Just How Much is Your Website Worth, Anyhow? An Easy Guide to Valuation

Just How Much is Your Website Worth, Anyhow? An Easy Guide to Valuation

If you’ve built a digital asset you’re looking to exit from, the first question you likely have is, “This sounds fantastic, but how do I go about putting an actual price tag on what I’ve created?” We’ll dive into those answers below, but first let’s talk about why you're already in a great position just by being a reader of the Moz Blog. SEO is by far the most attractive traffic source for people looking at purchasing online businesses. While SEO itself does not increase the value of the business in most cases, it does attract more buyers than other forms of traffic. When you see this formula, they’re using an annual multiple, whereas at Empire Flippers we use a monthly multiple. There's really not much of a difference between the two formulas; it mainly depends on your preference, but if you’re brand new to buying and selling online businesses, then it's helpful to know how different brokers price businesses. Other things, such as SEO tools you’re using on a monthly basis, can likely be added back to the business. When selling a business, you don’t want to worry only about expenses, but also how easy it is to plug into and start running that business for a buyer. This fact becomes more and more important as your business valuation goes into the multiple six-figure and seven-figure valuation ranges because buyers are looking to buy a real brand at this point, not just a niche site. Here are a few business reasons why people sell their businesses: Starting a new business or wanting to focus on other current projects Seeking to use the capital to leverage themselves into a more competitive (and lucrative) space Having lost any interest in running the business and want to sell the asset off before it starts reflecting their lack of interest through declining revenue Wanting to cash out of the business to invest in offline investments like real estate, stocks, bonds, etc. When should you sell?

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We all work hard building our businesses.

We put in the sweat equity and all the tears that can come with it to build something truly great. After another day hustling at the office or typing furiously on your keyboard, you might be wondering… what is the end game here?

What are you really going for? Is there a glowing neon sign with the word “Exit” marking the path to your ultimate goal?

For the majority of businesses, the end goal is to eventually sell that business to another entrepreneur who wants to take the reins and simply enjoy the profits from the sale. Alas, most of us don’t even know what our business is worth, much less how to go about selling it — or if it’s even sellable to begin with.

That’s where Empire Flippers comes in. We’ve been brokering deals for years in the online business space, serving a quiet but hungry group of investors who are looking to acquire digital assets. The demand for profitable digital assets has been growing so much that our brokerage was able to get on the Inc. 5000 list two years in a row, both times under the 500 mark.

We can say with confidence that, yes, there is indeed an exit for your business.

By the end of this article you’re going to know more about how online businesses are valued, what buyers are looking for, and how you can get the absolute top dollar for your content website, software as a service (SaaS), or e-commerce store.

(You might have noticed I didn’t include the word “agency” in the last paragraph. Digital agencies are incredibly hard to sell; to do so, you need to have streamlined your process as much as possible. Even though having clients is great, other digital assets are far easier to sell.)

If you’ve built a digital asset you’re looking to exit from, the first question you likely have is, “This sounds fantastic, but how do I go about putting an actual price tag on what I’ve created?”

We’ll dive into those answers below, but first let’s talk about why you’re already in a great position just by being a reader of the Moz Blog.

Why is SEO the most valuable traffic for a digital asset?

SEO is by far the most attractive traffic source for people looking at purchasing online businesses.

The beauty of SEO is that once you’ve put in the work to achieve the rankings, they can maintain and bring in traffic for sometimes months without significant upkeep. That’s in stark contrast with pay-per-click (PPC) campaigns, such as Facebook ads, which require daily monitoring to make sure nothing strange is happening with your conversions or that you’re not overspending.

For someone who has no experience with traffic generation but wants to purchase a profitable online business, an SEO-fueled website just makes sense. They can earn while they learn. When they purchase the asset (typically a content website for people just starting out), they can play around with adding new high-quality pieces of content and learn about more complicated SEO techniques down the road.

Even someone who is a master at paid traffic loves SEO. They might buy an e-commerce store that has some real potential with Facebook ads that’s currently driving the majority of its traffic through SEO, and treat the SEO as gravy on top of the paid traffic they plan to drive toward that e-commerce store.

