The market value approach to website valuation is fairly straightforward. Essentially, it can be viewed as comparison shopping. They key is to understand what particular components should be compared and what additional factors and assumptions should be considered.

Consider shopping for a used car. Most people of driving age who own a car are naturally familiar with the things that are important when determining a car’s worth. Are the tires in good condition? How many miles on it? What service has been performed? What year is it? What options? How much the car was worth new is the starting point, and then the previous factors will deduct from that point. When someone goes out to the used car lot or looks online they will usually search for several different versions of the same car. There may be 3 different 2002 BMW 530is at AutoTrader.com selling in the range of $28,000 to $38,000. Mileage may be 20,000 on the first, 45,000 on the second, 90,000 on the third. Maybe the second one has navigation and the sports package while the first one has no options. If you’re looking to unload your 530i you would consider as many major price components as possible to develop your asking price. Now this is an obvious example but the real question is what do you consider when establishing a website value and where do you go to shop around?

First lets consider where to go to shop around. The following are websites devoted to the buying and selling of other websites.

Websites for Sale: http://www.buysellwebsite.com/ Sedo: https://www.sedo.com/ Ebizbrokers: http://www.ebizbrokers.com/listings.html Hot WebSitesForSale: http://www.hotwebsitesforsale.com MySiteTrader: http://www.mysitetrader.com Time2Sell: http://www.time2sell.com/

Among these sites thousands of websites of all different types can be found. The initial information given is usually the website name, a brief description, and the asking price. The asking price is usually always negotiable and that is where your valuation skills really come in handy. Initial contact to show interest in the site can usually get you more information needed in order to do your comparison-shopping.

The data needed is not any different from what was discussed in the beginning of the Website Valuation section. Traffic, Revenue, Expenses are starters. At a minimum, you want to find a website that is similar to yours and compare the above statistics. What I mean by similar is from an infrastructure standpoint and not actual product. However, the closer you can get the better. What I mean by infrastructure being similar is the actual function of the site. If your site is a database driven site that sells widgets and has full e-commerce capabilities, you don’t want to compare it with a site that discusses the future of widget production. You would be better off comparing a site that is database driven, has full e-commerce capabilities, but maybe sells nuts and bolts instead of widgets.

Basically, you are kicking tires to determine a range for your value. The more comparable sites you can find, the better. Adjust your price up or down for the revenue, traffic, and expense items by using the “commoditizing the market” methods discussed in earlier chapters.

Here is an example:

Consider a comparison of 5 different websites that are similarly structured and do serve a similar purpose:

The table compares the major components of 5 different websites currently for sale. At first glance one may think website 3 would be worth the most for it has the most traffic and the most revenue. As we’ve learned earlier, website valuation is not such a simple task. Lets add some more data:

Now maybe website number 5 is looking like the most valuable with a margin (revenue minus expenses) of $32,000 per month. Lets add some more data:

Website number 4 now shows the most potential since it can capture 7 cents per visitor, far more than the others. What happens if you increase traffic and remain at a high per visitor margin? Surely the site would be worth far more than the others in the comparison. Lets throw in the prices:

Turns out site number 3 is priced the highest. But as we’ve learned, it may not be worth it. A good exercise (and practice) would be to take the five comparisons and do a discounted cash flow assuming a static discount rate and that margin = free cash flow.

To compare with the site being valued, lets equate the metrics by adding the following data:

On average, the sites in the market are asking 82 cents per monthly visitor and 23 dollars per monthly dollar of margin. You can use these metrics combined with the similar metrics of the site being valued to establish a price. For example, .82 * the current monthly traffic or average the price of the margin metric multiple and the traffic multiple.

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