Calculating your Website Valuation

This week I was asked to assist a client in valuing their existing website. As more and more people create and sell their online businesses this topic is an important one for any web entrepreneur so I thought I would share a few of my tips.

Identifying a value for your website can depend on a number of different factors. This article will consider each of the factors you need to take into consideration for your calculation.

1. Value of Assets:
In this case I am talking about the value of any assets associated with your website. In most cases this will relate to the cost of development – or more importantly the cost of re-developing your site to the level which it is today so that it has the same technical functionality. Don’t forget this may also include your IP, your brand, the setup of databases or an online shop.

An important asset associated with your website business may also be your customer or prospect database. If you are collecting information from website visitors or members this definitely has a value and that value will depend on the currency of the data as well as what degree of segmentation and opt ins you have for that database.

2. Current Earnings:
What are the current earnings of your website? This may be revenue derived from online sales, from Google adsense, banner advertising or referral income or membership costs for example. It is important in this element to keep in mind any costs associated with these earnings too so that you have a realistic understanding of your current position.

3. Potential Earnings:
The next step is to look at the potential earnings of your website. What if you were to expand your website to include more products, more functionality, service a greater geography? Would this increase your earnings? Again what would the associated costs be to expand to this degree? Often larger companies will acquire existing online, well –performing businesses with the view to expand them so it is important to keep this consideration in mind so that you can get an idea of what the future earning potential is.

4. Traffic:
Of course any traffic coming to your site also has a value and this will depend on factors such as number and frequency of visits, referral sources (for example is your website doing really well in natural search listings), quality of traffic and session duration. If your website is currently attracting 200,000 unique visitors a month to your site, obviously the value of this site is much higher than one attracting 200 visitors a month.

5. Promotion:
The last key factor for consideration is promotion. In this case I’m not talking about regular paid marketing activities (as this would be considered a cost when looking at your current earnings), but rather any other promotional arrangements from which your site is benefiting. For example you may be receiving promotion on an associated TV program weekly. You could have a syndicated content arrangement with a high profile website meaning that you gain large amounts of traffic and referrals from that site, or you might be a key client in an affiliate program. If you are receiving any promotion which is due to a ongoing arrangement or better yet, promotion that money can’t easily buy, then that is definitely a consideration in your website’s valuation.

In Summary:
By looking at all of these key factors you will be able to break down the various components of your website in order to start calculating a valuation figure. There are a number of other online resources available to help you with this process, however beware of most of the online tools as they only consider the value of your domain based on search rankings. Here are a few articles which may be worth checking out:

http://www.stuntdubl.com/2006/02/20/website-valuation/

http://www.powerhomebiz.com/vol151/selling.htm

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