You can evaluate the value of your website by its ability to generate revenue. To do this, you need to know how much it costs to build and maintain. With that number in hand comes the Return on Investment (ROI) calculation.
While that may be the 2-cents explanation, the details can be more involved. There are also several ways you can go about doing the evaluation. Here we’ll look at ways to evaluate your website and how effective they may be.
Four ways to evaluate a website's worth
Method #1 – The Income Approach
The Income Approach to valuing websites is a method of estimating the value of a website by determining its future cash flows. You can do this by projecting revenues and expenses, then discounting the Net Present Value (NPV) of those future cash flows back to today's dollars.
What is the Income Approach?
The Income Approach is mainly for business websites (excluding publicly traded companies). You can also use it for valuing your website when there are mitigating factors against using other methods. For example, when trying to value a website with no current revenues or expenses.
1. Calculate Revenue
Calculate the revenue generated by the website. You can multiply the number of visitors by the average income per visitor or by multiplying the number of page views by the average income per page.
2. Determine Ads Spending
Determine how much money you spend on advertising. This step includes any money spent on search engine optimization (SEO), pay-per-click (PPC) ads, and other forms of advertising.
3. Minus Relevant Costs
Subtract any costs associated with generating revenue from your business. This step needs to include costs related to maintaining your website, such as server hosting fees and technical support fees, and operational costs such as salaries and employee benefits if you have employees working on your website.
4. Add Taxes
Add in any taxes you've paid on your earnings from this business endeavor. That includes income taxes and payroll taxes for employees related to the website. You’ll also need to apply sales tax or VAT depending on location.
Once you’ve done all of that, the remaining number is the approximate value of your website. As you can see, it’s a reasonably lengthy process. Because of the vast numbers likely involved, it’s also easy to make mistakes in your valuation when trying to sell your website.
Method 2 – The Market Approach
The Market Approach to valuing websites is the most common and widely used method of estimating website value. It uses the sale of similar websites in the market as an indicating benchmark. You can estimate value by comparing it to similar sites that have been sold or are currently for sale.
What is the Market Approach?
When you sell your website, the buyer can use this method to determine your site’s worth. They will look at similar sites that have sold recently and compare their features with yours. They will then use those sales figures to guide how much they should pay for your site.
The biggest problem with this approach is that there are no industry standards for valuing websites, so there can be a lot of variation between what one site might sell for compared to another.
If your site is worth more than other sites in your industry, it's probably worth more than what you paid. If not, you may want to consider other methods of valuation or perhaps even selling it outright and starting over with something new if you don't think it will ever be profitable enough to justify keeping it around.
Method 3 – The Cost Approach
The Cost Approach to valuing websites is a method that determines the value of a website based on the cost of recreating it from scratch. The Cost Approach is one of three approaches used to value websites, including market and income approaches.
When Would You Use The Cost Approach?
You can use the Cost Approach in cases where there are no comparable companies or assets to help determine the value of an asset. An appraiser will compare your website against similar sites sold. Those transactions serve as a guide for what the website is worth.
In addition, appraisers may also use their knowledge of technology trends and industry factors to estimate how much it would cost to recreate the website from scratch using modern technology and updated programming languages.
The Cost Approach works when there are no comparable companies or assets for comparative analysis. You might also use it when the website has changed so much since its last sale that comparing it with more recent sales isn’t helpful because it doesn’t reflect current market conditions well enough.
Method 4 – Website Evaluation Tools
For those reluctant to dive into the work (and cost) required for the three approaches above, there is a fourth option – website evaluation tools. Professional website brokers like Flippa generally provide these tools as a value-added service for potential customers.
Some options you might consider;
Flippa AI Tool
Flippa built this free online tool to help estimate website value (or domain value). It uses a combination of artificial intelligence, machine learning, and web scraping technology. The data collected includes the sale price, listing details (including traffic and keywords), and other relevant metrics such as domain age and backlinks.
The tool then uses this data to calculate an estimated market value for your domain name or website.
Empire Flippers Online Business Valuation Tool
The Empire Flippers Online Business Valuation Tool is a free, easy-to-use tool that allows you to evaluate the value of your online business. It uses industry-standard valuation methodologies to assess your business and give you a rough idea of what it could be worth.
Final Thoughts on Estimating the Value of Your Website
Website value estimation is something all website owners will be tempted by at varying points in their business. Even if for no other reason than curiosity. I’ve done it before – multiple times. The only thing to be cautious about is that many bad website valuation tools are available.
Some are so wildly inaccurate that you can use them just to have a good laugh about the results that come up. So choose your valuation method or tool wisely.