Have you ever done a Google search on business valuation? how to value a company?
The results range from vague to outdated. Frankly, the internet should be embarrassed.
Most of the resources listed in the search results mention valuing your tangible assets, but what if you don’t have tangible assets? You’ll also likely find formulas which consider the number of years the business was in operation, but what if your business is less than a year old?
While the traditional valuation models might work well in the world of corporate finance or real estate, they don’t always translate to internet-based businesses. It helps to have a tool designed for your operating space. For example, if you’ve built a content site with an affiliate monetization model, how do you even go about valuing that?
There is a lot that goes into valuing an online business, but we’ve done the heavy lifting for you. We created a quick and efficient tool that was made specifically for entrepreneurs who own and operate Amazon Associates, affiliate, AdSense, or any other type of internet-based business.
Business Valuation: How Online Businesses Sale Prices Are Calculated
The new valuation tool is based on over $50 million worth of real-world sales data across a variety of business types. The valuations come from actual data from thousands of sold businesses, not list prices or unsold companies languishing in a marketplace.
Generally speaking, the value of the business is determined by calculating the net profit and assigning a multiple to it. This method is pretty much a universal truth; however, the formula for determining that multiple is our “secret sauce.”
Below is some insight into the top variables we use to help determine the value of a business.
We consider 12 types of monetization models, from drop shipping to affiliate sites. Although a business often has more than one way to monetize, we look at the primary form of monetization for this purpose.
How Much Work is Required Per Week
This factor can be both subjective and variable. However, as a rule, the less work that is required to achieve a profit threshold, the more the business will be worth. Most buyers are looking to acquire a fairly passive digital asset.
How Long the Company Has Been in Existence
Companies with longevity often command a higher multiple. Plus, longevity means that more data is available to help determine the business’s value. This also showcases any seasonality that your business might experience over time.
Monthly Revenue and Expenses
Profit is a key driver, but we also look at investments, owner salaries, and one-time expenses to extrapolate the real data. By sharing this data with prospective buyers, they’ll get a clearer picture of the real-world financial state of the company.
Every potential pair of eyeballs is a customer, so the more traffic a website gets, the more it is worth. However, conversion rates and values are also important considerations.
Some say that “the money is in the list.” Although it takes more than just an email list to have a profitable enterprise, an email audience is a valuable asset. This is particularly true if you’re in the affiliate space and have JV partners—a single mailing can net six or seven figures!
We look at how many affiliates a company has and how active they are. Because affiliates function as a commission-only salesforce, they can be a tremendous asset at virtually zero expense. We also evaluate payout structures and terms to determine profitability.
Social Media Channels and Followers
The more exposure your business has, the more chances you have to monetize. In addition to being present and having a following, we also look at engagement, advertisement spending, and which channels generate sales.
About the Simple Valuation Tool
Get a rough estimate of your business’s value in seconds—no email opt-in required. Just enter your monthly profit and choose your monetization model. You’ll instantly get an estimation of your total business value, right down to the penny.
If you want a more extensive valuation, try this in-depth valuation tool. This requires a few extra fields, but it can more specifically pinpoint your company’s worth.
The marketplaces for buying and selling online businesses continue to grow and evolve, and you need to keep up with that growth. This landscape is forever changing. Over the past several years, there has been a massive shift in the variety of monetization models and the value of businesses.
If you’re interested in learning more about the current state of the industry, download this free report that shares the results, analyses, trends, and predictions from the sale of over 470 businesses—totaling more than $50 million dollars in deals.