Other Ways to Value a Website

Website valuations need to evolve. Here are some new ways to think about it.


This week’s issue is about different ways to think about valuing websites, and why the entire industry may be going about valuations in the wrong way.

Let’s dive in!

Natural pigments for sale in Morocco | Photo by Stefan

The problem with website valuations

Today, websites are basically valued along a single metric: the net profit multiple.

  1. Step 1: Figure out how much the site earns annually
  2. Step 2: Subtract the costs
  3. Step 3: Depending on the asset type and category, multiply by 2.0 – 3.5

That’s it. There’s your valuation. Pretty advanced, huh?

While net profit multiple will always make sense as a starting point for negotiations, relying on it so heavily is outdated at best, and severely flawed at worst. Richard Patey brought this point up months ago, and I haven’t been able to stop thinking about it.

Why should net profit be the only factor in valuations?

  • What about a site’s age, authority, and traffic?
  • What about organic traffic and bounce rate?
  • What about the size & engagement of the email list and social accounts?
  • What about the site’s growth, or macro trends within the niche?
  • Heck, what about the value of the actual domain itself?

Sure these are often collectively counted — subconsciously folded into a broker’s valuation or buyer offer. But they are rarely, if ever, individually counted. And that’s a big difference.

Ignoring all of these factors and placing so much importance on net profit multiple means lots of great sites are considered overvalued when they are actually undervalued, and vice-versa.

It also means sites with high traffic but low revenue fall in the dustbin, where they don’t belong.

Example of a mispriced site

For example, consider the following numbers on a super small site I picked up back in July:

  • Niche: Artwork
  • Age: 5.5 years
  • Revenue: About $31/month (Some Adsense revenue, poorly executed)
  • Costs: $25/month (Hosting)
  • Traffic: 30,000 pageviews/month (!)
  • Asking price: $600 (8.3x multiple)

As you can see, this site was barely breaking even. The owner had created the site years ago as a hobby, and had done a fantastic job running and curating the content.

Over the years, however, large image requirements meant hosting expenses were becoming overwhelming (she was using WordPress hosting). Adsense was put in place to help defray the costs, which they barely did. When the $300 annual hosting fee came up for renewal, the owner decided to sell.

Now, according to traditional valuation metrics, this site would be worth roughly $216. ($72/year net profit x 3). She priced it at $600, where it was getting no bites because, based on revenue, it was “overvalued.” (An 8.3x multiple? In this economy?? Pshh!)

As for me? I took one look at her traffic numbers and made an offer on the spot.

The reason is simple: traffic is just unrealized revenue. Sites that have high traffic but low revenue are not (yet) accurately valued by the market. In many cases, the value of a site’s traffic outweighs the actual revenue it’s earning.

For a site priced at just $600, 30k pageviews per month is a good chunk of traffic! You could easily swap out AdSense for Ezoic, switch to cheaper hosting, and add a shopping cart to get some incremental sales.

And that’s exactly what I did. The ecommerce sales aren’t flowing in like I’d hoped, but switching to Ezoic boosted revenue to $100/month, and migrating the hosting saved $20/month — bringing the site’s total value up to $3,300. Not bad for half a day’s work! And that’s before adding any affiliate links or improving the design.

If one were to value the site at $3,300 instead of the “standard” $216, this would represent a net profit multiple of 46x! Sounds absurd, right? Well, clearly it’s not. Because net profit multiple isn’t everything.

The fact is, a website’s true value is more than just a function of its net profit. Yet very few of the brokers or website valuation mechanisms out there are incorporating traffic and other factors into their valuations.

I think it’s time to change that.


Breaking down the value of a website

A more evolved way to value websites would be to break them down into their logical parts. Just because websites aren’t dismantled or sold this way, doesn’t mean they can’t be valued this way.

Here’s what some of the individual part valuations might look like:

Domain

Valuing domains is interesting because of the concept of relative value. A domain worth $10 to one person might be worth $10,000 to someone else. While tools like Estibot attempt to give a baseline value, at the end of the day emotion ultimately plays a far bigger role in the buying decision than it does with any other type of digital real estate.

I’ve looked at historical data of sold domains on Flippa to better understand the correlations between different domain attributes and their sale price. I’ve found some really interesting stuff.

First, check out character length:

As you can see, domains with a length under 10 characters fetch, on average, 3-7 times the price that domains over 15 characters sell for. So the market values shorter domains.

However, this is nothing compared to domain age:

Domains 1-15 years old or so sell as you’d expect. After that the price starts taking off exponentially. Age is indeed correlated with value, which makes sense given that nearly all of the short, catchy, single-word .com’s were registered before some of us were even born.

Finally, I looked at TLD:

As expected, .coms are the most valuable. This is followed by .ios — which makes sense given the high income demographics of .io buyers & sellers. Somewhat unexpectedly, .orgs & .nets are about the same, with .cos coming in last (I always disliked .cos personally) 

Site age & authority

It’s common knowledge that over time, sites gain valuable backlinks from other referring domains. These backlinks earn trust with Google, which leads to “rankability” – i.e., the relative ease at which a site’s pages can rank in search engines.. Companies like Ahrefs and SEMrush have created domain authority scores to try and assign relative values to this trust.

While it would be difficult to peg a specific dollar amount to a specific authority score, it’s certainly worth attempting. Both companies have APIs you can tap into. You could even cross-check to better understand the correlation between authority scores and multiples. Why is this not more common?

