:: By Steven Endrizzi, BizBroker24 ::
For a buyer or seller, determining the value of his or her website and online business is a very difficult task.
Most buyers consider the net revenue made by the website annually plus some percentage higher than this amount. At the core of the valuation process, the seller needs to determine the net revenue of the website. To arrive at the net profit of the online business requires subtracting all the expenses incurred in the course of running the business (like hosting, marketing, banners, affiliation system, etc.) from the total revenues made.
It is recommended that this calculation is based on a 12-month period. After determining the net revenue per year, the seller may select a multiplier value. For well-established websites, the value may be between from 1.5x to 3x. Suppose for example a website's annual net revenue amounts to $50,000; a buyer may multiply with 2x and give an offer of $100,000 as the buying price for the online business. In addition there are several other issues that the buyer may consider such as any risks that the website maybe facing. In order to ascertain the risks faced by a website, a number of factors are considered such as: increasing growth, stable incomes, automated system, traffic streams and quality, diversified revenue streams.
Generally speaking, there are many different ways in which online businesses can be valued. For some businesses, the assets the websites own such as a rich customer list (database) may be appealing to potential buyers who may have innovative ways of using this asset, and therefore may value the website based on these assets. Other buyers could employ a comparable sales method to value the website or they should consider the revenues of the website and identify a multiple based on strengths and weaknesses of the website.
Here are some of the bases when pricing them:
- Sales and Profit numbers and trends
- Traffic numbers and trends
- Age of the business
- Domain name value
- Industry sector trends and outlook
- Business growth potential
- Proprietary or non-proprietary products
- Unique content
- Inventory count (if applicable)
- Advertising methods and costs
- Personnel expertise needed to operate the business
- Seller financing
- Non-compete terms
About the Author: Steven Endrizzi, CEO & Founder of BizBroker24, Business Broker and experted Internet Marketer since 1998 provides assistance to clients who may want to sell/buy an online business. You can reach Steven via @BizBroker24 or bizbroker24.com