We all work hard to build a business or blog that becomes profitable. If you’re lucky, you will have built a business around something you are incredibly passionate about. For others, the hustle is simply to make enough money and then sell the business on to another individual who wants to take the reins.

If you fall into the first category, that’s awesome – keep doing what you’re doing!  However, if you’re looking to sell your business because you fancy a new venture then you need to figure out how much your digital assets are worth.

For those who have built an online business that they’re looking to exit from, you need to understand how it is valued so you can get the best deal from your content website, software as a service (SaaS) or e-commerce store.

SEO is the most valuable traffic for a digital asset

SEO is the most attractive traffic source for buyers. The best thing about SEO is that a website can maintain and bring in traffic for a significant timeframe with minimum upkeep if you have put in the work to achieve the rankings.

On the other hand, websites that rely on pay-per-click (PPC) campaigns or Facebook ads require daily monitoring as well as ongoing costs to keep the traffic coming in.

Whether the buyer is a newbie or a veteran to methods of traffic generation, a well-optimised site that brings in traffic organically has a wider appeal than any other traffic strategy.

The magic formula to how online businesses are valued

At the heart of any valuation is the basic formula: 12 month average net profit x 20-50 multiple.

To find out how much your business is worth, look at your rolling 12-month net profit average and then times it by a multiple. The multiple will typically be between 20–50 x the 12-month average net profit for an online business.

How to get a higher valuation

There are several things you can do to get a higher multiple, most which come down to common sense and putting yourself in the buyer’s shoes.

The two areas that most influence the multiple are the actual average net profit and how long the business has been making money.

The higher your average net profit, the higher your multiple will tend to be because it’s a bigger cash-flowing asset. To improve this number it makes sense to look at how to increase net profit and reduce expenses.

Although cutting some costs can improve your net profit, you need to be reasonable about it as some cuts could end up making your business less attractive.

When selling a business, you don’t want to worry only about the expenses, but also how easy it is to start running that business for the buyer.

In addition to the net profit, a history showing a steady profit level or an upward trend will also lead to a higher multiple.

Other factors that lead to a higher multiple

While profit and history are the two main factors in a valuation, there are other factors that can increase your multiple.

1. Minimise critical points of failure

What could be a total deal breaker when it comes to selling your business? Are you relying on one source of traffic? On one supplier? It’s important to be able to diversify and have a sufficient back up strategy to minimise potential weaknesses.

2. High amounts of traffic

Higher traffic tends to lead to higher revenue, which ultimately should increase your net profit. When you have a high amount of traffic, you give potential buyers room to experiment with different conversion rate optimisation factors.

3. Social media following

Social media has become more and more important as time goes on and a large following is likely to drive some traffic and sales to your business. Although figures like ‘reach’ and ‘followers’ can be fickle, if you can prove it leads to conversions it will help increase your multiple.

4. Hours required

The majority of buyers are not looking to acquire a job; they want an investment they can scale up. Your business will be more attractive if it doesn’t require a large amount of work from the owner.

If you’re looking to sell your business, you should first consider how to minimise the actual involvement you have.

The most effective way to cut down on your time spent on the business is to automate and outsource as much as possible. While these add costs that drive down the net profit, they also make your business far more attractive.

One of the first things to outsource should be your website maintenance as it takes up too much valuable time to update.

Here at WP Tech Support we take care of all your core and plugin updates, including any compatibility issues that arise. We also add additional security to protect your website from hackers/malware infections and make regular secure off-site backups of your entire website and database. Signing up to our monthly plans is a great investment to make whether you plan on selling your business or not.

There are so many factors to consider before selling. When you’re ready, we’ll be there to help with your outsourcing requirements to increase its values.