Introduction to Professional Website Valuation

"The Value of an asset is the present value of it's expected returns" - Frank K. Reilly, University of Notre Dame, Investment Analysis and Portfolio Management

The valuation of a stand-alone website or a business consisting of a collection of websites is a very important and commonly misunderstood practice. The website valuation process is a mixture of objective and subjective tasks and can be very difficult to perform without the right knowledge and tools. The need for website valuation usually arises due to a pending transaction to either purchase or sell the site(s). It is extremely important that sound business models are used for website valuation in order to establish a fair and accurate price for such transactions. The fact that the market for websites is relatively new and growing exponentially makes this a topic of study that is both fascinating and very valuable.

The purpose of this chapter is to take your online advertising market knowledge developed throughout this book to the next level by giving you the tools and understanding to establish a fundamental value for a given website or group of sites. Armed with this knowledge you can profit from buying undervalued sites, selling sites above market to less informed purchasers, or simply value your websites as a means of measuring their success. Combined with the previous chapter's information, this website valuation chapter will give you an incredible level of website business knowledge that will pay for itself many times over.

First we will take a look at some of the nuances surrounding website valuation, move on to the foundation of website valuation, then jump into the details of the discounted cash flow model and how to properly apply it to websites. From there we will look at market value approaches, the all too over-used and independently unreliable price or revenue multiple methods, decision tree/scenario analysis, and finally discuss the art of establishing the actual value from the analysis.

The Headaches

We'll begin by discussing some of the problems with valuing websites. As made evident already, the website valuation process is difficult and often misunderstood. It is very common for a website owner to take a simplistic approach and simply apply a price based on a multiple of revenue or worse yet just pull a figure from thin air. Price multiple based valuations are legitimate methods for valuing websites, private companies or public corporations but should never be used as the sole valuation method.

Above is a sample. Read the full chapter.

Prowebvalue Blog: "Adventures in Buying Websites"

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Prowebvalue Blog: "Adventures in Buying Websites"