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How Much Is Your Website Worth? A Quick Guide to Valuation

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We all are hard at work building our businesses.

We have put in the sweat equity as well as the tears that come along with it in order to create something that is truly amazing. After a long day of hustling around the office or working frantically at your keyboard you may be wondering… what’s the ultimate goal here?

What do you really intend to for? Do you see a glowing neon sign that says the words “Exit” marking the path towards your final destination?

In the majority of companies that are in the process of selling, the objective is to eventually sell the company to an business owner who wishes to assume the reins and enjoy the gains of the deal. Unfortunately, the majority of us aren’t aware how much our company is worth and how to sell it, or if it’s sellable at all.

This is the place Empire Flippers comes in. We’ve been brokering deals for many years in the business online space and serving a relatively hungry investor group who want to acquire digital assets. Demand for profitable digital assets is growing to the point that our company was able to be on the Inc. 5000 list two consecutively and both times below the 500-mark.

We are confident that yes, there is an exit option for your company.

At the end of this article, you’ll be able to learn more about the way that online businesses are evaluated as well as what buyers are searching for and the best way to earn the most money for your content-based website Software as a Service (SaaS) or online store.

(You may have noticed that I didn’t mention”agency” in the last paragraph “agency” in the last paragraph. Digital agencies are difficult to sell, that, you should simplify your process as much as you can. Although having clients is wonderful but the other assets that are digitally accessible can be simpler to sell.)

If you’ve created an online asset that you’re trying to get rid of your portfolio, the first concern that you’re likely to ask is “This sounds fantastic, but how do I go about putting an actual price tag on what I’ve created?”

We’ll get to these answers later however, first we’ll look at why you’re in a position to be successful just as a regular reader of The Moz Blog.

What makes SEO the most effective source of traffic for digital assets?

SEO is without doubt the most appealing source of traffic for those who are considering purchasing online from businesses.

The great thing about SEO is that, once you’ve worked hard to reach the top positions, they’re able to maintain and generate visitors for months, sometimes without much maintenance. This is quite different from Pay-per-click (PPC) campaigns like Facebook ads which require constant surveillance to ensure there’s nothing unusual happening to your conversions , or to ensure that you’re not spending too much.

For those who have no prior experience in traffic generation, however wants to invest in an online business that is profitable with an SEO-powered website, it isn’t logical. You can earn while you are learning. If they purchase the asset (typically an online content site to help people who are just beginning out) They can explore adding new pieces of content that are high-quality and also learn more complex SEO techniques later on.

Anyone who is an expert at paid traffic is a fan of SEO. They may decide to purchase an online store with real potential through Facebook advertisements that are currently driving the bulk of its traffic using SEO and consider the SEO as an added bonus of the traffic paid for they’re planning to drive towards the e-commerce site.

No matter if the buyer is novice or an experienced one, SEO as a traffic strategy offers one of the largest potential appeals of all strategy for traffic. Although SEO doesn’t improve the value of a company in all cases but it is a great way to attract buyers than other kinds of traffic.

Now, let’s get right down to how much your company is worth.

What is the way that online businesses are evaluated?

What is the value of businesses? It’s an issue we frequently receive at our firm that we have created an automated tool for valuation that provides a no-cost estimate of your company’s worth that our clients can use to evaluate their various projects.

At the core of every valuation is a simple formula:

Look at your 12-month rolling net profit and multiplied by a multiple. A typical multiple is between 20 and 50 times the average of the 12 month net profit for successful, healthy online companies. When you reach 50x, you need to demonstrate that your company is growing in a significant way from month to month, and also the business is legitimate (something we’ll discuss further in the article).

There are brokers with a 2x or 3x EBITDA that is the earnings prior to interest taxes depreciation, amortization, and interest.

If you’re looking at this formula you’ll notice that they’re using an annual multiple, while in Empire Flippers we use a monthly multiple. There’s little distinction between these two methods; it mostly is based on personal preference and preference, however if you’re new to purchasing and selling online businesses it’s important to understand the different ways brokers price their businesses.

We like the monthly average since it provides a more detailed overview of the market and how it’s performing.

As you can alter Google SERPs using SEO knowledge as well, you can alter the formula to get more value, in the event that you are aware of what you’re measuring.

