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Website Valuation: Why Standard Pricing for Websites Will Develop

Website Valuation: Why Standard Pricing for Websites Will Develop

The market of buying and selling developed websites is becoming more and more liquid each day. By this I mean there are number of market participants and the variety of developed websites being bought and sold is finally coming around.

Like any developing market, there is no established pricing mechanism. The common method is a "revenue multiple" something like "10 months earnings".

This is simplistic, or elementary, and cannot last as the market develops. Websites are income-producing assets and should be treated as such. I've taken my various business/finance education and experience and combined it with my years of Internet experience to take a shot at a fundamental valuation method for websites.

It is important to understand that immature markets, no matter what the product, all go through this life cycle. Basic price "guesses" or simplistic metrics are used in the beginning, and eventually some standardization occurs.

Websites, like companies, rental property, or a contract to receive a service or product, are assets with potential future income streams. The value of that asset is derived from the future income streams and not the "book value" of the asset itself.

Just a year ago it was difficult to find any true variety of hundreds of similar sites for sale in many given categories. Today this is a reality. The problem, however, is the website prices are erratic at best.

Sometimes it is very difficult to understand why site A sells for $5,000 while site B, with similar characteristics and qualities may sell for $10,000. At best you may find a variety of market participants using a simple revenue multiple models. Why? Because they are simple. Simple valuations lead to bad deals for one side (buyer or seller).

At the end of the day, a website valuation is established for one of three four reasons:

1.) Looking to sell a site

2.) Looking to buy a site

3.) A means of "measurement" for a site's performance

4.) Establishing value for the sake of additional investment

When a 'back of the envelope' website valuation technique is used to establish a website price, it can be almost certain that someone will lose in the transaction.

Knowledge is power. What side of the deal would you want to be on?


About the Author

Mike Batta
B.S., Finace - VCU


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