Understanding the mechanics of buying and selling a website

is very important if you own one, as it is the practical foundation of any business on the web. Business on the Internet, made people to think in a different way, right from forming crazy valuations, to trying out deals that could generate unheard of returns. The initial dot com allure was so powerful that every type of business rules just vanished. Everybody seemed tremendously eager to sell in this new marketplace and even pet food business was trying its luck online with sock-puppets. Now when people look back, sanity seems to prevail and people are more confident to work with proven business principles. Even though everyone still wants their share of the online marketplace, the investors are more careful in their approach and owners have a better grasp of what is going on.

Website valuation can be arrived at by two important approaches:

1) Multiples in the Cashflow which is the profit or revenue

2) Re-creation value

How to value a website is an oft asked question. Although various types of metrics are available, it is necessary to know about their accuracy and what combinations should be used to arrive at a correct valuation. The next question to ask is whether there is any difference between appraising a website and valuing a business which is online.

Valuing a website has proven to be one of the most complex tasks on the Internet. Although website valuation has to be based on certain principles you cannot totally rule out gut feeling. In the present times you cannot valuate a website without taking into account the value of the links the website has. Now if you are taking into account only certain principles, valuation would become a very easy task. Purchase and sale of a website is quite similar to the purchase and sale of real estate, a brick-and-mortar type of business or even company stocks. The present scenario is such that nobody has yet found an effective website valuation tool. This has given rise to wide speculation and has made the market a bit unstable, as over-eager investors are trying to cash-in on something which is not totally rooted in reality. In order to value a website, here are a few guidelines, tools, equations and the necessary questions you should be asking.

The biggest unknown factor for any website is the maintenance of good page rankings, as the algorithms of search engines keep changing and so does the market share. Valuation in part should take into account the present rankings, the potentiality of it maintaining the level or rising above it. A website loses almost all value if it does not have relevant amount of traffic which is not targeted on the particular niche, nor has the capacity to achieve it in the future.

Different Revenue Models of a Website

These can be divided into categories which serve as models between businesses or between a consumer and a business. Such a categorization will serve to streamline the classification between different types of websites. Additionally certain criteria can be introduced in the mix, like whether it is -

1) Only a domain,

2) Online business or

3) a front for a brick-and-mortar business. The following are a few examples -

• Website having only information or resources

• For generating donations

• Based on subscription

• Merely for advertisement

• Offering services

• For generating leads • Sale of Products

Of c ourse matters can become more complex when there are combinations of these models.

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