Affiliate Website Valuation
While Amazon Associates websites are one of the hottest online business models on the web right now, there are a number of other successful affiliate businesses on the market which also command high values.
Affiliate websites tend to be more valuable than other online business models as they are very simple, easy to maintain, and highly profitable.
Affiliate websites, including Amazon Associates website, generally sell for 2.25x-3.25x earnings.
While dozens of factors affect valuation, with affiliate websites, the most important tend to revolve around traffic, trends, content quality, and SEO, which are all crucial to building an evergreen affiliate website.
5 Top Affiliate Valuation Factors
- Affiliate program & niche
- Organic traffic and trends
- Content quality & SEO
- Website age & financial trends
- Owner involvement
1. Affiliate program & niche
The niche that your affiliate website is in and the affiliate programs its uses to generate revenues are extremely important.
Here are some factors that lead to higher multiples:
- Evergreen niche
- Promotes multiple products
- Uses two or more affiliate programs
The inverse of these factors will result in lower multiples:
- Single product promotion
- Only one affiliate program (generally okay if it is Amazon Associates)
- Product is a fad, or has a limited lifespan
- Products are highly seasonal
Affiliate programs changing their terms, commission tiers, or even cancelling their programs create a significant risk for affiliate websites. Generally, buyers are okay with an affiliate site only using Amazon Associates since it’s unlikely Amazon ever cancels their program. However, this can be a big concern for smaller affiliate programs.
Additionally, if you are reliant on one product there is a high risk that the product becomes obsolete, fades out of the market, etc. A great example would be an affiliate website that’s main focus is on “the best landline telephones for your home”. Landlines are dying – not a niche you want to jump in to!
Diversification results in less risk, and less risk equates to higher multiples!
2. Organic traffic and traffic trends
Most affiliate programs do not allow for paid advertising, as it increases ad space competition from the product manufacturer and drives their CPC’s up. And building sustainable social and referral traffic is very difficult.
Organic traffic is the bread and butter of affiliate websites. It’s free and recurring (mostly). The best affiliate websites rank highly in the organic rankings for keywords that show high levels of buyer intent. If I’m Googline “best website hosting provider” I’m probably looking to buy website hosting.
Affiliate websites with high amounts of organic traffic and increasing traffic trends sell for the highest multiples.
3. Content quality & SEO
Since organic traffic is so important for affiliate websites, so is content quality, its backlink profile, and overall SEO profile.
Search Engine Optimization
Ranking organically in Google is difficult, especially for competitive keywords that have high buyer intent. Therefore, there are a lot of affiliate site owners who pursue questionable SEO strategies to get to the top quickly.
Affiliate sites that have purchased backlinks, purchased traffic, or use PBN’s (private blog networks) have very high penalty risk and therefore will take a significant haircut to valuation. Tons of backlinks for one or two high purchase intent keywords is usually a telltale sign of poor SEO habits.
Keep your SEO clean, stay away from purchasing links and using private blog networks to guarantee the highest valuation multiples.
Content quality goes hand in hand with SEO. High quality content that includes thousands of words is the easiest way to rank for competitive keywords and turn readers into buyers.
First off, if any content is copied or not 100% unique, you’ll see a reduced valuation. If there is bad content quality or copied content, it will be extremely easy for someone to outrank the website in the SERP’s, which could have a material impact on revenues.
Obviously, quality is subjective. But, at a minimum, you’ll want to have long-form content that is very detailed, informative, and written in an easy to read and digest format.
4. Website age & financial trends
As with all online business models, the age of the website and the historical financial trends tend to be very important. The older the website is the more historical data that is available which is important for creating comfort for a potential buyer.
Buyers like to see at least 2 years of traffic and financial history for affiliate websites. Ideally, both the traffic and revenue/profitability should be showing year-over-year and/or month-over-month growth.
Any financial adviser will tell you “past performance is not indicative of future results”, but consistent performance and growth helps mitigate buyer concerns. Additionally, since SEO, backlinks, and organic traffic are extremely important to affiliate sites, age is a relevant factor. Older websites generally have more organic backlinks and have higher authority in the search results.
A 1yr old website is a lot more likely to lose a #1 spot in Google than a 5yr old website is.
5. Owner involvement
Affiliate websites sell for higher multiples because they are usually a lot more passive than any other business model. Most simply require a few new blog posts or content pieces every month, which can be easily outsourced.
In the affiliate space, buyers are most interested in websites that require 5 hours or less of weekly maintenance. That roughly equates to the time to write one blog post or refresh older posts and make general website updates. Anything more than that will probably result in a slight value decrease as the buyer will start thinking about outsourcing things such as content writing, which reduce SDE.