How to get the needles to your advantage

There are many options to increase the number of times you’re able to. It all comes to basic common sense and placing yourself in the shoes of the buyer.

An important question to askis “Would I ever consider buying my company? Why? Why is that?”

This exercise could make you think about changing the way you conduct your company for the better.

The two main areas that influence the multiple are related to the actual net profit as well as how long the company has been earning money.

Net profit on average

The greater your average gross profit is, the greater your multiple is likely to be due to it being an asset that is more cash-flowing. It’s logical to think about different ways to increase your net profit and reduce the total cost of your expenses.

Each digital item is a bit different in the place their costs come from. Content sites’ creation costs usually comprise the biggest portion of the expenses. When you are nearing the point for sale, it’s possible that you may need to reduce the size of the content you create. In other instances it may be beneficial to switch to an agency system that allows you to scale or cut down on your content costs in the future, rather than employing in-house writers on the payroll.

There are additional expenses may be applied to the company, but aren’t “needed” in operating the business, also known as add-backs.

Add-backs

Add-backs are when you add specific expenses to the net profits. These are expenses that may have been charged to the business account , but aren’t important to the running of your business.

It could be meals, drinks, or vacations that are put on the company account, and occasionally business events. For instance, attending an event about marketing via email might not be considered to be a “required” expense to running the health content website and an event that deals with sourcing such as that of the Canton Fair would be a difficult one to justify in the context of running an online store.

Other items, like SEO tools that you use on a regular basis are likely to be added to the company. A majority of people will not require them on a constant basis to run and grow their businesses. They may sign up one month at a time, receive all the information on keywords they require for a few days but then cancel and return to conduct more keyword study.

A majority of your costs won’t be add-backs, however it’s good to be aware of these since they will boost the final sales value of your company.

If you don’t want to cut costs, when should you?

Although there’s plenty of fat that you can eliminate out of your business however, you have to be prudent about cutting it. The elimination of certain things can increase the overall net profit but it can also reduce the attractiveness of your company.

The most common thing we’ve seen in the realm of e-commerce is the rise of solopreneurs who pack and deliver everything by themselves to their customers. They believe they’re saving money by doing the work themselves. Although this could be the case, it’s not the most appealing option to the buyer.

It’s more appealing to pay for an external service that will store and ship your product to you when orders are received. Since many buyers are traveling around the world with their online businesses. To force them to settle in order to be able to deliver their products instead of spending time on the beaches in Bali for a couple of months in winter isn’t an easy task.

When you are selling a business and you’re selling a business, you shouldn’t think only about the cost and how simple to connect and run the company for a potential buyer.

Even if the processes you develop to accomplish which add additional costs for example, such as hiring a third party manage fulfillment, they’re usually more than worthwhile to keep since they can make your business appear more appealing to prospective customers.

History’s length

The more historical data you are able to provide, the more attractive your business will appear, so long as it’s an unchanging profit as well as showing upward trends.

If your business is moving upwards the greater the number of shares you’ll get.

Although you’re not able to make much progress in prolonging the history of your business but you can be prepared to sell your business by investing money in the necessary things early in your business. For instance, if you think your website is in need of major overhaul, and you’re only 24 months away of selling, it’s better to begin the big overhaul now, rather than later in the 12-month period that the business is valued on.

The ability to show growth year-over-year is helpful in obtaining a higher number of customers, as it indicates your business is able to withstand any challenges that arise. The ability to weather the challenges of business is particularly important for a company which’s primary source of traffic is Google organic. This indicates that the website has performed well in SEO by being able to withstand several major updates over several years.

However the other hand, a business that is trending downward will likely to be sold at an even higher multiple that is likely to be around 12-18x. A business that is struggling can still be sold, however. There are buyers who prefer distressed assets due to the fact that they can purchase them at huge discounts and usually possess the skills to repair the property.

It’s all you need to do is be willing to accept an offer that is lower due to the drop as well as the fact that the buyers pool on distressed assets is lower it is likely that you’ll be in a more lengthy sales cycle before you find someone who is willing to buy the asset.

Other factors that can lead to a higher number

While the length and profit of time are the two most important aspects, there are many other elements that could add up to an increase of a significant amount in your multiple as well as your final value.

There’s a lot of control over a lot of them, which is why you should maximize them the amount of control you have in the period of 12-24 months when you’re making your online business ready to sell.

