Websites are just like business – they have a monetary value. In fact, this is what makes working online such a great business. It allows you to create value from nothing, and anybody can do it. For example, I created PC Mechanic from scratch and now, due to the amount of content, high traffic, busy forums, and monthly income, the site is worth a substantial sum of money. But, not everyone starts out from scratch. Some people choose to purchase a website which already exists and use that either as a starting point for something larger or run it as is. In order to buy a website, you need to know a few things that will allow you to accurately appraise the value of a website.

Before going into this, I will openly say that there is no sure-fire way to appraise a website. Like many things bought and sold, any website is ultimately worth what somebody is willing to pay for it. That said, there are many people selling websites today who see gold in their site when it is in fact a lemon. Some of these people simply have no idea about how a website is valued. Some are late-comers to the internet business and are mistakenly still thinking in terms of the boom of the 90′s. Build a site, install a script to it, and sell it for $10,000. It just doesn’t work that way.

The value of a website is determined primarily by traffic. The software behind it is worth no more than what was paid for it originally. The content of a website is certainly of value, but in and of itself it is just a collection of files on a hard drive somewhere. It has a value because it can be an awesome starting point for revenue generation and traffic. But, don’t make the mistake of thinking that just because a website has a lot of content to it that it is worth a fortune.

There are two tools you need to be familiar with to more accurately determine the value of a website: Google PageRank and Alexa. Both of these tools can give you insight into a site’s link popularity. Link popularity refers simply to the number of site pages (whether internal to your site or external) that link to a page in question. Another aspect of it is link quality, determined by looking at the text around and inside a link to a page and determine how related those words are to the page. For example, a link which says “Auction site” which is linked to Ebay will do more for link popularity than a link which says “I like cats”.

Google Page Rank

Google uses link popularity more than any other major search engine. And Page Rank is the numerical measure, based on a scale from 1 to 10 of the link popularity. You can find the page rank of a webpage by visiting that page with Google’s Toolbar installed in your browser. Your browser may have other plug-ins which give you this information. With page rank, 0 is the lowest and 10 is the highest. And the strength of the popularity increases exponentially as the number increases, meaning it is a lot easier to go from 2 to 3 than to go from 5 to 6. A caveat here, too, is that an accurate page rank is based on whether Google has spidered the page yet. Sometimes Google will assign an arbitrarily high PR to a page, but as soon as the page is spidered, the page rank will adjust to what is real.

When evaluating a site, definitely look at the PR ranking of the site. The higher the number, the better. And do not simply look at the homepage. Most sites will have a higher PR value on the homepage, but it will go down quickly once you browse deeper into the site. Its still a very good measure, but there is one other thing that is useful to you. Find the privacy policy or other arcane page of the site which nobody is going to link to externally, but yet almost every page of the site in question links to (from the footer, for example). The PR value of that page will give you a gauge as to the kind of link popularity the site can generate on its own. This can be useful information. For example, if you are looking at purchasing a website and the PR ranking of its privacy policy is a 5 and yet the #1 site in that subject area is a 4, then you know that you could use that site to overtake the other in the search rankings simply by cross promoting the page from within.

When evaluating a potential site, check the back links which are contributing to the page rank and make sure they are not from other sites belonging to the current owner. You want the links to come from independent and external sites. If the PR ranking is the result of the owner’s own cross promotion with his other sites, then the PR will reduce once the sale is complete (because he’s not likely to cross promote a site which is not his anymore).

Alexa

Another important tool is Alexa. Alexa is a service which collects website statistics by looking at the data sent in by users of the Alexa toolbar. If the site you are looking at is ranked by Alexa at around 100K or less, then you’re standing pretty well. You can also look at the historical data for the site and any traffic spikes or losses over time.

Assigning Value

When looking at the financial value of a website, the safest method is based on income. A typical formula for determining value is:

(net yearly income) * 2 + (value of assets) = (appraised value)

Net yearly income is easy. Simply find out from the current owner how much money the site generates and subtract from that the costs of operation (hosting, etc.). Multiply that by 2 to get 2 years worth. If the figure is monthly, then multiply by 24. Also, look at where that income is generated from. If the income is from ecommerce products that can simply be sold with a little daily maintenance, this is better for resale purposes than a site which is fully service based. A service based site making good income is still of value, but you have to take into consideration whether you can deliver the service they are providing. If you can’t, then its likely that income will drop off drastically once the site transfers ownership.

Then you are left to determining the value of the assets. This can be more tricky, but it would include the domain name, the content, and any software used to run the site. If the software is of high quality and custom written, it could be or more value. If the software is licensed, then it is worth whatever they paid for that license. For custom written code, you can look at what it would cost to have somebody develop that code for you or time it would take to do it yourself (if you are a programmer). Evaluating the value of the domain name is really in the eye of the beholder, but some common sense tips come to mind. Is the domain name memorable? Is it short? Would it be commonly mistyped? Does it contain any non-alphanumeric characters such as dashes? Obviously, a short domain name is of more potential value than a longer one, and a domain which contains only alphanumeric characters and is made up of English words is of more value. Its best to have a domain which does not require the person passing it along to give tips as to how to type it in. And obviously, dot-com domains are still the best choice because everybody still assumes dot-com domains when looking for a site.

Assigning value to content is rather subjective. Look at the quantity of the content. Is there a lot of it? How long would it take to re-create it? Is it original or grabbed from someplace else? Is the owner transferring full copyright? Remember, content is king and a site with a lot of original content is a gem. If the content is artificially posted (meaning it looks great, but its all coming in from outside sources), then the value of that content really is very limited.

So, value is really a function of quality of content and the traffic the site serves, combined with the amount of existing income. With this in mind, one can easily see that most of the sites being sold today are lemons. Many times sites being sold have a domain name and a commonly licensed script installed to it and that’s it. It may have little to no traffic and makes essentially no income. Such a site is worth next to nothing.

Finding Buys (Or Where to Sell Your’s)

One of the best places to buy or sell websites is a forum dedicated to webmasters. Sitepoint.com has a nice forum for this. The selection might not be as great, but there is a level of protection, too, because if the site is a bad buy, usually other members will point it out. Ebay also lists websites, however most of them are worthless. If evaluating a site from Ebay, make good use of Alexa and Google to evaluate it. Many eBay sites are either cookie cutter templates from a site like TemplateMonster.com or are posting stolen content. There are also sites which are dedicated marketplaces for selling sites. However, be wary of them. They are great to look at, but many times the properties for sale are WAY overvalued.

Conclusion

The internet is a comparatively new medium, so assigning value to a web property just is not as cut and dry as assigning value to a brick and mortar business. A website has no real estate. And its assets are usually files on a hard drive somewhere – nothing tangible. So, this really is a new paradigm and one that one has to figure out as they go. The above information will prove helpful for evaluation purposes, but what it really comes down to is what is somebody willing to pay. Site owners will usually overvalue their own websites. It is up to you, as a potential buyer, to use the tools at your disposal to evaluate the income potential of the site, based on current income, plus the content, all overlaid by the amount of traffic the site currently serves.