A website based business is undoubtedly the easiest way to operate and market your products or services. However, evaluating the business and monitoring its prospects financially to value the business is challenging.
Most business owners regularly question how much their online business or website is worth. Here, we present some methods that can help you in evaluating the value of your website. Take these basics and research well on your domain and niche to find the right way to do a profitable business.
There are many ways to calculate the value of the website. Let us look at some of the prominent ones.
Earnings Multiplier Method – According to this method, the valuation figure is derived by multiplying the net profit/income, precisely the SDC (Seller’s Discretionary Cashflow) by a multiple that is specific to the business or the industry type. SDC is the money that remains after deducting the costs of goods sold and the operating expenses from the general gross income. The multiplier varies with the Industry type. The core metrics for the multiplier is the EV/EBITDA. Therefore, the website’s valuation, for example, can be 1X or 1.5X, where 1 and 1.5 are the multiples, and ‘X’ is the net income. Typically, the value of your business increases as a multiple of the Earnings Multiplier. Hence, concentrating on increasing the multiplier value will be strategically a good move. If you can’t work this out yourself you can simply use a website value calculator like Web Traffic Agents.
Generally, the website value ranges between 28-36X. What factors determine the multiplier? Let us have a close look.
The Financials – For any business, The Balance Sheet and the Profit and Loss Statement is a significant factor. We must maintain these values at a good trend. The stability of the business, new approaches, and investments for diversification in the online platform and the stability are some aspects that contribute to the financials positively.
Industry – The niche in which the business is placed is again a contributing factor. There can be several barriers for companies to develop. The options to compete and excel as well as expand may be limited. Innovation can help in this regard. It will assist in increasing the market capitalization and increasing the customer base. A number of customers acquiring the services provided in your website and the consistency in paying the subscription charges mean a lot.
Online Traffic – This is one of the prominent aspects. The fraction of the traffic that is directed to your website from the search is a valuable count. We should see that traffic maintains a decent trend and is sustainable at the same time. Also, check if it is getting aligned to the Industry trends.
These factors may seem intrinsic, but you will get to see the multiplier value increasing substantially with these factors.
Calculations based on Traffic – Indeed, some websites do not earn from sales on their products or services. They may not be able to figure out a consistent value. Traffic value is a good way to evaluate in this case. It is based on the pay per click (PPC) rates. Advertisers approach the website owners to place their advertisements. They pay a certain amount for every click that they receive from the users on that particular website. The rate is fixed based on the keyword that is used to drag the users to click the particular advertisement. The pay can increase depending on the number of visitors and the demand for the keywords.
Apart from these methods, we have other similar observations that can also help you understand the worth of your website.
Comparison Method – If there is a possibility of getting the values of other similar companies, then you can get a fair understanding of where you stand and improvise based on that. You might get a goal point that you need to achieve.
Asset Method – For a website, the company’s asset is presumably the customer list and perhaps the strength of the database and its history. Based on this, we can keep evaluating positive trends over the years. You can make out the improvements that you have come across or how you have been stagnating for an extended period. You can decide your strategies based on these aspects.
Having spoken about these concepts, now it is left to your responsibility to organize your website’s value. As discussed, you will require many parameters in this regard. It is great if you can find it all by yourselves or try hiring experts for the exact values. Make sure you work on the value of your website at the earliest so that you can streamline your operations in the right and profitable direction. Making business is not a real strategy; making a profitable business is always the key behind a successful venture..!!