1. Limit the critical points of failure

Critical points of failure can be anything in your company that could cause a complete deal breaker. It’s not uncommon to sell an enterprise that has one or two critical factors however, you must attempt to reduce this to the extent that you can.

A good example of a crucial failing point could be when the majorityof the traffic to your website is pure Google-organic. If your site is penalized as a result of an Google algorithm upgrade, the site could end the entire revenues and traffic in just a few hours.

Also, if your site is an Amazon affiliate and Amazon suddenly alters its Terms of Service for affiliates, they might be suspended for reasons you don’t know about or aren’t able to react to, resulting in an extremely popular website which makes no money.

In the world of e-commerce there are situations in which the business owner has only one vendor who can produce their product. What happens if this supplier is looking to raise the cost or go out of business?

It’s worthwhile to diversify your sources of traffic and have multiple monetization strategies for a website that is content-based and also consider the possibility of having backup vendors for your e-commerce items.

Every business has a degree of weakness. Your job is to reduce the weaknesses to the extent feasible to extract the maximum profit from your business to a prospective buyer.

2. A lot of traffic

The higher traffic levels tend to correlate with higher revenues and, in turn, boost your net profit. It’s a given but high traffic may also be an added benefit to your multi-priced in addition to helping you create the most profitable net profits.

A lot of buyers are looking for companies that can be optimized to the maximum at each stage of the funnel. If you’re able to attract a large number of customers and you offer the site a lot of space to play around with various ways to optimize conversion rates, like expanding the options for email, or creating a better abandoned cart sequence or altering the different calls to actions on your site.

While some sellers may be great in driving traffic, they may not be the most effective expert in copywriting or CRO generally and this is where the chance lies in the hands of the perfect buyer, who could be able to boost conversions through their personal copywriting or CRO skills.

3. Email subscribers

It’s becoming a cliché on the Internet marketing industry to claim that “the money is in the list.” Email has frequently been one of the most important sources of business revenue However, there’s a bizarre model we’ve found when we’ve sold hundreds of internet companies.

The idea of telling someone to utilize to join an email group is like telling people to exercise It’s a matter of agreement that it’s good and that they should follow it however, they usually aren’t doing anything about it. Some have an email list since they know its value however, they don’t use it for anything else.

The result is that email lists end up being unreliable as to how they add worth to your company’s value.

If you can demonstrate that the email list is bringing value to your company and your email list is generating value, then it could increase the value of your business overall. If you employ effective sequences of email automation to boost your customers and regularly update your list with offers or pieces of top-quality content the list is of real value with it. It will be evident in your ultimate value.

4. Social media following

Social media is becoming increasingly significant as time passes However, it can be a very unpredictable beast.

It is best to think of your social media followers as an “soft” email list. The impact for your online account in comparison to your email list will be less particularly as organic social reach continues to decrease on the larger social networks like Facebook. Additionally that you don’t control the platform that your following is built on and it is able to be removed from your account at any time for reasons beyond your control.

It’s also too easy to fake followers and to get likes.

However, if you’re able to go through all of that and show that your social followers and promotion on social media are driving sales and traffic for your company this will surely aid in increasing your sales multiple.

5. What are the product offerings you offer

Making everything from one product can be quite risky.

What happens if this product is discontinued? Or is it removed from the market?

When you’re operating an online store or a site which is monetizing affiliate links, it’s important to offer a variety of products available.

If you’ve got several items which are earning you money from your website, potential buyers will see your business more attractive and will appreciate it more as there is no risk of being hurt by a significant amount when some of the “flavors of the month” disappears from your site.

6. Hours required

Keep in mind that many buyers aren’t seeking a new job. They are looking for a leveraged, cash-flowing investment that they can easily increase the size of.

Although it’s fine to work 40-50hours a week for a business that’s truly unique however, it can narrow your buyer base and make the company less appealing. In reality, the majority these digital resources we create do not require this level of work from the company’s owner.

We typically find that there are lots of opportunities for improvement that sellers can take advantage of to reduce their weekly hours allocated to the company. We suggest that anyone who is considering selling their business to first think about ways they can reduce their involvement.

