Valuing websites and ecommerce sites
What is the worth of a digital asset such as a website, ecommerce site or online platform? That is the main focus of my work. Digital assets are a special class of assets. They are intangible but visible. They seem virtual but they drive real results. In many cases they are the source of growth for many new and existing business ventures. But what are they worth?
Establishing the worth of websites
To begin with: there is no single objective value to establish, but that is nothing new. All financial valuations are an estimation based upon historic results and extrapolations to future results. That is also the case with websites and ecommerce sites.
The historic results however may be relatively easy to calculate. Especially with ecommerce websites this may be a straightforward exercise as all data is at hand. In most cases however there are still some choices to be made, especially in the field of attribution and choosing the right financial valuation method. In omni channel situations traffic from online shops may convert off line and vice versa. This will complicate matters. With lead generating websites attribution of sales and profits may also cause headaches when physical sales occurs simultaneously.
And then there is the problem with historic results. What do they tell about the future? There is more to a website than calculations based upon historic results. In fact I found 5 website value drivers that will drive extra value (or conversely less value) in the years to come. This is the qualitative part of the website valuation process.
At WebWorth Partners my input or starting point will be a financial valuation based upon one or more financial valuation methods. I may help deciding about the method to choose and get into attribution issues but I do not perform this quantitative part of the digital asset valuation process. There are professionals out there who excel in valuing based upon hard data. My specialization is performing a qualitative valuation based upon the 5 website value drivers. This qualitative valuation provides insights on the hidden values that drive EXTRA value (or less) in the years to come.
The 5 website value drivers
- Organic traffic strength
- Online authority strength
- Technical strength
- Advertising & social strength
- Conversion strength
These 5 elements are the core forces that shape the engine of a website.
Getting a clear picture about these website value drivers
That is what it is all about. When you get a thorough understanding of these 5 value drivers you will learn the EXTRA HIDDEN value of a website or ecommerce site. This is very important to notice. In valuing a website based upon a financial valuation (the quantitative valuation) you will base your valuation solely on historic results. Even when you extrapolate these results the basis is history. In the qualitative valuation you will uncover patterns that indicate the extra force (or extra downforce) that are embedded in the website.
It is a bit like assessing the worth of a used car. By only looking at the mileage it has done you will not know the mileage it still may perform. Only by looking under the hood you will learn the hidden strengths and weaknesses. Of course that requires an experienced eye.
I will gauge a website or ecommerce site on these 5 website value drivers. Each website value driver will be getting a weighting factor and multiplier. In the end you will get 1 composed multiplier that will add (or subtract) extra value (or less value) to the worth established through the financial valuation.
In general the financial valuation is performed by the existing M&A firm, although you may consult me on issues concerning attribution and inputs of calculation. The qualitative valuation process may be conducted by myself or as a team effort.