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Web based Business valuation

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If you want to determine the value of your web based business or you want to buy an online business, you will often have a daunting and very challenging task. While classical methods such as income-based, market-based, and asset-based valuations can be applied in finding out the value of an online business, it may be difficult to calculate the overall value of a web business, since a lot more factors have to be taken into consideration.

Still, you can’t abandon solid business principles when trying to establish the value of an online business. As any other business, an online business is also subject to the same profit and revenue laws, so you have to consider the standard income and balance sheet numbers when calculating an online businesses value.

But there are also some typical online aspects you have to consider, such as traffic, search engine rankings, databases of customers, affiliate networks, and advertising sell through rates.

When trying to value your online business, you should always get a professional’s advice, since there are no exact formulas to get you the result you want; still, here are a few guidelines to help you get the big picture and put a value on your online based business. You can also use this technique to estimate the value of an e-business you want to buy, or learn to value your own Internet business.

 

Identify the revenue model

Not all online businesses have the same revenue models. An online business may be an online shop or a content website and it can generate revenue from more sources such as donations, subscriptions, advertising, services, lead generation, and of course selling products. Identifying the revenue model will tell you where the money comes from and help you evaluate the overall value of the business.

 

Calculate the 12 month revenues

You can appreciate the value of online businesses by calculating the last year’s income and then use a multiple of the Trailing Twelve Month (TTM) revenues. The multiply factor should be 3 or 6 according to the revenue model the website uses; if the business is an e-commerce website you can multiply the 12-month trailing revenues by 3 and if it’s a content website you can multiply the year’s revenue by 6. This is the approximate value of the company, and it may give you a figure to start with, just to have an idea about the value of your own website or the value of the website you are trying to buy.

This method of calculation is based on median valuations for a sample of web transactions, which means more sites are sold near this valuation. This does not mean the method can actually point out to the exact value of a website; keep in mind that prices may vary based on the type of audience, the traffic and the nature of a site’s activity, as well as a number of other factors.

Tagged in: 12 month revenues Business valuation revenue model Web based Business