Contributor at StartupNation
Jordan Kasteler is a freelance marketing consultant and entrepreneur, passionately innovating the status quo. He has a history of entrepreneurship co-founding and serving positions in such companies as BlueGlass Interactive, an Internet marketing agency, and SteelCast, a tech incubator housing several other self-started companies. His work experience includes in-house SEO at Overstock.com, marketing strategy at PETA and agency-level SEO. Jordan is also an international conference speaker, blogger and book author of “A to Z: Social Media Marketing.”
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As an internet entrepreneur, situations arise where you may need to sell your website and want to ensure you’re going to get the highest price possible.
What’s your website worth?
Investors will apply the earnings-multiple valuation strategy, or some variation of it, to figure out what your website is worth to them.
You’ll need to ask yourself a few basic questions:
- How much revenue are you generating each year?
- What are your profits after expenses, taxes and salaries?
- How are you bringing in new customers and are your strategies sustainable?
- How high is the competition in your market and what is your positioning?
- Do you have systems and processes in place right now?
- What role do you play in maintaining the business?
Your answers will raise or lower the earnings-multiple that will be applied to the business. Generally, websites trade for between one to two times annual profit for smaller websites (making under $100,000 in profit per year), two to three times annual profit for medium sized websites (making $100,000 to $5 million in profit per year) and three to five times for large websites (making over $5 million in profit per year).
Investors will look at how quickly they can get a return on their investment, how easy the business is to own and how consistent the business will be after they buy it from you.
If you want to increase the value of your website, here are a few things you can do:
- Diversify your traffic sources
- Increase your conversion rates and lifetime customer value
- Build an email list, if you haven’t already
- Cut unnecessary expenses
- Ensure your financials are detailed and accurate
- Implement systems so the website can be easily transferred
- Identify growth opportunities in your market
Focusing on each of these areas 12 months before you want to sell your website will help make the website more attractive to investors so justifying a higher asking price will be significantly easier.
What is the value of various websites?
- Advertising – Advertising websites, like sites that rely on Google’s Adsense, tend to sell for lower multiples because there isn’t a large value proposition, and you’re not in direct control of the customer. For advertising-based business models, valuations tend to range from one to 2.4 times yearly net profits.
- App – The barrier to entry for app-based businesses is far too low and easily duplicated, and acquiring new customers can be incredibly expensive. Placing a value on an app business is difficult. For businesses that are turning a profit, valuations will range from 1.25 to 2.5 times yearly net profits.
- E-commerce – E-commerce businesses are relatively easy to sell because they’re easy for investors to understand and take over, and typically have consistent revenue. The average valuation for an e-commerce business ranges from 1.52 to 3.19 times yearly net profits.
- Lead Generation – One of the best performing businesses right now are lead generation businesses. There are quite a few factors that affect a lead generation business’ valuation, so multiples spread a wide range from 1.5 to 2.8 times yearly net profits on the high end.
- Service – The main value proposition is in the book of clients that has been built up. The value of a service-based business depends, largely, on having systems and employees in place and the profit margins being generated. Valuations tend to range from 2 to 3.5 times yearly net profits.
- Software – Software-based businesses are among some of the most commonly sold businesses, and are incredibly attractive to investors. Investors are finally starting to realize the strength of recurring income business models and happily pay higher multiples to obtain them. Valuations tend to be higher than other models. You can expect between 2.4x yearly net profits to 4x yearly net profits, based on your industry, lifetime customer value, net profits, and other factors.
Why is your website worth more?
In general, if a website is considered less risk, it will fetch substantially higher offers on an open market. Riskier websites and those with tight profit margins are going to fall down the earnings-multiple, making them significantly harder to find an investor for.
To get the highest offers, you’ll need to focus on the following areas:
- Consistently generate new sales each month
- Tap into different sources of traffic and revenue
- Detailed, accurate traffic and sales statistics
- Strategies to bring back visitors again, and again
- Ensure the business has no looming legal issues
- Proper positioning against your competitors in the market
- Systems, and processes that can be repeated
- Growth opportunities still remaining in the market
You’re going to be competing against quite a few other entrepreneurs that are trying to sell their own website, so you need to make sure your website can stand out against the competition.
Where can you sell your website?
There are four ways to get the website sold.
#1 – Auction – Micro Websites
Auction houses are platforms where sellers can list a business that they’re selling, and buyers can start placing bids on the business. One of the most commonly known marketplaces is Flippa. For any business that’s valued at less than $20,000, Flippa is a great platform to use.
#2 – Marketplaces – Small Websites
Open marketplaces function more similarly to a classified ads section. One of the largest open marketplaces right now is BizBuySell. If your business is valued at less than $100,000, open marketplaces are going to be your safest bet.
#3 – Website Brokers – Medium Websites
When your business is valued at higher than $100,000, you may have an easier time getting the business sold if you leave it up to the professionals. For any business that generates $100,000 to $5 million per year in profit, a broker, like Digital Exits, is going to be able to handle the deal for you.
#4 – Investment Banks – Large Websites
For any business that’s valued at more than $20 million, that is, websites making more than $5 million per year in profit, investment banks are perfect targets. Foundersib.com is a large investment bank that can help with larger website deals.