The website valuation framework considers two methods: factors that increase and decrease the sale price. Try this accurate website worth calculator.
Understanding the website valuation process is critical when buying or selling a profit-generating website or any online business. Valuations have two levers: (1) the average profit and (2) the monthly multiplier.
Determining the monthly multiplier is more of an “art” than “science” in the niche website industry. I aim to clarify how I determine the monthly earnings multiplier using a semi-systematic approach.
As a quick calculation, the value of a website is between 35 to 45 times your monthly average profit. For example, if your site makes an average profit of $1,000 monthly, you can sell it for $35,000 to $45,000.
This valuation guide discusses two approaches to valuing websites: factors that raise or lower valuations and frequently asked questions. It is important to note that this framework is applicable to websites that generate an average of more than $50 per month, and is not intended for beginner niche sites.
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How Much Is My Website Worth? 2 Valuation Methods
There are two methods for valuing a niche content site:
The Basic Formula for Valuing Niche Content Websites
The basic formula that most brokers use in the content website industry is the following:
Last-6-month’s profit (L6M) x Monthly Multiple (MM) = Website Valuation ($)
Here is a definition of the terms:
- L6M: This represents the last 6 months of average profit. Profit is defined as revenue minus operating expenses, which includes hosting fees, domain fees, must-have subscriptions, and content costs to keep the site operational.
- MM: This is the monthly multiple determined by the industry-based on-site quality, site assets, industry trends, and more.
In this equation, the two levers are the L6M average and the monthly multiple. The one that is in the seller’s control is the L6M profit average.
Note: if you are buying or selling a seasonal website, you must use a last-12-month (L12M) average to capture the ups and downs.
Other Valuation Method: Cost Approach
The real estate industry utilizes an alternative method called the cost approach to determine valuations. In this approach, the appraiser determines the value of the asset by considering the cost it would take to rebuild the asset from the ground up in the present day.
To understand the raw cost of a content website. This approach takes into account the following for niche sites:
- Site age
- Amount of articles and word count
- Formatting costs of content
- Number of backlinks
- Site buildout costs
Valuing organic traffic is not possible when employing a cost approach for content websites. While it is theoretically feasible to construct another property in the same vicinity and generate equivalent rental income in the real estate sector, the same cannot be done with websites to attain immediate organic traffic. The scarcity of search engine results pages (SERPs) and the unequal creation of websites contribute to this challenge.
Takeaway: The website investing industry does not use the cost approach to value a profit-generating website. However, it can be used to understand the raw value.
How To Calculate A Website’s Profit and Loss (P&L)
To calculate a website’s profit, you must consider all revenues and operational costs. I like organizing data into a standardized spreadsheet for all the sites I buy and sell. Here is the one I use:
Any revenue generated via passive sources, e.g., Amazon Associates, Ezoic, Mediavine, AdThrive, affiliate networks, and lead generation, can be added to the P&L as-is.
For other sources, primarily sponsored posts, where you obtain revenue for allowing other sites to write a guest post or obtain a backlink from your site, those get discounted 50%. This is because (1) this dilutes the site’s authority, and (2) it’s not passive since there are back-and-forth negotiations and formatting that need to be done.
Determining Operational Costs
These are the costs that should be added to the P&L:
- Domain renewal fees amortized
- Monthly hosting fees
- Email service provider subscription fees
- Social media tool fees
- Content needed for maintenance
- And any other fees that are necessary for the site to operate
Capital Costs vs Operating Costs for Niche Sites
Capital expenditures include costs incurred for growing the site. Operating expenditures include costs to operate/maintain the site.
Often, niche website builders invest heavily upfront to grow a site. When I invest in a website, I sometimes spend 2-3x of the monthly revenues from the site out of pocket to grow the asset further. This can last for 6+ months.
These growth costs are NOT required for the website’s day-to-day operations but only for growth. These costs should NOT be included in the P&L. Only the costs associated with maintenance should be included.
The most significant cost is usually content investments. A typical niche website requires approximately 3-5 articles a month to maintain its freshness at a bare minimum. However, you may invest 50-100 monthly articles during growth. Do not include those costs in the P&L.
Monthly profit is calculated as all the revenues minus the operational expenses in a specific month. This is done for all months in the P&L.
Takeaways: Keep growth costs and operating costs separate when calculating profits. A site’s valuation should not decrease because there were investments in its growth.
Estimating The Monthly Multiple When Determining Website Value
Each website buyer and broker will have a different stance on a fair market multiple for a business.
I like to follow a more standardized process to determine the multiple. This includes using a base monthly multiple and then adjustments for different aspects of the business.
Setting the Base Monthly Multiplier: 35x as of Q4 2022
The monthly base considers the industry and what other sites have sold for and assumes the site is performing well. The baseline assumes no issues with the website (i.e., no toxic backlinks, downtrend, etc).
