It is tempting to google “How much is my business worth?” before taking your company to market.
It’s not just a question; it’s a reality check.
Outdated and inaccurate resources plague the web when it comes to valuing online businesses. It’s frankly embarrassing.
There are all kinds of crooks-in-suits who’ll offer to advise you on this, all with their own vested interests!
There are a few good guys but it’s mostly crooks-in-suits giving out free valuations.
Most online resources focus on valuing tangible assets, leaving you in the dark if your business isn’t brick-and-mortar. They tout formulas based on years of operation, but what if you’re just starting out?
Traditional valuation models might be fine for corporate giants or real estate moguls, but they fall flat for internet-based ventures. How do you value an affiliate-driven content site, for example? The answer?
You need a different tool.
You will find several online tools that claim to provide accurate prices for companies. Given a few simple inputs, they will spit out a valuation.
While these tools can be fun to test out, the results aren’t terribly accurate. Relying on these sites to make critical decisions about selling your company can be dangerous.
How Online Businesses Sale Prices Are Calculated
This valuation tool leverages over $50 million in real-world sales data across diverse business types. Unlike tools based on mere list prices or unsold marketplace listings, ours draws on the hard truth of thousands of actual business sales.
While calculating net profit and applying a multiplier is a common practice, our secret sauce lies in the unique formula we use to determine that multiplier. Here’s a peek under the hood.
We explore 12 diverse monetization models, ranging from drop shipping to affiliate marketing. While businesses often employ multiple revenue streams, our focus here is on the primary driver of income for each case.
Calculating Business Value with EBITDA
To value an entire business, the enterprise value, I look at a combination of financial performance and market multiples. Financial indicators, such as trailing or forward-looking revenue and EBITDA, are commonly used.
EBITDA is earnings before interest, taxes, depreciation, and amortization. The reason I frequently use it is because it’s considered an approximation of free cash flows of the business. While not perfect, EBITDA offers what normalized cash flows might be without the nuances of capital structure and leverage, taxes, and asset life.
For example, if I was valuing Under Armour, I might look at enterprise valuations for comps like Nike, Adidas, New Balance, and Fila and compare those valuations to revenue and EBITDA. The calculation offers a ratio that we call a market multiple.
If Nike is valued at $120 billion, and its annual revenue is $40 billion, this implies Nike has a 3x revenue multiple (120/40 = 3x).
We can do this for all the comps and arrive at medians, means, lower or upper quartiles we believe are most appropriate.
Once we arrive at the chosen revenue and EBITDA multiple for the comps, we can multiply them by the revenue and EBITDA for our subject company.
If the subject company in our example has normalized revenue of $520 million and is valued using a 1.2x multiple, the indication of enterprise value is $625 million (520 x 1.2 = 625). This suggests every dollar of revenue adds $1.20 to the valuation.
If our company’s normalized EBITDA is $96.5 million and is valued using a 7.2x multiple, the indication of enterprise value is $695 million 96.5 x 7.2 = 695). This suggests every dollar of operating profit before D&A adds $7.20 to the valuation.
How Much Work is Required Per Week
While subjective and dynamic, the ease of reaching profitability often dictates a digital asset’s value. Most buyers seek hands-off operations, making minimal effort to yield returns a key factor.
How Long the Company Has Been in Existence
Time-tested businesses often attract a premium, and for good reason. Their extended track record provides a richer pool of data, allowing for a more precise assessment of their worth. This historical depth also illuminates any seasonal fluctuations your company might encounter, giving investors a clearer picture of its long-term potential.
How do investors gauge customer value? By asking these kinds of questions…
☑️ How diversified is your customer base?
☑️ Do you have recurring, contracted revenue?
☑️ Who are your lead sources? Are they loyal to your company?
☑️ What is the quality of existing customers?
☑️ Do you have a new business development process?
☑️ How do you strategically select customers?
Could you answer all these questions? Are you confident that your responses would “wow” buyers?
Monthly Revenue and Expenses
While profitability is crucial, we take a holistic approach by analyzing investments, owner compensation, and non-recurring expenses to paint an accurate picture of the company’s financial health. Sharing this comprehensive data with potential buyers empowers them to make informed decisions based on a transparent understanding of our financial operations.
While website traffic plays a crucial role in boosting value, merely counting eyeballs isn’t enough. Just like diamonds, traffic needs to be refined – the right kind of visitors, engaged and ready to convert, truly unlock a website’s potential. Conversion rates and customer value hold the key to unlocking this hidden worth, ensuring that website traffic translates to tangible success.
While the adage “the money is in the list” might be oversimplified, there’s no denying the power of a targeted email audience. In the affiliate realm, where strategic partnerships are key, a well-nurtured list can be a goldmine. A single, impactful mailing can generate impressive returns, potentially reaching six or seven figures.
We assess an affiliate program by considering both the size and engagement of its network. Affiliates, essentially a commission-driven sales force, can offer significant value at minimal upfront cost. To gauge profitability, we closely examine payout structures and terms.
Social Media Channels and Followers
Visibility is key to unlocking your business’s earning potential. But it’s not just about having a presence and a following. We also consider engagement, ad spend, and the sales conversion power of each channel.
About the Simple Valuation Tool
Want a quick and dirty estimate of your online business’s worth? No strings attached!
Just pop in your monthly profit and pick your monetization model, and our valuation tool will spit out a ballpark figure instantly. BAM! Penny-perfect precision, minus the email spam.
But wait, there’s more! Craving a deeper dive? Our in-depth valuation tool is just a few extra clicks away. It’s like a digital crystal ball, revealing your company’s true potential with laser-like focus.
The online business marketplace is a wild beast, constantly morphing and growing. Monetization models are multiplying faster than you can say “cha-ching,” and values are climbing like rockets. To stay ahead of the curve, you need the inside scoop.
That’s where our free report comes in. We crunched the numbers on over 470 businesses, totaling a cool $50 million in deals. Inside, you’ll find insights, trends, predictions, and the raw data to fuel your own informed decisions.
If you really, really want to know how much your business is worth, take a cold shower first (because your business is likely not worth anywhere near what you think it’s worth or what many of those business brokers are going to tell you).
If, after the shower, you still want to know how much your business is worth, Jeez, you’re just not listening, are you?
Okay, but don’t take anyone’s “free” valuation. Find a professional, a qualified valuer, and PAY them to value your business. Then you get an unbiased valuation, a valuation from someone who’s not looking to sign you up for any other service.
Are you too tight to pay?
I think you deserve to deal with those crooks-in-suits I mentioned earlier.