The three most efficient ways to reduce the amount of time are:

  • Systems:Automating all aspects of your business’s operations as you can
  • The process of forming a teamThe greatest wins we’ve seen are typically in the area of content creation and customer service operations as well as employing a marketing company to do most of the work for you. Although these costs lower the net profit per capita however, they can also make your business more appealing.
  • Create Standard Operating Procedures (SOPs):SOPs should define the whole process for the specific task of the company and be sufficient to ensure that, when you gave them to someone else, they would perform the task at 80% as well as you.

It is essential to be in a position that you’re working on your business, not IN.

7. Dig a deeper moat

Here at Empire Flippers, we’re always asking clients if they’ve created a moat that is deep enough around their company. A strong moat will mean that your company is difficult to copy. Copycats can’t purchase a domain and hosting and replicate your business in the afternoon.

Drop-shipping stores that is copied within a day will not look as appealing than one that has built an actual following and community that is centered around their brand even if they offer similar items.

This becomes more crucial as your company valuation increases to the multi-figure six-figure and seven-figure valuations since buyers are seeking to purchase an actual brand in the present and not just an individual site.

Here are a few steps that you can undertake to increase the depth of the moat:

  • Find a niche and control the market through your name (a woodworking site could focus on specifically benches, for instance by hiring skilled craftsmen to write articles on the topic).
  • Find your own products and make your products unique, not an identical “me too” product.
  • Discuss special terms with your suppliers or managers of affiliates. If you’ve had success sending traffic to an affiliate program and you’re not sure how to do it, send an email to the affiliate manager asking for a raise and they’ll be happy to provide the request. Also, if you’re doing excellent business with an online drop-shipping company They may be willing to signing an exclusivity contract with you. Check to see if the terms of exclusivity are transferable to the buyer.

The more difficult it is to duplicate your design the greater the number of copies you’ll earn.

However, why would you want to sell your online business in the first instance?

You’re now fully-equipped of how to boost your business’s value in the end however, why would you even consider selling it?

The reasons are numerous and diverse — too many to include in this blog. But there are a few common themes you can identify with.

Here are some business reasons to sell companies:

  • In the process of starting a new business, or deciding to concentrate on projects that are currently ongoing
  • In search of capital to help them move to become more efficient (and profitable) market
  • In the absence of any motivation to run the company, they are now looking to dispose of the assets prior to it revealing the lack of interest in them in the business through declining revenue
  • Are you looking to cash out the company to invest in other investments such as stocks, real estate bonds, stocks, etc.

In the same way that there are plenty of reasons for selling a business but there are also many personal reasons to sell their businesses:

  • Getting a divorce
  • The purchase of a house in their household (selling just one asset could be a substantial down payment to purchase a home or even the whole house)
  • Being diagnosed with medical problems
  • Other motives: We had one vendor on our market, whose motive to sell the business was in order to earn enough funds to adopt an infant.

If you are able to collect 20 to 50 months of net income immediately it allows you to perform a number of tasks that weren’t possible before.

If you have a six-figure or even seven-figure war bank and you’re able to outspend the rest of the market, fund infrastructure and teams that you could not previously, and generally get your next business or project idea faster and without needing to worry about whether the latest Google update will hurt your profits or cause an unexpected market shift.

That raises to ask…

When is the best time to sell?

In truth, it all is dependent on.

It is more an art rather than an actual science.

As a general rule You should consider asking yourself if you’re excited about the amount of cash you’ll make through the selling of the online company you own.

It is possible to use our valuation tool to obtain an estimate of the ballpark or perform some back-of-the-napkin calculations of the value you’re likely get for your business by using the simple multiple formula I explained. I like to stay cautious with my estimates, which means the napkin math could be based on your average 12-month net profit and multiplying it by a number of 25x.

Does this number cause you to pause? Does it make you think?

If so, you may want to begin thinking about whether you are willing to sell your business in order to concentrate on other matters. Be sure to decide on the MINIMUM sale price that you’re prepared to leave your business at a price which would make you feel satisfied if you go through the process.

The majority users Internet marketers are constantly doing multiple projects simultaneously. Unfortunately, some projects do not get the attention they deserve or receive from us.

Instead of letting these projects fade away to the side, think about the possibility of selling your business online rather than to the eager market of investors that is beginning to flood the digital world.

Selling a business, no matter whether it’s a side-project that’s coming to an end it will be a tense process. If you’re ready to pull the trigger and sell your business, we’ll assist you all the process.

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