Are you considering selling a website business? If you want to sell a website for the highest possible price, you should aim to sell when profit is trending upwards, traffic is on an uptick, and when the business model is in demand.
Profit Trending Upwards
One major factor that attributes to a higher multiple placed on website businesses is how the financials are trending, more specifically net profits. This trend is analyzed both historically (1-5 years), in addition to the trailing twelve months. Although top line revenue is analyzed, net profits is a better indicator of how the business is truly performing. For example, we’ve analyzed a business that was doing millions top line, however, the eCommerce business was losing net profits monthly (and on a downward trend!). What caused this? Increasing cost of customer acqusition, which ultimately made the business unprofitable.
So why exactly does the net profit trend have an impact on the multiple applied to a valuation on a website? It comes down to risk and how long it will take for the buyer to break-even. A business that’s downward trending not only has more risk than an upward trending business, but the business could likely continue to decline in revenue, increasing the time it takes to break-even.
To sell a website at the highest possible price, another major factor is the websites traffic trend. Unlike brick and mortar businesses, the revenue a website generates is completely dependent upon traffic, albeit a few exceptions. If a website begins losing 20% of its traffic each year, it can be expected that a similar trend could transpire with its revenue. Due to the direct correlation between traffic and revenue, the traffic trend has a significant impact on the valuation of a website business.
Business Model in Demand
Another major factor contributing to sales price is the demand of certain business models. A website selling Big Cartel themes isn’t going to be worth nearly as much as a WordPress theme site. Why? Everyone knows of WordPress, and few know of Big Cartel. As such demand is minimal for Big Cartel theme sites, which ultimately leads towards a lower valuation. Keep this in mind when creating, acquiring, or when it’s time to sell a website.
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