II. Valuation of Websites - Part 3

  1. Traffic

    Traffic is really part and a factor of the other components which are used to determine a web site's value. After all, traffic determines the actual or potential advertising revenue for the site. However, traffic for a web site is such an important part of it, that it needs to be looked at separately. A web site's traffic is different than the subscriber's of a newspaper or there viewers of a particular TV show.

    1. Number of "hits" per day

      1. What is a hit?

        A "hit" is generated any time someone requests a page or graphic from your Web site. Basically, A "hit" happens whenever a file is accessed on your site. One visitor can transfer many different files from your site. One page can have multiple images (each of which generates a separate hit), and they can visit more than one page. So, a "hit" count is usually larger (sometimes much larger) than the number of actual people who saw your site.

        We need to determine what we are talking about when we say number of hits. People use the term interchangeably when you really can't do so. Some people refer to a hit as anything their log shows, without differentiating between a hit to the page versus a hit to the graphics on the page. For example, if a page has 5 graphics on it, then the log may show a total of six hits to the page (one for the page itself and five for the graphics). Others, refer to a hit only as an actual page view. To these people 10,000 hits mean that 10,000 pages have been viewed. Finally, there are those who refer to a hit as a visitor. To them 10,000 hits mean 10,000 people visited the site (perhaps retrieving 30,000 pages). The buyer and seller must make sure they are both talking about the same type of hit, although you really need to focus on page views and actual visitors.

      2. What is the traffic worth?

        One of the things to consider in valuing a web site is the value of the traffic. One must assign a certain dollar value to the "industry" traffic a site is generating. By "industry traffic" we mean traffic that relates directly to the subject of the site (i.e. lawyers visiting a legal sites, webmasters visiting a computer site, people with tax problems visiting a tax site etc.).

        Ask what is the targeted value of this traffic worth? Consider a legal oriented web site and a law firm or legal organization that may be interested in purchasing such a site. How much is the targeted traffic of such a site worth to them. If they normally have to pay a certain price per thousand (CPM) to another media it is a good starting point for a comparison. If the law firm pays $3 per thousand people reached by TV and $50 per thousand for directed web traffic (for example through the purchase of keywords on search engines) then the value of the CPM al least lies somewhere in that range. You must bear in mind that the TV traffic exposures would not be to a very targeted audience, while the keyword ad would be. The value of a targeted web site traffic would be certainly closer to the $50 per thousand range.

        If the legal site generates 10,000 page views a day, the value of such impressions would be worth $500 per day (if the CPM value is $50). The advertising value of such a site alone is $182,000 per year. If we use a factor of three (3) then the value of the site alone based on advertising value alone is $547,000! Naturally, this value does not even take into consideration any of the other factors.

      3. Number of page views

        Look at the actual number of page views and the ratio of people to pages. 100,000 pages viewed by 10,000 may be better (in some situations) than 100,000 pages viewed by 50,000 people. There is a value to perhaps showing more ads to less people and that should be taken into account.

      4. Traffic from search engines

        Consider where the traffic is coming from and specifically from what search engines it arrives to the site. If the source of traffic is mainly coming from Google, it might become a problem in the long run. What if Google changes its algorithm and the source of traffic dries up. Sites with traffic from various search engines are much better. Traffic from many sources work best i.e. 45% coming from search engines, 30% from links and referrals, 15% from paid advertising and 10% from direct type ins. This type of traffic mix lasts longer and has a higher value.

      5. Traffic from caches?

        There needs to be an accounting of the traffic that "comes" from caches that may not appear on a report. Since some ISP and other services keep cache copies of more popular pages and sites on their own servers (to alleviate Net traffic) and this traffic is usually not registered in the site's access logs, a determination must be made of how much unaccounted traffic visits the site through cached pages.

      6. Invisible traffic

        Traffic from newsgroups, traffic from e-mail. An exam of the access logs and some of the now widely available tools can shed some light on where the traffic is exactly coming from. However, you still need to determine what percentage of the traffic comes from newsgroups and mailing / discussion lists and what it would take to keep that part of the traffic to still come in. Determine whether the current web site owner spends many hours a day on newsgroups and mailing lists (and participates in them) to generate that traffic.

      7. Traffic through links from other sites

      8. Traffic to site from other sources

        Does the site belong to any "Banner ad exchanges"? How much traffic is generated by these exchanges?

    2. Ratio of visitors to page views

      How many pages does the average visitor look at when visiting the web site? You may want to look at possible way to subtly increase the ratio by making small adjustments to the site.

