Thrudigital

In this article I am going to hit back against those who offer website appraisals, and I’ll also explain how to appraise a website yourself. Why? Because nowadays website appraisals are more a business than a service. Consider this: how often is a website sold, and how many companies offer you an appraisal? There is a visible inbalance between supply and demand! For instance, I could appraise your website without using the well-known formula that a website’s worth is approximately twenty times its net monthly income.

What is wrong with companies that offer appraisal services?
First, in many cases they’re not even companies! I’ll bet that 95% of websites claiming to be companies are just individuals living in their parents’ house and masquerading as successful businessmen. Secondly, it is a big misunderstanding that someone can appraise a website without having spent at least 3-4 years in the business. When you consider someone, make sure you check the whois data. Also, it is prudent to check the testimonials. Often, they’ll either be missing or fake. A trustworthy testimonial is a testimonial which contains the names of both buyer and seller, contains dates and a mention on some third party’s website. Evidence of a successful sale is also required. Third, how can anyone appraise a site without being an expert in the field? For example, there are thousands of websites devoted to this and that. Say, for example, that you’re an expert bodybuilder, that you spent 10 years studying, training, testing. Then you put the weight of that experience into the website and it earns (in this example, the method of monetisation is irrelevant). All the information is based on your life and your skills, thus the value is considerably higher than 20x net monthly income, isn’t it? In addition, if you were to add more content and features to the website, how can it be worth only 20x of net monthly income?

Okay, now assume the opposite: your website has no useful content, no extra features, and pathetic traffic. It earns perhaps £50-100 per month. Now, why should someone pay twenty times net monthly income if the website needs serious improvement and investment? I’d rather build a website from scratch than pay someone for crap.

So, the concept of paying 20x net monthly income is completely incorrect. If you need an example, let’s imagine this: one of my websites does earn £1000 per month (this is the average based on the last 12 months’ data). If I sell it to you for £20,000, then I’d be earning 20 months’ income at once. And then nothing. In total: one year, eight months, or less than 2 years! All websites require at least minimal maintenance, so spending perhaps an hour a day is worth £1000 per month, isn’t it? But, it isn’t worth losing such a lucrative source of income.

So how to appraise a website properly?
One must pay attention to the potential, previous growth, trends, popularity, usefulness, and current status. So, if a website is 36 months old, and in the past 12 months has earned £1000/month, and if traffic trends look promising, then the website is worth at least £60,000, perhaps £70,000, or even more. How did I arrive at that value? It’s very simple: when you invest in content, ROI should be somewhere between 1 and 3 years. This means that sometime in the last three years, the seller put in enough effort to achieve £1000/month. This means high expenses (in comparison to what people expect from web; low investments and high income). All in all, the seller could have spent between £10,000 and £36,000 during these 36 months. But what if they didn’t spend a penny? Then it’s all about experience, and experience costs something too. If you want to learn something, then you need time, patience, and often money. Would you sell a website for £20,000 if you knew that it cost you between £10,000 and £36,000 to get it to its current state? So again, how £60,000? Add £20,000 (net earnings in 20 months) and add the value of your effort. If trends are promising (and they should be if they managed to earn £1000/month in the 24-36 months after startup), then add another £500/month net income for the next 20 months. That’s £12,000. In total, then, that’s £32000. Please understand that if any website earns £1000/month after 36 months, then there is a great deal of potential to earn much more as time goes by. This must be considered when appraising a website. Now simply calculate the work which has been done since beginning. If the seller spent only one hour a day working on the site during the last 36 months, then that comes to 1095 hours (calculated as 36 months = 3 years, each of 365 days). If he was paid £25/hour, it’d make £27,375 in total. Of course, if there was more work, then more money is needed to buy the site. All told, it’s £59,375. Since I like nice numbers, £60,000 looks better.

This sounds strange to those who buy websites, but to those who create content, write code, and do their own SEO, this is a basic and essential calculation.

I will never sell a website for too low a price. If you’re selling, don’t sell cheaply: it’s a costly mistake!

So, now you know how to accurately appraise a website. Calculate your work and the potential, and you get a result. Never use the stupid website’s value = 20x net monthly income formula!