Word count

One way of determining the value of a site’s content is to look at the total number of words across all posts, and estimate the cost to reproduce them. You can find this info in WordPress, or use a tool like wordcounter.net. If a site has 100 posts at an average of 1,500 words each, then that’s 150,000 words. Assuming an average cost of 0.01 – 0.03 cents per word gives you a rough reproduction cost of $1,500 – $4,500.

Sure, this tells you nothing about article quality or rankability like you get with an authority score. But it’s still good to factor in.

Social accounts

Last month when I explored buying & selling social accounts, I came up with a very rough valuation of around $30 per 1,000 followers, or around 0.03 cents per follower.

That was exactly one day before I heard that Warner Music bought social media conglomerate IMGN Media for $85 million. This means they essentially bought 40 million social media followers for $2.12 per follower. So who knows. ?‍♂️

This world is still very new, and this topic deserves a deep, deep dive in its own right. I promise I’ll double-down on this someday and do exactly that. In the meantime, suffice to say that social media accounts have standalone value.

Email list

This world is also new, and it seems there’s only a few folks actively trying to figure out the value of an email/newsletter subscriber. One of them is Jonas from Duuce, and he and I have started to peg the value somewhere around $2.50 per subscriber per year.

This figure checks out given Substack claims an average paid conversion rate of 5-10%, but let’s be conservative and say 5%. So a newsletter that has 1,000 subscribers would have roughly 50 paid subscribers, paying an average of $50/year. This comes out to $2,500/year, or $2.50 per subscriber per year.

The big recent news in this space is Morning Brew, with its 2 million subscribers, nearing a buyout from Business Insider for $50 million, or about $25 per subscriber. (As we know, valuations shoot up when you play in the big leagues.)

“Passivity”

Time is money, and spending time on a website can cost you far more than the site itself. Kevin Jourdan from Dotmarket had a post this week that touched upon assigning value to how passive a site’s revenue is. (Warning: Kevin’s blog is entirely in French. ?? Just use Google Translate and you’re golden)

The level of organization that allows a business to run on its own has real value in the eyes of an investor. It may not be “financial”, but it matters in how he perceives and negotiates the final price.

-Kevin Jourdan

Niche

Not all categories are created equally. 50,000 monthly visitors to a site about financial markets or imported Japanese whisky is going to be more valuable than 50,000 visitors to a site about the Kardashians.

What if you knew which niches performed better than others? Or which are growing faster than others? The data is all out there. Each niche should have its own benchmark, and we shouldn’t judge a site’s performance — or net profit multiple — against a benchmark that doesn’t make sense.

Traffic

Last but not least we have traffic, sweet traffic. Man, where do I even begin…

Bringing this week’s issue back full circle, there is so much to say on this topic. But thanks to Gmail’s new clipping rules, I physically don’t have enough space to explain it all without the email getting cut off. So, a few days I’m actually going to do a special bonus issue all about this world.

This special issue will cover:

  • How to find a site’s true value based on its traffic
  • How to think about traffic composition and quality
  • The standard metrics you should know
  • Some derivatives of those standard metrics
  • Entirely new metrics I created out of thin air
  • A very special offer for current Alternative Assets subscribers.

I’m not gonna lie and I’m also not going to over-hype it. But this is very exciting. Possibly even groundbreaking. Get ready.


Other news

Swimply, the “Airbnb for private swimming pools” is booming. While platforms that let you rent out parking spaces have dropped with so many working from home, the site which lets homeowners rent out their pools by the hour, saw bookings rise 3,300% this past summer after quarantine rules were put into place.

Similar to what happened with Airbnb, it remains to be seen if courts will find tenants who rent their landlord’s swimming pools to be in breach of their lease.


Last but not least…

I have my first copycat! ?

They say imitation is the sincerest form of flattery, but this…whooboy. This is flat-out plagiarism. I’m talking word-for-word plagiarism.

Check this out:

I’ve emailed Substack and am waiting to hear back. It shouldn’t be tough to get this guy banned. He’s such an idiot too – when he copied and pasted, he actually forgot to remove one of my affiliate links. (Thanks for the $1.12, buddy!)

In the meantime, and in all seriousness, if you know this guy, or have seen him around some dark corner of the Internet, let him know he’s a jackass and we’re on to him. Let him know it’s not cool. Word travels fast, and this crap won’t fly.


How’d you like this week’s issue?

That helped me. Thanks.
Not interesting to me.

Share

Author

Stefan von Imhof

Stefan von Imhof

Stefan von Imhof is the co-founder and CEO of Alts.co.  With a background in alternative asset analysis, valuations, and due diligence, Stefan was born for this world. His alternative investing  newsletter has grown into Alts.co — the world's largest alt investing community, with over 230,000 investors. Originally from Boston and later Santa Barbara, CA, he now lives in Melbourne, Australia with his beautiful wife.

Related Posts

How the Sonic Power Scrubber went viral

The Sonic Power Scrubber became a viral sensation, translating into a ton of sales for the company behind it, ​Sonic Power​. But this was no lucky accident.

performance

WebStreet Fund 6 Review

I love under-the radar companies that are spinning off cash. WebStreet buys these companies, optimizes them, and buckets them together as an investment. It’s like micro-PE.

Recently Published

Curious about Website investing?

Get notified on undervalued, mispriced, and hidden gem websites for sale.


Join the club. Start here.

    Join thousands of subscribers.
    Absolutely spam-free.

    Curious about investing in Domains?

    Discover undervalued and hidden gem domain names for sale.


    Join the club. Start here.

      Join thousands of subscribers.
      Absolutely spam-free.