If you are contemplating selling your website, you should start to consider your exit strategy. The most impactful part of planning your exit strategy is asking yourself “what can I do to increase the value of my website?”
Websites are valued by multipling profitability by a number, called the “purchase price multiple”, or the “valuation multiple”. If you want a more in-depth understanding, read our article: How to Value a Website: Calculating How Much your Website is Worth.
Profitability (usually trailing-12 month) x Purchase Price Multiple
At the simplest level, there are two ways to increase website value: increasing profitability or increasing the purchase price multiple.
Because increasing profitability isn’t easy, 4 out of 5 of our ways to increase the value of your website are focused on increasing the purchase price multiple.
Your valuation multiple is a reflection of the amount of risk your business has. Decreasing risk increases your valuation multiple and therefore sale price.
5 Ways to Increase Website Value
- Increase the profitability
- Automate or outsource tasks to increase passiveness
- Diversify your revenue sources
- Increase and diversify traffic acquisition
- Prepare accurate and detailed financials
1. Increase website profitability
This is the most obvious, but also most difficult way to increase value. Because we are multiplying profitability by a number to get a value, there is an awesome multiplier effect to take advantage of.
If your website commands a 3x purchase price multiple, every additional $1,000 in profits increases value by $3,000.
Cancel unnecessary subscriptions
If you are paying for a number of subscriptions that you never use, cut the cord. There are a number of tools and services that are ‘nice to have’ but not ‘need to have’.
One of my favorites for example is SEMRush.com. It’s super helpful for me in doing keyword research and various other SEO research, but it’s not necessary for my business to continue operating. And I’m paying $200/month for it.
If you have this on your P&L, you’re going to have a hard time getting a buyer to give you credit for this as an addback. At $2,400 per year, that’s a negative impact of $7,200 on value.
If I ever sold my website, I’d still probably want SEMRush for all of the other websites I have. So I should move the $200/month expense to either the P&L of one of my other businesses, or just run it through my personal credit card.
Raise prices if you have room
If you ever look at buying a rental property, they will always sell you on what rent prices could be, not what they are.
If you run a subscription site, ecomm site, etc. and know that you are undercharging for the value you are delivering, then take advantage of raising prices prior to selling.
Stop unprofitable advertising
I get approx. $0.03 of revenue per visitor to one of my websites. But, I’m running paid ads on it and paying an average $0.05 per click. It’s unprofitable!
And I know it’s unprofitable. But I’ve determined it’s worth it for the additional exposure, social follows, email subscribers, etc.
This is great because I’m okay losing some money in the short-run for the value my new readers will bring me in the long-run. However, if I’m about to sell my website, running unprofitable ads is just decreasing my profitability and therefore value.
There are hundreds of opportunities to increase profitability. I wanted to focus on my favorites that don’t take a significant amount of time to do. The goal here isn’t to grind until midnight every day to grow your business (sometimes you might want to do this, though). It’s simply to increase value a marginal amount without a lot of work.
2. Decrease your involvement: automate & outsource
This is huge and probably the most important factor to increasing value.
Website investors are looking for passive businesses. The majority of buyers have numerous other online businesses. They don’t have the time to buy something that is going to add 40 hours of work to their weekly schedule.
Owner involvement & overall passiveness of the website is one of the biggest valuation factors.
If your website requires 10+ hours per week of your involvement, then you should consider outsourcing or automating tasks.
Here are some general ideas. If you spend a majority if your time:
- Managing marketing / paid ads > outsource to a marketing firm or freelance ad manager
- Fulfilling ecommerce orders > consider a 3PL or hiring an employee
- Creating content > hire a freelance writer
- Answering customer service requests > outsource to a part-time contractor
The double-edged sword
Outsourcing means hiring someone else to do your work. Obviously, this costs money. And expenses reduce profitability, which reduces value.
So, the focus needs to be on outsourcing or automating cost-effectively. There are tons of awesome virtual assistants or functional experts in countries like the Philippines, where a couple hundred bucks per month can get you a full-time employee.
If you do this properly, your valuation multiple increase will offset the loss of value from the decreased profitability.
3. Diversify your revenue sources
If you have an ecommerce store that sells 3 products, you have concentration. An affiliate site that only makes money from Amazon Associates has concentration. If you sell advertising directly, but only to 1 customer, you have concentration.
If you are only generating revenue from 1 (limited) source, then you have a ton of revenue concentration, which is bad. What happens if your direct advertiser cancels advertising? Or if you accidentally broke an Amazon rule and they banned you from Associates?
As the owner, you probably aren’t too worried about this risk, but a buyer is.
eCommerce sites > make sure you have multiple products that generate revenue
Affiliate sites > have more than one affiliate relationship
Advertising > most content sites can be further monetized with things like affiliate
Service > offer more than one service
Ideally, you should have at least two different revenue sources, with no one making up more than 80% of revenue. This will differ case by case, but is a good thing to be conscientious about prior to selling. If you aren’t sure, drop someone like me a message and ask.
4. Increase and diversify traffic: leverage untapped marketing
I love buying websites that are 90%+ organic traffic. This is because I know I’m good at writing content that ranks well.
But, not everybody loves that. What happens if some bad SEO gets the site penalized in Google? Traffic can get sent to almost zero and the profit follows.
Buyers like websites that have highly diversified traffic. That way, if something happens like Google penalizing the site, you only lose maybe 25-30% of traffic, not 100%. And vice versa if something happens to social media channels, paid ads, etc.
Leverage untapped marketing opportunities
I mentioned earlier that I drive paid traffic for $0.05 per click, and I receive $0.03 of revenue per visit. If I spent some time optimizing, I could probably get my per click cost down to my revenue per visit. If I can increase traffic at a break-even cost, then I should do that. It increases traffic, and increases traffic diversification which is awesome.
Have an email list that you don’t ever email? Start sending regular emails to it to increase email traffic. This can also increase profitability too! Don’t have an email list? Create an opt-in pop-up and start collecting them. They are hugely valuable.
Run an ecomm store but don’t use paid advertising? See if you can find a profitable paid ad strategy to increase traffic and profit.
Don’t have any organic traffic? Try writing some unique content to increase organic search traffic.
Have social media pages that you never use or don’t have them at all? Start posting stuff and building your social audience.
There are a ton of different marketing methods I’m leaving off. The jist of this is, tap into all of the marketing opportunities at your disposal to increase and diversify traffic.
5. Keep detailed financial records & traffic records
You need to have accurate and detailed financials. If you can’t tell a buyer where ever dollar comes from and where every dollar goes, you are going to get a lower valuation multiple.
Using QuickBooks, FreshBooks, Xero, Zoho, etc. is the best way to keep track of your financials and buyers love seeing a business that has a legitimate accounting software.
If your site is an advertising content site that makes money from Adsense and your only expense is hosting and email, then an excel sheet is totally fine. But if you run an ecommerce store, buyers will want to see cost of goods sold, shipping, returns, advertising expenses, platform fees, etc.
Final thoughts on increasing pre-sale website value
As mentioned, there are hundreds of ways to increase the value of your website. I tried hitting on the most important ones, but don’t stop here. I’m happy to provide a free website valuation and some recommendations on what you can do to increase value. But to recap here’s what I would focus on:
- Increasing profitability, or decreasing expenses
- Adding more revenue streams and reducing risk by not having it all concentrated in one revenue stream
- Diversify traffic acquisition between organic, social, paid, email, direct, etc.
- Reduce the amount of hours required per week by outsourcing and automating
- Keep detailed revenue and profitability records and also use Google Analytics for traffic