By examining market listings provided by brokers, private sellers, and others, you can assess the monthly multiple. This initial multiplier can then be modified to suit specific situations. It is important to consider that this multiple is calculated based on the final closing price of the transaction. While some brokers may artificially inflate multiples, the true market multiple is determined through negotiations.
Takeaways: Currently, the multiple is 35X, or in other words, 35 times the monthly average profit.
How much is my website worth? – 5 Factors That Cause Monthly Multiple To Increase
Each website has factors that cause it to be valued higher than others. These incremental factors are adjustments to the base monthly multiplier, which can be uncovered during the due diligence phase and factored into your final sale multiple.
Note: In these factors, I will not state how much the multiple should increase because there are many moving pieces and assumptions to be made. I aim to state what can increase the multiplier so that you are aware as a buyer or seller.
1. Domain’s “Indexed” Age
Domain age has two factors: when it was registered and when the site’s content has been live. Many domains get registered but sit idle. The age we are looking for is how long the website with content has been live and indexed in Google.
You can find this information usually by looking at the oldest content’s published date through the sitemap. Or, you can ask the seller when was the first article published on the site.
An aged website has a higher value. This theory has a few factors:
- A site that’s indexed for longer has had a long time to obtain natural backlinks, thus more authority
- A site that’s aged has gone through more Google algorithmic updates
- A site that’s aged has a longer history of revenue generation
I am personally willing to pay a premium to acquire a site that has been live than a newer site.
Takeaways: Generally, the higher the domain’s “indexed” age, the less risky it is. This warrants a higher multiple when buying or selling such a site.
2. High-Quality Backlinks
In line with the domain age is also high-quality backlinks. I value sites higher if any of the following are true:
- Does the website have editorial backlinks (e.g., NY Times, Forbes, CNN)?
- Does the website have niche-relevant backlinks from high-traffic sites?
Note that I am not referring to blog comment backlinks; I mean contextual backlinks within the content of these authority sites.
Such backlinks provide a “moat” around your website, allowing you to rank for keywords more easily, survive Google updates in the long term, and reduce the effort you need to put into building new backlinks.
Valuations calculations value a website on just profit alone. This forces an aged site with quality backlinks to be valued similarly to a brand-new site with the same last-6-month average profit.
In my opinion, this is wrong.
Takeaways: Quality backlink profile merits a higher multiple. How much is debatable. You can analyze each referring domain and place a monetary value on each high-authority backlink.
3. Upward Traffic and Revenue Trend
An upward trend is a positive sign for a buyer when buying a site. Usually, an upward trend in traffic also correlates to an upward trend in revenues.
When evaluating a site on an upward trend, the L6M average profit is depressed due to the earlier months being lower in profit than the most recent months (e.g., in the 1st month, the site was earning $500, and last month, the site was earning $1,000).
However, as a buyer, they will reap the benefits of the higher profit months in the future. As a seller, to compensate for this, the multiple can be increased.
Buyers get a good deal when buying a site on an uptrend. To compensate for this on the valuation, the multiple can be increased.
Takeaways: As a seller, an upward trending site warrants a higher multiple as it’s easy to justify the growth trajectory. As a buyer, you can feel more comfortable paying a higher multiple since, going forward the site will earn higher than the average profit.
4. Diversified Traffic Sources
Diversified traffic is nice to have. However, that traffic needs to bring in revenue. A higher multiple is warranted if the revenues can be tied back to traffic sources. The site is less dependent on one traffic source to generate revenue.
The multiplier increase based on diversified traffic sources depends. If a site receives a large portion of traffic (e.g., 50%) from 2-3 sources (e.g., Pinterest, email marketing), then that warrants a higher multiplier increase than just one extra source at 10% of the traffic.
Takeaways: Diversified traffic leading to revenues deserves a multiplier increase. The better the diversification, the higher the multiplier increase.
5. Diversified Revenue Streams
A site that has multiple revenue streams warrants a higher multiple. A site that has its digital products obtaining sales deserves a higher multiple.
A site monetized with Amazon Associates and display ads does not deserve a higher multiple than the baseline. In 2021, this monetization strategy has become the norm.
However, if the site monetizes with Amazon Associates, display ads, and digital products, then that warrants a higher multiple.
Here are the revenue streams that deserve a higher multiple if already implemented:
- Digital products
- Affiliate programs
- Lead generation
- Direct brand advertising
Takeaways: The more diversified a site is in revenue streams, the higher the multiple should be.
How much is my website worth? – 4 Factors That Cause Monthly Multiple To Decrease
Similar to the factors that increase valuations, some factors decrease valuations. Again, I will list out the concepts and provide thoughts on adjustments. There is no exact answer to how multiples are adjusted based on these factors.
