Valuation of website imageIn most businesses it is fairly simple to establish an approximate valuation for a particular company.
There are known rules of thumb such as multiple x annual sales (typically 3-5 as the multiple) or multiple x annual profit (typically 12-15 as the multiple).
For web 2.0 businesses with little in the way of either profit or sales, but a loyal and fast growing audience, another method is needed. Using either of the approaches above, such a site would appear worthless.
The good news is that ‘eyeballs’ are back. Big companies are finally realizing that they can’t come up with all the new ideas, and that younger, smaller and more nimble web companies can deliver them a large audience or community on a plate, thanks to a great idea – well implemented, and the larger company can do what they do best which is figuring out how to monetize it. This explains why there have been so many acquisitions of websites and web development teams in the last couple of years.
So how do you value a website?


One approach that is becoming increasingly popular is to use a multiple x number of users approach. Here you basically assign a value for each unique user that you have to your site.
Depending on the type of website, this might be the number of registered members, the number of active users, or the number of unique visitors who visit the site in a month. This last approach is becoming increasingly popular among venture capitalists and angel investors.
It’s important to distinguish unique visitors from other web statistics such as page views and hits, as these are very different numbers. Anyone who talks to you these days about ‘hits’ should be viewed with some concern.
Google AnalyticsIn Google Analytics for instance, a free service which I recommend for any site owner, this figure is known as Absolute Unique Visitors.
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. This might be too conservative for some people but I would suggest using no more than $12-15 per unique user, unless you have an extremely popular site. There is definitely a higher value placed on larger sites, as these are attractive to the major players.
If your site does have revenue you should incorporate that into your calculation too for a more detailed valuation. You can establish a multiple for your unique visitors and then add in a more traditional calculation such as the ones at the beginning of this article. If you have assets such as domain names or ‘people assets’ such as a highly cohesive and transferable team, you should place a value on that too. You might also value an e-mail database separately, again using a suitable multiple.
Basically you should break your site down into its component parts and figure out which bits have value. There are no set rules for how you should do this, just be as reasonable as you can and as detailed as you desire. Do you have extensive technical plans already written? These have value. Do you have patents filed for your technologies? These (might) have value. Do you have ideas that you are willing to throw into the business wholeheartedly? These too can be valued.
The more detailed you get, the further you get away from a ‘rule of thumb’. If you do get highly detailed with your valuation you should be prepared to tone down on ‘rule of thumb’ multiples to compensate.
Doing all this and being reasonable in everything, with research to back it up, will ensure that a buyer or investor will be far more likely to accept your valuation. If you are valuing your e-mail database separately for instance, what are the standard industry rates for buying an e-mail database?
Web Publishing Valuation Excel SpreadsheetIf you need help getting started with your own valuation, feel free to use this spreadsheet as a starting point. It’s a stripped down version of the one we use in our own company with figures changed to protect the innocent. You should adjust the multiples to numbers that you are comfortable with and add or remove any line items that make sense for your business.
Above all, taking a sensible and realistic approach to valuing your business will demonstrate that you too are realistic, and this will give investors, acquirers, directors and other stake holders confidence that you are on the right track. Even if you are not at the stage of selling your business to others, establishing a valuation methodology that works for you, and doing a valuation each month, will give you a very clear idea of how you are progressing each month, and how much ‘value’ you are creating.
I welcome any comments or helpful suggestions others may have…
Interesting links
Valuation approach for blogs (with online calculator)
YouTube, Zillow, and the return of eyeballs
Website Value 101 – A more detailed approach to valuing websites

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