The starting point for most website valuations is a multiple of current revenue, generally set based on recent transactions of similar properties (aka. comps). The most common way to value a website is to price it as a multiple of monthly recent earnings. Most blogs would be priced at 30 – 40 times monthly advertising earnings, unless there are other issues present. But how do you value a website with no revenue?
The question is less crazy than it seems. Like any market, you can find great bargains in the “scratch and dent” bin, with a lot less competition from inexperienced buyers. You just need to know how to estimate the potential revenue for the website and assess the risk factors. Here’s my perspective on how to value a website with no revenue.
#1 – Why Is the Site Coming To Market?
This is the most important question of this whole analysis. Why are we looking at it?
I’ve seen websites without revenue come to market for several major reasons:
- Domain Assets: Rare / Valuable domain with a placeholder website
- “Starter Sites”: Brand new website with little real traffic and no revenue
- Side Projects: Solid website with good traffic that was run as a hobby
- The Pivot: The former owner’s revenue model is no longer practical
So while the revenue line on all these sites is zero, you hopefully can see that these deals carry a very different level of risk. The big challenge with former “side projects” is guessing what the website should earn, which requires you to match up their Google Analytics data with revenue statistics from similar websites. Both of these are solvable challenges, with a little research effort. Compare that with a new “starter site” without a track record; many of these sites are “pump & dump” SEO schemes that won’t keep their traffic for the long haul.
Which deals work...
Side projects can make good investments. The pivot is a little more risky and requires you to a) understand why the previous revenue model doesn’t work, b) validate that there isn’t permanent damage to the site, and c) develop an effective replacement. I’ve made money on “Pivot Sites” before, where a former consultant sold us a well-seasoned blog. But there were a few surprises along the way…
Be wary when buying sites that have been kicked off a major ad network. While many ad networks can be very heavy handed (especially Google), there is often good reason for the ban and many anti-fraud policies are not sympathetic to new buyers. They’ve been gamed too many times before. Check if you can get another network to approve it before you place a bid, an area where working with a Google Certified Publishing Partner like Ezoic can be very helpful (link to recommended tools).
“Starter sites” are not recommended for beginner investors. Domain deals are extremely speculative in the sense you’re a long way from revenue. You would either need to build a revenue generating website on the domain or sell it to a strategic buyer, the value of either option being highly circumstantial. Given this, we’re going to focus the balance of this article on “Pivots” and “Side Projects”.
#2 – Closely Examine Current Traffic
The starting point of valuing a “Pivot” or “Side Project” should be the traffic coming into the website. Ideally you have Google Analytics installed and the buyer will share it with you.
Split the traffic into groups:
- Organic Traffic (ideally from Google) – this is from your search engine rankings
- Referrals – links from other website; risky if they can be removed or redirected
- Direct – Supposedly people coming for your brand; be wary of high direct traffic for any website without a large organic audience and high traffic for its brand name on Google Search. This can easily by manipulated by “click farms” who sell fake views.
- Advertising – bought traffic; better make sure you have this priced into your deal and insist on deal terms that limit the former owner from competing with you (given they have the details on those campaigns, including any white list / black listed domains).
#3 – Estimate Website Revenue
For once, we’re going to say don’t use our website ad revenue calculator. You need something that is dialed in a lot tighter for that specific website. Look at Flippa or Flipfilter to see if you can find some comparable websites that posted their traffic and revenue numbers. Look at the average revenue per thousand visitors, ideally for several months.
Even better, if you’re a strategic buyer and have similar sites in your current portfolio, use those websites to estimate the average revenue per visit for the website with no revenue.
If you are using display advertising, be wary of order of magnitude gaps in traffic. AdSense and display advertising revenue generally increases with volume, especially since you can upgrade to a better advertising network once you have traffic. We more than doubled our advertising revenue per visitor when we increased the size of one of our sites and flipped the business over to Ezoic (details about their program in recommended tools).
In any event, Estimated Traffic x Estimated Revenue per visitor is your starting point for a monthly revenue number. Apply an appropriate purchase price multiple (such as 30 – 40 times monthly revenue) as seen on similar websites. Then reduce it a fraction (25%? 30%? 50%?) to give you a margin of safety (in the event you’re wrong) and some compensation for the additional risk you’re taken with an unproven revenue model.
Do NOT USE AdSense CPC to value anything. I’ve seen this advice published elsewhere and things never seem to work out that way. The bidding process commingles different types of buyers with different revenue models: that high CPC figure may be from an e-commerce site (with a low click-through rate) whose economics are unrelated to those of a publisher. My sites earn a tiny fraction of that theoretical AdSense CPC value and generally perform on the high end of our peer group for similar content.
#4 – Growth Potential / SEO Power
While I (like most buyers) refuse to actually pay for growth potential and synergies, I’ll often be slightly more aggressive for websites where I see a lot of potential upside. Look closely at the site’s SEO profile to assess the following:
- Does the site have a relatively strong backlink profile compared with its peers?
- Is the site already ranking for reasonably competitive keywords on Google?
- Are there a bunch of less-competitive topics you can easily pivot into?
If these three conditions are met, you can get some upside by publishing new content. Don’t be too aggressive, however, since there is content cost and risk associated with using that as a strategy to grow the site.
Along the same lines, you may note opportunities for an affiliate offer or two. Jot these down and follow up after the deal is completed, but don’t rely on them to justify a valuation.
Summation: How to Value A Website with No Revenue
The complete method, addressing how to value a website with no revenue:
- First, are you comfortable with the seller’s story & claims? If not, walk away.
- Estimate Traffic
- Estimate Ad Revenue per Visitor (Do Not Use AdSense CPC)
- Apply purchase price multiple; reduce this for the extra risk & effort required
- Check for growth opportunities and decide if you want to be more aggressive
In many ways the first point is the most important one. The fact you’re not able to see a stream of revenue payments, generally required as part of selling a business, is a big red flag. If you’re not comfortable with the story presented, walk away. It will never get better.
On the positive side, you can often find some great bargains at this level of the market since many other buyers are unwilling or unable to invest in this space. This is particularly true if you’re a strategic buyer who already owns similar websites and can leverage that data to make an informed decision!