1. Downward Traffic Trend
The notorious downward traffic trend is why sites get a lower multiple. Traffic is the biggest factor contributing to revenue for niche affiliate sites. A downtrend in traffic is usually a downtrend in revenues.
As a rule of thumb, I’ve seen downward trending sites receive a 5x to 7x reduction from the baseline multiple.
Takeaways: Reduction in traffic is the #1 factor leading to a reduction in valuations.
2. Toxic Backlinks and Private Blog Networks (PBNs)
Low-quality backlinks, specifically toxic links (i.e., adult, foreign, casino links) or PBN links, are a major red flag for many buyers. Thus, this results in multiples being lowered significantly or buyers just walking away.
I do not buy sites with PBN backlinks, regardless of the multiple.
A 5-10x reduction in the multiple should be experienced if PBN links are found. That puts the valuation at 25x to 30x.
3. Single Traffic Sources
Most niche sites for sale have a primary traffic source, bringing in 80% or more traffic. This is the norm. However, this is risky. Your asset is worth much less if that traffic source gets impacted (i.e., Google algorithm updates).
However, the industry does not penalize sites with single dominant traffic sources.
Single traffic sources are risky. The industry still values such sites at the baseline multiple of 35X, though.
4. Single Revenue Sources
Many website buyers purchase Amazon Affiliate sites as their gateway into the world of website flipping. These are usually single revenue source sites, which are risky. A reduction in commissions by Amazon can reduce your valuations overnight.
While risky, having a single revenue source does not impact the baseline multiple.
2 Factors that DO NOT Impact Monthly Multiple
For a profit-generating niche site, some factors do not impact the monthly multiple and, consequently, the website valuation. Here they are:
1. Total Word Count and Articles
The total word count or the number of articles on the site does not impact the multiple. Since valuations are based on profits, it does not matter if 50 articles bring in that profit or 500 articles.
The buyer should not have to pay a premium for excessive content on the site if those articles are not performing well. Performance is a key metric in valuations.
2. Website Framework and Design
A site designed with a fast technology stack (e.g., VPS Hosting, GeneratePress, WP Rocket) vs a potentially slower stack (e.g., page builders) does not warrant a change in multiples.
Again, profits are key. If profit can be generated from a site with a slower tech stack, that warrants the exact multiple.
Frequently Asked Questions about Website Valuations
How do I value sites earning less than $50 per month profit?
Valuating sites that earn less than $50/mo cannot be done using the traditional method outlined in this article.
The reason behind this is that these smaller websites are considered as entry-level platforms where, in this instance, the expenses associated with content and site development surpass the valuations determined by the standard multiple. To illustrate, a website generating an average of $50 per month would be valued at $1,750 using a base multiple of 35X. However, it might contain over 100,000 words of content that the buyer paid $5,000 or higher for.
To value such a site, you need to use a cost-based approach outlined in this write-up on how to value starter sites.
How do I value starter niche sites with no revenue?
The most suitable way to determine the value of starter sites without any revenue is by employing a cost-based valuation methodology. This method involves evaluating the worth of individual elements such as content, website design, and formatting, and then combining them to establish an overall valuation.
What multiple do websites sell for?
The existing valuation multiple for a content website stands at 35 times your average monthly profit. This means that the value is determined by multiplying your monthly average profit by 35. However, these multiples can fluctuate depending on factors such as the assets included, historical performance, and domain metrics.
How do I value a website during and after a Google Core update?
Google does period Core updates. Most recently, the helpful content update has greatly impacted many content sites. These updates benefit some and are detrimental to other niche website owners. If you want to buy a website during or after a Google Core update, you must be extra careful.
When a website experiences a negative impact such as a decrease in traffic, there will also be a decline in revenue. Traditional valuation methods that rely on a 6-month average are not applicable in this case. If you are considering buying the website, it is recommended to use a 1-month average, taking into account the most recent decrease in traffic. Using a longer time period would not be suitable as it would not accurately reflect the drop in traffic and revenue.
If a website has been positively impacted, as a website buyer, that is a good sign and more reasons to acquire.
How Much Is My Website Worth – Practice Valuing Websites!
Understanding the value of your portfolio of websites or one that you are looking to buy is a critical skill to master. When buying, you never want to overpay for a website and later regret it. When selling, you never want to sell for lower than the true value of your business.
There are two ways to continue developing this skill:
- Review public sites for sale on broker marketplaces and reverse engineer how they got to that valuation. Make a bullet list of notes and what valuation you would place if you disagree with their numbers.
- Maintain active P&Ls for all of your sites. This ensures you practice keeping track of the important metrics. You can then use the numbers to practice valuations of your sites (of course, try to be unbiased).