Appraising the Value of a Website

A couple of days ago I received an e-mail from an individual who wanted to buy one of my websites. I have built websites for clients at predetermined rates in the past, but I have never sold one of my personal web projects. The site that the person wants to purchase from me is located at:

http://www.yougetsignal.com/ (~5,000 visits a day, of which ~600 visits come from organic Google traffic)

YouGetSignal is a collection of AJAX web tools I wrote for fun throughout this last school year. I am currently monetizing it through Google AdSense and donations.

I searched the Internet for some kind of magic formula that would help me appraise the worth of my site. After searching for several hours and finding a ton of different opinions, I decided to contact the Brigham Young University’s Center for eBusiness to ask for some advice on appraising a website. Dr. Stephen Liddle, the director of the program, responded with a very insightful e-mail:

Valuations got crazy during the dot-com bubble, and then they crashed too far. They’ve stabilized a bit since then. In the bubble era, people made the argument that old formulas for valuation went away. Everything was new and needed to be measured differently. Well, the same old rules still likely apply. As the basis of value, you need to understand business fundamentals: what is the revenue potential for this property? You may or may not currently be maximizing the potential revenue stream (you probably aren’t – probably nobody is truly “maximizing” their potential). So basing the value on your current revenue for the site is likely not quite the right thing to do, but it’s the easiest number to start with. “I’m making $X/year now, so you need to pay me $X * Y to buy it from me.” (Where Y is a standard multiple you’d use for any business – online or offline.) At least that would establish a floor for the valuation. The next thing you could do is estimate potential revenue if you were to apply best practices to the property. How many of the visitors are loyal visitors? What would it take to engender more loyalty? Are you getting affiliate revenue as you refer visitors to other e-commerce sites? Etc. Here’s an interesting blog post along with links to further resources:

http://www.stuntdubl.com/2006/02/20/website-valuation/

That doesn’t answer all your questions, but it’s a place to start. What it comes down to is that you have to negotiate. The first person to state a number typically loses a negotiation. Have they made an offer for you to counter? If not, ask them for an offer. Then you can see whether it’s worth a lot of your time and effort or only a little to justify your estimate of the site’s value. In the end, the value is whatever both parties agree it is.