Valuing a website before deciding to make a purchase is one of the most important steps in your due diligence. Valuing a website that lists little or no revenue in the Flippa sales page is challenging, to say the least.
In a previous post I described how I went about valuing a young website before making a purchase. This post will hopefully help you value more established websites that haven’t recorded any significant revenue.
This post was prompted by one of our users who recently Tweeted us and enquired:
“How much clout does Google’s PR carry when selling a site? Eg:What if a site is well indexed, with a PR 5 but not many overall sales?”
PageRank, or PR, is usually a good indicator that the site is well indexed by Google and has been around longer than a couple of months. Good PageRank suggests that the site has a respectable volume of original content and a substantial number of back links (people linking to the site from other websites).
PageRank vs Traffic
What PageRank doesn’t tell you is the amount of traffic the site is receiving. When push comes to shove, it’s traffic that counts; you can’t monetize PageRank, but you can monetize traffic. I’ll add an important caveat to that last statement; you can monetize the right kind of traffic. And by traffic I mean the number of different people who visit a website.
With any website auction or sale listing on Flippa, the seller has the ability to submit and display website traffic statistics from Google Analytics or other traffic stats packages. We highly recommend you see some proof of traffic and study where the traffic has come from. This applies for any potential purchase, but especially if you’ll be making a significant investment.
Not All Traffic Was Created Equal
The first question you need to ask yourself is, what is the right kind of traffic to value? Traffic generated by organic search engine results tends to be the most reliable and consistent. This is a bit of a blanket statement and there are exceptions to every rule, but read on for an explanation.
Looking at a site’s stats, there’s usually 3 to 4 main types of traffic mediums you’ll be able to identify via Google Analytics:
Organic: Organic traffic comes from people searching by a keyword phrase in a search engine, finding a listing in the search results, then clicking on that listing. It’s an indication that search engines think a website’s content is relevant to a user’s search. Generally speaking, the more organic traffic, the more keywords a website is ranking for.
Referral: Traffic that’s arrived via another website may not always be reliable long term. Say, for example, the website owner has been active in a particular website forum, leaving links back to the website for sale. What if the forum disappears or the user gets banned? No more traffic!
(None): This really just means that Google Analytics can’t figure out where the traffic came from. In reality it may indicate that visitors are typing the domain directly into a browser address bar. This can be a good thing; it may suggest that the site has an established brand name, Twitter for example, and people just know to type twitter.com into the address bar. But it may suggest that traffic has been generated by less scrupulous methods, such as spam email.
CPC: cost per click or paid traffic means exactly that – the owner has paid to generate the traffic. You’d have to ask yourself the question: why is the owner paying for traffic? Especially if, as in this case, the site isn’t making any money.
Putting a Price on Traffic
Ok, so you’re satisfied that the traffic is kosher and the majority of visits are being generated by organic search engine results. How do you value that traffic? One way to value traffic is to figure out how much it would cost you to buy it.
For example, a site for sale might rank #1 in Google for “takeaway pizza”, if you were to use AdWords (Google’s Pay Per Click advertising engine) to pay for a #1 position in the sponsored listing, you’d be paying around $2.75 per click. 10,000 clicks is going to cost you $27,500 – that’s a lot of pizza.
This is complicated, but fortunately there’s a tool that will help you estimate the value of a website’s traffic. SEMrush.com is a keyword research tool that lets you discover the keywords a domain name is ranking for then estimates the value of that traffic based on what it would cost you to buy that traffic. Read that back slowly and make sure it makes sense.
SEMrush provides you with an estimate of the monthly traffic value (see SE Traffic price below) of a website:
The other great thing about SEMrush is that it gives you an indication of a site’s top ranking keywords which you can then compare to the statistics a seller provides on Flippa:
So How Much Should I Pay for the Website?
Well… it depends. I won’t go into the complicated mathematics of different monetization methods and revenue generation models right now. You need to decide how much the traffic is worth to you. You need to figure out what percentage of visitors are going to convert to product sales, clicks on ads, sales leads, or membership subscriptions once they come to the site. Then you’ll know what to pay.
At the end of the day using the SEMrush tool is just one of the many methods of valuing a website, but it’s a handy one to include when doing your due diligence.