Years ago when I had recently started a website (well before I started Quiet Light Brokerage), I was approached by someone who asked me if my site was for sale. Like most online business owners, I replied that it might be – for the right price. The person who contacted me then asked me what the right price was. I was left without an answer.
If you’ve ever considered selling your web business, or if you have ever been approached by someone asking if you would like to sell your site, inevitably you start thinking about what it is worth. You may do some searches and find some people who tell you that it is worth 10 times your gross revenue. Others may tell you that the average site goes for 1.5 times your income. Worse yet, you may find an online value calculator that has you input a few pieces of information and in return spits out some exact number (I am not a fan of those online value calculators, but that is the subject of another post).
Ultimately you are asking a basic question: what makes a site valuable? More personally, what makes my site valuable, and how does that translate to an actual figure?
When considering the value of a website, we are looking for the marketplace value of that website. Although it is perfectly acceptable for a website owner to peg a specific value and tell people that they wouldn’t sell for any less than that, if we want to talk about a site’s value, we tend to do so in terms of the marketplace.
What is the Marketplace, and Why Does it Matter?
The marketplace is made up of all the buyers that are actively interested in acquiring an online business. This may include people who are currently being aggressive with their search along with people who may have some fleeting interest should the right opportunity present itself. On a broader level, the marketplace consists of all people interested in buying any business, online or not. This group of buyers and the makeup of its members determines and greatly influences prices that business owners can ask for their businesses. We, of course, are most interested in that group of buyers that are interested and looking for an online business to buy.
The marketplace matters because your business is ultimately worth whatever someone is willing to pay for it. You can ask whatever you want for your site, but if there isn’t a person on the other side of that asking price with a checkbook in hand and pen writing out your asking price then your asking price is nothing more than a personal value. When it comes time to sell your site, if your own personal value of the site doesn’t agree with the people who could potentially turn that potential value into liquid money, then you simply won’t sell your site.
What Influences the Marketplace?
The marketplace is ultimately influenced by the same forces that influence every other vertical: supply and demand. In this specific market, the supply is the number and types of businesses that are for sale and the demand is the number of buyers that are both interested and capable of completing an offer.
When thinking about the value of your site within the marketplace, it is important to recognize that there is a ready supply of businesses for buyers to examine and evaluate. What this means for you is that the value of your website does not stand on its own – it is influenced by the prices and values of other websites. You may have a site that offers unbelievable potential and benefits for a buyer, but if the price of acquiring that potential and those benefits are significantly higher than the other businesses that offer a buyer similar, or even slightly less, potential and benefits, a buyer will likely go with what is perceived to be the better value. Buyers have different motivations and qualities that they seek in businesses that they are acquiring. But, in the end, buyers are also value conscious and ROI conscious. If your desired selling point is too far outside of comparable or slightly less beneficial businesses, then buyers simply won’t move on your business.
That being said, no two businesses for sale are alike, and every online business brings its own unique sets of benefits and challenges. Some online businesses command a premium while others have trouble fetching an average marketplace price. The difference between business owners who get paid more than the marketplace average and those business owners who get paid less comes down to each individuals understanding of the marketplace and what buyers are looking for.
Beating the Marketplace
If you are still with me on this post, then the question that I hope to answer (and that you may not be asking) is this: how can you beat the marketplace? Not every business sells at the same marketplace average. Two apparently similar sites may sell for very different amounts of money. What makes one site sell for more money than another? How can you control the value of your website?
That is what this post series aims to address and teach you. In the next tutorial, we will look at the basic valuation formula (hint: there really isn’t just one) that the marketplace uses to determine average values. Stay tuned!