Buying a website is a complicated process and it should not be done by someone who has no clue of what he is getting into. The real price of a website is determined by many factors and definitely not by the seller of the website who, more often than less, wants to earn as much money as possible from the sale of the website.

This article is going to evaluate the important factors and takes a look at several other – lesser important – factors as well. A potential buyer needs some knowledge to be able to calculate a price for a website in the same manner that someone who has knowledge about cars will fair better when purchasing a car than someone who does not know anything about cars.

Technical knowledge, as in programming languages, is not that important when buying websites. They only have to be considered in some special cases, for instance when buying a web application. A buyer needs knowledge in SEO and website monetization among other things to evaluate a website.

SEO

SEO, or Search Engine Optimization, in a broader sense of the word. This includes analysing the traffic of the website and analysing the potential to increase that traffic. Main aspects of this analysis are the traffic sources and other factors like domain and website age or if the website is an authority in its niche.

The most important factor in this area is traffic. Buyers have to avoid several mistakes that are easily made when looking at traffic stats, they are:

• Measuring Traffic: Which tool / script has been used to measure the traffic ? If you look at the available scripts (some popular ones are Google Analytics, AWStats, Perfomancing and Webalizer) you will notice that each will come up with a completely different figure for Uniques, Pageviews and Hits even though they all analysed the same website.

  It is extremely important to know how a script measures traffic, the difference can be 100% and more depending on the tools used to measure traffic.

• Traffic Sources: The source of the traffic is of uttermost importance. The most valuable traffic is coming from search engines when monetization is concerned. Search Engine traffic is reliable and you can be sure that it will not drop to nothing in a matter of days unlike other traffic sources, say Stumbleupon or Social Media Site traffic.

  A rule of thumb is the higher the search engine traffic the better. Everything else is not reliable and can be easily manipulated.

• Age:Domain age and website age are two important factors. They are not the same. The age of the domain has nothing to do with the age of the website. A website could have been created recently on a domain that was registered ten years ago.

  Some scammers like to purchase dropped aged domains with Pagerank and sell those domains for a hefty sum to unknowing buyers. The domains will most likely lose the Pagerank during the next Pagerank Update. The statistics of a website and external websites, like archive.org, can help to determine the age of a website.

• Keywords and authority: While this is not the most important aspect it is still nice to know. The traffic that comes from the search engines is the most reliable and most important factor. Knowing from which keywords that traffic comes can be important when evaluating growth potential.

Monetization:

Analysis of the current monetization techniques on the website and the potential of the website to increase the revenue. A solid overview of the different monetization strategies, advertisers and practical experience is absolutely recommended. Most websites sell for6-24 times the monthly revenue depending on the time the website has earned that amount, the type of website and the sources of the revenue.

I think we can all agree that private ad sales are probably not a very reliable revenue source. I would divide revenue sources therefor in reliable and unreliable ones.

• Reliable Revenue Sources: The reliable revenue sources are those that depend on traffic mainly. So basically every CPC and CPM based ad on the website is reliable. It is highly unlikely that the revenue from these sources will change in a short period of time. I’m not saying it cannot happen because some factors do play a role here. If the seller was using shady tactics to generate the revenue, e.g. placing ads in a way that was against the TOS of the advertising provider, then the reliable source could yield to provide revenue at all.

  One also has to take the traffic sources into consideration. CPM ads benefit from social media traffic in a greater way than CPC ads do. Running a Stumbleupon campaign can drive lots of traffic to a website that generates CPM revenue.

• Unreliable Revenue Sources: Everything that is not providing regular monthly payments or is independent of traffic levels. This includes Pay Per Post, selling Text Links, private ad sales and even to a lesser extent affiliate programs. All of those can be gone in a second.

  It does not have to be that way necessarily but it can happen. Affiliate sales could be a reliable revenue source if the seller can provide solid stats for a long time period and has not generated them by buying traffic. All those unreliable revenue sources have two things in common: They can bring in revenue but they do not have to. Even if the seller made x Dollars per month from paid postings or selling text link ads it does not mean that this will continue.

Revenue that is generated from Adsense or CPM networks is also a good indicator of the traffic a website receives. It’s possible to compare figures with related websites of the same niche for instance.

It is important to know if the domain or account had been banned previously by advertising companies. If you see optimization potential in a domain because it is not running Adsense and increase your bid because of that then you better be sure that you can run Adsense on that domain. I always ask the seller to clarify this, why he is not using Adsense on the website.

Other:

Everything else that is important to find a value for a website. This does include the niche of the website. A buyer who does not know anything about Photoshop would be hard pressed to run a Photoshop blog. He would rely on professional writers to write content for the website which would reduce the monetary gain from the website.

This also includes costs for servers, websites, administrators, legal fees and everything else that might be necessary to run a website.

Most sellers do not post information about the monthly costs of a website openly and only respond in private to such questions. A website that is earning $1000 per month could be a nice catch but would it be still a bargain if you knew that you had to pay $200, $500 or $800 per month to generate that $1000 ?

Time is another important factor. How much time is needed to run the website. That’s an important question. The best websites are sit and earn websites, those sites that you setup and do not need to administrate or create content for afterwards other than checking the earnings from time to time.

Time is money in this case. Would you rather earn $4000 per month from eight blogs that require eight hours of daily work or the same amount from eight websites that require eight hours of work per month ?

I was not really sure where to add Pagerank, Alexa Rank and Compete Rank. I do not think that they are completely useless like some other bloggers but they should not be overrated either. It’s easy to achieve a Pagerank of up to 5 in a couple of months depending on the updates of the Google Datacenters. Higher Pageranks are harder to come by and this can be an indication of authority site. It means something if a website has had a Pagerank of 7 for more than two years for instance.

I usually do not care about Pagerank between 1-5 and start my research on websites with Pagerank 6+. Alexa and Compete are only guidelines. A website with a Compete Rank of 0 or an Alexa Rank of nine-million could be an indication of a scam if the seller claims the site is receiving 20K users per day.

Factors that do not play a role:

Some factors should not play a role when determining the value of a website. The amount of feed subscribers for example is a popular reason to demand a high price for a blog if the blog has many of them. The problem with feed subscribers however is that they subscribed to the blog for a reason; And that reason is normally because they like what the previous owner writes.

Now it may be that it is possible to switch from one author to another fluently without loosing to many subscribers but that is normally hard to accomplish. A coupon blog could be fine but one where someone writes reviews, gossip or daily life ? The consequence more often than not is a reduction in feed subscribers from the point on when the blog is sold and a new author takes over.

Design, graphics and the like are another factor that should not play a role normally. Some sellers claim they paid thousands of Dollars for the design. The important question however is how much you would be willing to pay for it. If you think that design is worth $100 instead of $2000 then say so and use that figure in your calculations. A good looking blog is nice but most visitors, especially those from search engines, visit a blog because they are looking for information, not because they are looking to find a blog with a great design.

Conclusion

I hope I brought up some valid points that help you determine the proper value of a website. You still need lots of knowledge in certain key areas to successfully appraise a website. One of the services that I’m offering is website evaluation. If you are interested in further information contact me.