Whether the buyer is a newbie or a veteran, SEO as a traffic method has one of the widest appeals of any other traffic strategy. While SEO itself does not increase the value of the business in most cases, it does attract more buyers than other forms of traffic.

Now, let’s get down to what your business is worth.

How are online businesses actually valued?

How businesses are valued is such a common question we get at our brokerage that we created an automated valuation tool that gives a free estimate of your business’s value, which our audience uses with all of their different projects.

At the heart of any valuation is a fairly basic formula:

You look at your rolling 12-month net profit average and then times that by a multiple. Typically, a multiple will range between 20–50x of the 12-month average net profit for healthy, profitable online businesses. As you get closer to 50x you have to be able to show your business is growing in a BIG way month over month and that your business is truly defensible (something we’ll talk about later in this article).

You might see some brokers using a 2x or 3x EBITDA, which stands for earnings before interest, tax, depreciation, and amortization.

When you see this formula, they’re using an annual multiple, whereas at Empire Flippers we use a monthly multiple. There’s really not much of a difference between the two formulas; it mainly depends on your preference, but if you’re brand new to buying and selling online businesses, then it’s helpful to know how different brokers price businesses.

We prefer the monthly multiple since it shows a more granular picture of the business and where it’s trending.

Just like you can influence Google SERPs with SEO knowledge, so can you manipulate this formula to give you a better valuation as long as you know what you’re looking at.

How to move the multiple needle in your favor

There are various things you can do to get a higher multiple. A lot of it comes down to just common sense and really putting yourself in the buyer’s shoes.

A useful thing to ask: “Would I ever buy my business? Why? Why not?”

This exercise can lead you to change a lot of things about your business for the better.

The two areas that most affect the multiple come down to your actual average net profit and how long the business has been around making money.

Average net profit

The higher your average net profit, the higher your multiple will tend to be because it’s a bigger cash-flowing asset. It makes sense then to look at various ways you can increase that net profit and decrease your total amount of expenses.

Every digital asset is a little different in where their expenses are coming from. For content sites, content creation costs are typically the lion’s share of expenses. As you approach the time of sale, you might want to scale back your content. In other cases, you may want to move to an agency solution where you can scale or minimize your content expenses at will rather than having in-house writers on the payroll.

There are also expenses that you might be applying to the business but aren’t really “needed” in operating the business, known as add-backs.

Add-backs are where you add certain expenses BACK into the net profit. These are items that you might’ve charged on the business account but aren’t really relevant to running the business.

These could be drinks, meals, or vacations put on the business account, and sometimes even business conferences. For example, going to a conference about email marketing might not be considered a “required” expense to running a health content site, whereas going to a sourcing conference like the Canton Fair would be a harder add-back to justify when it comes to running an e-commerce store.

Other things, such as SEO tools you’re using on a monthly basis, can likely be added back to the business. Most people won’t need them constantly to run and grow their business. They might subscribe for a month, get all the keyword data they need for a while, cancel, and then come back when they’re ready to do more keyword research.

Most of your expenses won’t be add-backs, but it is good to keep these in mind as they can definitely increase the ultimate sales price of your business.

When not to cut expenses

While there’s usually a lot of fat you can cut from your business, you need to be reasonable about it. Cutting some things might improve your overall net profit, but vastly decrease the attractability of your business.

One common thing we see in the e-commerce space is solopreneurs starting to package and ship all of the items themselves to their customers. The thinking goes that they’re saving money by doing it themselves. While this may be true, it’s not an attractive solution to a potential buyer.

It’s far more attractive to spend money on a third-party solution that can store and ship the product for you as orders come in. After all, many buyers are busy traveling the world while having an online business. Forcing them to settle down just so they can ship products versus hanging out on the beaches of Bali for a few months during winter is a tough ask.

When selling a business, you don’t want to worry only about expenses, but also how easy it is to plug into and start running that business for a buyer.

Even if the systems you create to do that add extra expenses, like using a third party to handle fulfillment, they’re often more than worth keeping around because they make the business look more attractive to buyers.

Length of history

The more history you can show, the more attractive your business will be, as long as…

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