In 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.
In 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?
If 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…
Valuation approach for blogs (with online calculator)
YouTube, Zillow, and the return of eyeballs
Website Value 101 – A more detailed approach to valuing websites
Thats an interesting concept but to me it seems like you are guessing the value of a visitor.
To look at a website as not having a product is false. A website is often like a magazine — it’s product (from a valuation point of view) is its advertising real estate.
If you sell $1 million in advertising real estate a year then that is equivalent to your sales revenue.
If you want to work it out from a “number of users” perspective rather than using the number of users you would use page views… why? Because a visitor looking at 5 pages is more valuable than a visitor that looks at one page. More page views signifies more user loyalty and more importantly more ad views.
RPM (revenue per 1000 impressions) is a metric that I prefer to use to measure how profitable a site is.
Most sites fall in the $5 RPM region, but a site that knows how to monetize its visitors and is large enough to attract corporate advertisers can exceed $20 RPM easily, if not a lot more.
I’m not saying unique visitors should not be taken into consideration but there are a lot of other obvious variables to consider that are relatively easy to calculate and provide a much clearer financial picture, RPM and advertising sales being one of them.
Just wanted to tell you Thanks for this powerful information!!! Been trying to find this out for about a year now and this is the only thing that makes sense!!! You should publish this in a book and expand upon it, as it would be a best-seller. Take care and God Bless You
You should also try http://www.websitefact.com ; I found it very useful as it contains a lot of information regarding the performance of your site. Just my two cents …
That website websitefact is worthless it says that cnn is worth only $694,184.26 USD it is only off by a billion or two.!!!
So who wants to buy my 1.5k uniques / month website to for $10,000
Hi! I have found another website traffic and value estimator site. I’m talking about
http://www.estimix.com . The estimation provided by estimix is the result of a complex analysis based on factors like: the age of the website, the demographic structure of the traffic, the countries where the website is popular and sources of the traffic.
Most appreciate the article Alx, and the link to the excel spreadsheet. I just wanted a rough estimate and this was most helpful.
This is a good guide and I agree with most of it. What is missing though is the consideration of the minimum monthly uniques that will make a website attractive to a purchaser willing to pay on a per uniques basis. You see in the comments a guy that wants to sell his 1,500k unique website for 10k based on the 3-8x unique calculation mentioned in the article. What the article fails to mention is that websites with unique monthly visitors under a certain threshold are likely not of interest to a larger company looking for acquisitions. This threshold will differ widely based on many factors, but as a rule I consider anything under 100k uniques per month more of a small business rather than a viral website of interest to a larger company. These small business websites should be valued as a multiple of profits and not uniques.
To the user that says page views are more valuable than unique visitors – that is absolutely not true. Page views is the second most valuable statistic considered in an acquisition but ultimately companies making these kinds of purchases are doing it for one primary reason: increase the total number of viewers across their network.
great thanks for the article. there are loads of estimator websites out there now but the estimates differ massively ive had estimates on my website from £200 all the way up to £7500 finding a accurate one i difficult.
I guess there are more variables involved to get a total price.
For example, I have a hard time imagining a website with 100,000 monthly unique with 4 figures monthly ad revenues, sell for over 1 millions US dollars.