It’s no secret that people who build and run their e-businesses work incredibly hard. While each business has its own unique day to gay goals, message, and practices, many entrepreneurs share a similar goal: eventually selling their business. But what is this process like? And how can the monetary value of a business even be figured out? If you have website valuation questions, read on.
Figuring Out Website Valuation
Many business owners share the goal of eventually selling that business to another entrepreneur who will take over and allow them to sit back and enjoy the fruits of the sale, but that in itself is a complicated topic.
After all, how does one go about selling their business in the first place? Who do they sell it to? What is its worth? How can they even assign an exact dollar sign number to something so dynamic and complex?
If you feel lost making these decisions, our easy guide to website valuation can help.
The Importance of SEO traffic
If you are looking to attract a buyer, then SEO is key. In fact, SEO is the most important traffic source for people who are looking to purchase online businesses.
This is because once you have put in the work to achieve rankings, these rankings can enable you to maintain and bring in traffic for months without constant attention and upkeep.
This is not the case with other strategies, such as using pay-per-click (PPC) campaigns. An example of these is Facebook ads, which require careful daily work maintain.
Someone who has no experience when it comes to generating traffic but wants to buy a successful online business would almost definitely look for an SEO-fueled website to start.
This allows them to purchase a profitable online asset, usually a content business of some kind. This gives them some time to experiment with content while they build a foundational understanding of SEO which they can build upon as the business grows.
However, whether the buyer is new to the world of online business or more experienced, SEO is a traffic strategy with a broad appeal that can only help your business seem more attractive to buyers.
Website Valuation: Where Does Your Business Stand?
Answering the question of what exactly your business is worth may seem impossible, but there are actually concrete ways to figure it out. It can look like this:
12 Month Average Net Profit X 20-50 Multiple
Figuring Out Your Multiple
This multiple can range between 20-50x of the 12-month average net profit. This is a broad range and where a business falls on it is a complex question to answer.
The closer you get to 50x, the more you have to be able to prove that your business is undergoing massive month to month growth and is valuable for a range of reasons.
There are different formulas that different brokers use and you can gauge your business with. All work well and the one opted for is a matter of preference.
Make Your Website and Irresistible Investment Opportunity
Obviously, all business owners want their multiple to be as close to 50 as possible, which means that they will make the most off the sale. However, the question of what makes a business worth more can be difficult and complex to answer. There are many factors at play. These include:
- Average Net Profit
- Smart Spending
- A Long History
- Consistent Growth
You have to take a step back from your business and look at it through the eyes of a potential buyer. What makes your business a valuable asset? While it seems obvious that the more your business makes, the more it has consistently grown, and the longer it has been around the more it would be worth, there are many subtle factors that entrepreneurs in the thick of their own companies, which they built from the ground up, do not often consider.
Don’t Be Afraid to Outsource
Many entrepreneurs attempt to spend as little as they can for the largest return, however, when trying to sell a business, not every approach to this will get the best results.
While knowing when to cut back excess is key to running a business, and cutting back can improve a business’s overall net profit, cutting back in the wrong places can also make your business less attractive to buyers.
In the early stages of a business, many e-entrepreneurs do everything themselves, from marketing to customer service to organization to packaging and shipping.
The DIY Dilemma
Sometimes they even create the products they are selling themselves. While this is a fine place to start, as a business grows, taking on all these tasks alone is highly time-consuming, stressful, and not sustainable.
Even if it saves money and leads to a higher profit margin, many buyers would not want to purchase a business that functions in this way.
They are looking for a solid investment and not a stressful full-time job. They want to be able to easily and smoothly integrate themselves and their people into what you have built. In order to make a successful sale, entrepreneurs must be mindful of this.
Reduce Critical Points of Failure
While “critical points of failure” sounds like something particularly scary to be avoided at all costs, they are actually a part of all businesses, regardless of size. Every business has both its strengths and weaknesses. However, businesses with too many weaknesses, or critical points of failure, often struggle and can prove to be hard to sell.
One very common critical point of failure is the failure to diversify in too many areas. Selling only one product, relying on only one social media network, having only one supplier, or having one monetization strategy gives your business a huge Achilles heel.
For example, say you have had a large amount of success in marketing and selling a product. Only one supplier can make it. If they jack up their prices, discontinue the product, or close their doors entirely, and you have no other streams of revenue, your business is suddenly in jeopardy.
Likewise, if an entrepreneur and content creator relies solely on YouTube ad revenue, and YouTube suddenly demonetizes them, they are in hot water.
The Many Factors of Website Valuation
What a website is worth is a complex question where many things come into play. It includes factors like:
- Site traffic
- The sources of that traffic
- The number of email subscribers
- Genuine social media following
- Web community engagement
- Products from different sources
- How many hours it requires from who runs it
- How difficult it would be for someone else to copy it or integrate into the flow of it
Every business has its strengths and weaknesses, but making those strengths appeal to a buyer is a whole different game.
Do you know where your website stands in terms of website valuation?