    3. Number of Links to the site from other sites

      Perhaps one of the most attractive features of a web site for sale is the number of outside links that lead to it. No matter how much traffic a web site gets from all the search engines, tomorrow that traffic may be gone if someone else figures out how to displace you from your top search engine position. However, traffic that comes form other web sites that are linked to you will generally not go away, and certainly will not drop dramatically tomorrow. Traffic from other web sites is very important and the number of links that bring such traffic is important. Not only is the number of links important, but the "quality" and traffic is important. Is the site getting an average of 5 visitors a day from 1000 sites or is it getting and average of 300 visitors from 25 sites? Although the second scenario seems attractive many would agree it is also riskier.

      There are some good services to monitor this.

    4. The value of links

      How do you value links? Looking around the Internet these days, many will notice that some sites are beginning to pay other sites to carry a link to them. That could be used as a basis for such valuation.

      As mentioned before, there is also a certain value that has to be assigned to the number of links to the site that is being sold (or purchased). These days we are seeing more site actually offering money for other sites to link to them. Certainly, a site that has 100 links pointing to them is less "attractive" of a site with 700 links pointing to them. Links to a site can generate a great deal of traffic to a site. In fact a lot of sites report that ___% of their traffic comes from links as opposed to search engines. Also remember, that the number of links to a site affects the search result ranking, as some search engines also count the number of links to the site when determining relevancy for a search. They figure that better quality sites with better content tend to be linked to more often than sites void of much good content. Some links bring more traffic than other links and thus there even seems to be a "value structure" within the links themselves and not just the numbers. Certainly a link that brings double the traffic of the average links is always preferred.

      We also need to look at the other components of the site as "added value". We have seen domain names being sold for thousands of dollars to hundreds of thousands of dollars, with some domain names even being listed and sold for millions of dollars.

    5. Percentage of traffic from search engines versus traffic from other links to site

      It is important to also look at the percentage of traffic coming to the web site from search engines versus the percentage of traffic coming from other sits. Look at whether out of the 10,000 page views 7,500 came from search engines and 2,500 from other links or whether 9,000 came from other links and 1,000 from search engines. Usually, the first scenario is preferable, because traffic coming from other links to the site is more solid and stable. Tomorrow a site may drop to "Result #285" from the lofty #1 position it enjoyed on the same search engine the week before. Many times web sites lose 50% or more of their traffic if they drop to less desirable positions on one or two engines. On the other hand, there is really not much chance of loosing 50% of the links coming to a site, overnight.

    6. Placement for relevant key words on search engines and historical performance data

    7. Traffic growth per month in last year

      It is a very good idea to look at figure for the grow of traffic at the site. Are the statistics available that can show how much traffic has grown on the site for the past few years? Is there an explanation for the various surges and drops in traffic (growth) the web site may have experienced?

    8. Access statistics available for what period of time?

      Are there any access statistics available for the web site. How far back do these statistics go back. In what format are they. Are they the "raw" log files?

    9. Automated messages

      Do automate messages go out to users of the site. How many of these e-mails get sent out and how many people do they reach. there messages are also a valuable advertising and promotion tool that merely increases the value of the web site that offers such features.

    10. Does site use cookies

    11. Are there mailing / discussion lists associated with the site?

      Mailing and discussion lists can be used as another vehicle to promote the web site and its service or product. Each time a message goes out to the list (which sometimes includes thousands of subscribers) a little tag could be attached telling them about whatever you choose. On some lists with moderate traffic, that means that the little advertising tag could be seen on different messages several times a day. However, offering a mailing / discussion list also means that a certain amount of time needs to be spent administering the list, especially if it is a moderated list. Advertising can also be sold to outside parties for such lists.

      Internet marketers call their list of subscribers "the list" in fact, they say, "the money is in the list". It is often said in the Internet marketing circles that the value of the list is around $1 per subscriber per month. That is, if you have, say 20,000 subscribers, your income potential from that list would be around $20K per month. The more subscribers, the more income potential you'll have. Even if you just say $5 per subscriber per year. The amount is still substantially high for a list of 20,000 subscribers (20,000 x $5 = $100,000 annually)

    12. Number of RSS feed subscribers

      This is another are for revenue potential since RSS feeds can now be monetized.

    13. Niche

      How large is your market? Of course, the bigger the market, the higher the profit potential from the website. There would still be plenty of room for the buyer of a website to expand the business. However, if you're into microniches, this is your downside. Is your niche shrinking or growing? If you're into a growing niche, you could, without doubt, command a higher profit multiple.

    14. Other considerations

      If you are the buyer, consider how much work it might take to get the site "back in shape" or improved.

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