunities the buyer might be able to exploit in your market segment (despite the competition).
In order to come up with a concrete number that takes into account different elements, there are various methods you can use, and three of those are discussed below.
Method 1 – Use a value calculator
The first method for calculating the value of your site is to use a value calculator. This is an online resource that gives you an estimate of the value of any given site, its future potential, what kind of traffic it currently gets and is expected to have in the future, as well as information on search engines, user experience and domain and hosting. The best free website value calculator can be found here.
The benefit of this free domain value estimator is that at the click of a mouse you’ll have an extensive estimate of your website, and a starting point for negotiations. Besides the different elements used to come up with the value, the calculator also mentions tools and resources you might use to improve the site even further.
The downside of using this method is that you need a website with an Alexa rank superior to 30M, so for a small site being bought out by the competition it may not be useful.
Method 2 – Base it on income generated
The second method you might consider when determining the value of a site is the income that site generates. As the buyer is most likely interested in your website as a business, it should not come as a surprise that the bottom line is important. In order to calculate the value of any given site, you can use the following formula:
Net profit / Revenue = Net margin
This formula helps you determine the net margins, which you can calculate by dividing the Net Profit by the Revenue. Naturally, the higher the net margin, the higher the value of the website. Keep in mind that different types of businesses have different net margins, and what’s great for one business (say fashion) may simply be unrealistic for another type of business (such as books).
But what if you have a website that bases its value mostly on good SEO practices (which are harder to measure in a specific amount) and you want to know if the recent paid marketing effort was effective and interesting to repeat (or increase) in the future? In that case you could look at incremental sales, which is New Revenue minus the Usual Sales over a given period. If that number is larger than the amount you invested in order to generate the New Revenue, you’ve successfully increased your incremental sales. For more explanation on incremental sales and ways to increase it, you can read this blog on whatagraph.com.
Method 3 – Review Google rankings and SEO
No matter what level of experience a buyer brings to the table, good SEO is valuable as it attracts more buyers and is a widely accepted strategy to improve (the quality of) traffic. A website that spends less money on paid advertising but that generates organic traffic through good SEO practices is more interesting to a buyer, as they would need to make less of an investment in order to (continue to) make money.
In addition to calculating net margins and using value calculators it can therefore be useful to have an idea of the potential of a site, as this helps you find good opportunities other buyers may have overlooked. It’s possible, for example, to find a website with poor SEO but with a good design and content whose value could easily be substantially improved just by a few tweaks to the SEO.
Take time to educate yourself on SEO, or, in case you haven’t and still want to know what a site is worth before buying (or selling) it, you can consider asking a specialized agency if they offer SEO audit service. In case you’re wondering, look on this site to see what’s in an SEO audit.
Now that you know a little more about how to determine the value of a website you should have enough information to determine if the price is reasonable and if there’s room for improvement before selling, or after buying.