Free website valuation tools work by looking at one potential stream of revenue which may be applicable to your business, but if you are an e-commerce company these tools are not useful to estimate the value of your company. Let’s look at how these tools generally work, how you can come to a valuation with the same method more accurately and a valuation model that can be used for e-commerce companies.
How do website valuation tools work?
One of the oldest forms of website monetization is advertising and these tools use the assumption that a site using an advertising model to calculate a valuation. The mentality that if you have eyeballs you can monetize them is absolutely true. If you have millions of pageviews you can make ad revenue from those pageviews. However simply throwing up ads may be the easiest, but not the highest revenue generating method. Running an e-commerce store, or selling services may be a much higher generating revenue activity that these free website valuation tools do not consider.
Depending on the demographics and topic of your site, the CPM your site will fetch will vary greatly. Cost per 1000 impressions (CPM) is one of the original methods of paying publishers for ad real estate on their sites and is used as an alternative to Cost Per Click (CPC) ad auction bidding. CPM rates are more based off the demographics and topic of the site, whereas CPC are based off the actual performance of the ads themselves. A website which has higher performing ads will likely make advertisers willing to pay more for their ads, but this is a lagging indicator. CPM rates are typically in the single digit dollar ranges, but they can go all the way up to $100 for certain niche high value audiences.
Other factors like the age of the domain, speed of the site, number of backlinks, social media following and search volume for the website name are taken into account but potential advertising revenue is the largest factor. As these sites don’t know the actual CPM rate charged for advertisements, or the actual traffic of the website the estimates widely vary.
Examples of Popular Website Valuation Prices
CNN.com for example is valued at $997,000,000, $16,672,082 and $12,198,397 from the various sites.
As many website valuation tools assume the revenue stream is advertising, you will be getting one of the lowest possible valuations. Any website with pageviews can add display banners and start making money. Many e-commerce brands are advertising on websites, so they are able to pay the cost, and the revenue the website would make, plus make profit as well.
MVMT, a consumer watch brand, recently sold for $100M to the Movado Group. The website valuation tools provided an estimate of $2,154,400, $361,742 and $80,972. While we don’t know the terms of the sale and if they included inventory, or if the company has retail sales or other channels besides a website, it is clear the valuation is significantly off from what the market valued it at.
Their main form of income comes from various types of advertising such as display ads, editorial sponsorship, branded content, and also events.
Once again the valuation estimates widely greatly from $94,250,000, $1,159,048 and $1,911,442.
The pitfalls of valuation tools
As the business has other revenue streams besides primarily display advertising the tools would not be able to capture these, and we also don’t know the financial condition of the business at the time.
Nowadays with websites being able to monetize in so many different ways, these tools are not very accurate at providing a price someone may actually pay. Unless you have actual data of the performance of the business, the estimates are only estimates and greatly vary.
How does Exchange provide a business valuation recommendation?
Sellers on Exchange are free to list their business for sale at whichever price they like, but Exchange’s valuation tool will provide a recommended selling price. It takes into account actual data from a store’s performance, such as lifetime revenue and traffic.
The revenue looked at is pulled directly from their Shopify store and are figures which cannot be edited or modified by the seller. Revenue that is looked at is only from whitelisted sources. These sales are ones that took place through a store’s checkout and some limited 3rd party apps.
It’s important to note that the valuation price suggested to business owners is just a starting point and may not include all information relevant to the value of the business. When you’re looking at a business to buy, inquiring with the store owner to get more information on how they determined their store valuation is the best way to figure out if the business valuation makes sense.
The store valuation we suggest is for illustrative and general information purposes only. We recommend you get independent financial advice when assessing the value of your business. Shopify is not responsible in any way for your or any other party's use of or reliance on this valuation.