Website Valuation: Why is it Needed?
The market of buying and selling developed websites is becoming
more and more liquid each day. By this I mean there are number
of market participants and the variety of developed websites
being bought and sold is finally coming around.Like any
developing market, there is no established pricing mechanism.
The common method is a "revenue multiple" something like "10
months earnings". This is simplistic, or elementary, and cannot
last as the market develops.Websites are income-producing assets
and should be treated as such. I've taken my various
business/finance education and experience and combined it with
my years of Internet experience to take a shot at a fundamental
valuation method for websites.
It is important to understand that immature markets, no matter
what the product, all go through this life cycle. Basic price
"guesses" or simplistic metrics are used in the beginning, and
eventually some standardization occurs.
Websites, like companies, rental property, or a contract to
receive a service or product, are assets with potential future
income streams. The value of that asset is derived from the
future income streams and not the "book value" of the asset
itself.
Just a year ago it was difficult to find any true variety of
hundreds of similar sites for sale in many given categories.
Today this is a reality. The problem, however, is the website
prices are erratic at best. Sometimes it is very difficult to
understand why site A sells for $5,000 while site B, with
similar characteristics and qualities may sell for $10,000. At
best you may find a variety of market participants using a
simple revenue multiple models. Why? Because they are simple.
Simple valuations lead to bad deals for one side (buyer or
seller).
At the end of the day, a website valuation is established for
one of three four reasons:
1.) Looking to sell a site 2.) Looking to buy a site 3.) A means
of "measurement" for a site's performance 4.) Establishing value
for the sake of additional investment
When a 'back of the envelope' website valuation technique is
used to establish a website price, it can be almost certain that
someone will lose in the transaction.
Knowledge is power. What side of the deal would you want to be
on?
Website Valuation and
Pricing