Domain AuctionsDomain DevelopmentDomain valuation

How to value a website with traffic

By May 3, 2010 February 27th, 2017 17 Comments

Our friends over at Moniker are managing the auction for the WiFi.com website. WiFi.com has 30,000 monthly unique visitors for a keyword with a healthy CPC.  While there are a number of ways to value a website, the most obvious is to put a value on the traffic that it already gets.  This post shares how we did it, and also offers a free spreadsheet which you can use to do it too.

The Valuation Model for WiFi.com
The tool we developed for valuing a website with traffic is pretty straight forward. It looks at monthly traffic from Google. The WiFi.com domain is #3 on Google for “WiFi” and #4 on Google for “Wi-Fi”. As it result, it gets a fairly steady stream of organic traffic for people looking for WiFi.  The average cost for a traffic buyer is believed to be about $1.41 for the “Wi-Fi” term.

A 5-year discounted cash flow (DCF) model can be used to value in present dollars what the cost would be for that traffic stream for the next 5 years. We can then add to that, the “salvage value” of the residual asset, which continues to have value beyond the value of the traffic.  When you add those 2 primary sources of value, you get a reasonable present-day value for a site with traffic.  Here is a snapshot:

wifi-roi

My personal view is that WiFi.com is capable of tremendous traffic growth.  So, if we don’t sell the site at auction this month, we’ll complete development of a next-generation WiFi.com portal that is currently in development. The explosive growth of the Product Portal platform has caused us to put some developments on the back burner temporarily.  We remain highly enthusiastic about the category and look forward to staying involved with whoever acquires the site.

Try the valuation model out yourself

The model also has the ability to allow you to model out various growth scenarios.   You can download the valuation model for free here:  Wifi.com Purchase ROI

Join the discussion 17 Comments

  • ROI analysis has been a topic of interest in my career. One has to consider the possibility of various alternatives as actual results will always vary from any forecast. Regarding the CPC assumption, I suppose (perhaps incorrectly) you mean what a buyer would have to pay to obtain that traffic using Google Adwords. For organic traffic, the method of traffic monetization can impact significantly the value of a visitor (PPC, affiliate, lead generation, etc) Note that for an Adsense or affiliate monetized website, the CTR will be far less than 100% so the earnings will not be equal to the CPC for the keywords in question. Also note that the assumed hurdle rate is a critical assumption and arguably should consider the riskiness of a project. Online ventures always entail a degree of risk particularly over the long term. Lastly note that IRR is mathematically the point at which NPV equals zero. The formula used for IRR is only considering the NPV of the initial cash outlay plus the NPV of future cash flows in year one. If one plugs in the calculated IRR, the resulting NPV is not zero. In either case the analysis is an interesting one.

  • correction to wording – IRR is the hurdle rate at which NPV equals zero

  • brian k says:

    Here is how i would value a site with traffic.
    End user sale vs reseller.
    Obviously you will get more for a end user sale and everyone wants to sell to end users.
    However if you are looking for a quick payday a reseller might be the only one you can sell to.
    I am building a site right now. We are estimating we will get 300 visits a day once the site has been fully developed and seo’d properly.
    We figure we can get a 10% click through on ads ,generating 30 clicks at 4-6 bucks a click.
    The cpc on this keyword is up to 12 bucks.
    So if I were in need of cash I could sell the site to a reseller for 5X adsense earnings
    or 219,000 ( I wouldnt sell it for this price I definitely wouldnt sell it for less )
    Or I can try to sell to an end user. In that scenario I would take into consideration that
    my traffic would cost an end user somewhere around 800,000 per year.
    So lets say for this point of conversation I would try to get 3 x 800,000
    Does this make sense?
    The next thing to consider is did I solicit the sale or did the buyer solicit me.
    If i solicited the sale I would know im selling to an end user or a reseller
    I know im rambling but i just wanted to get my thought process into cyberspace lol

  • Todd says:

    Rob, nice job to you/Moniker of describing a financial-valuation model for wifi.com’s net-present-value and how to value a website.

    Many of the core aspects you discussed are the same metrics which stock investors (not traders) and vulture bond investors use to value stocks & collateralized bonds in bankruptcy court.

    Marty Whitman & Eddie Lambert use these kind of tools on brick & mortar companies.

  • Attila says:

    Not so many “domainers” in this industry show off why their domain is worth what they ask (or hoping to get) without referencing “oh, but this other domain which is kind of similar sold for this much, so mine is easily worth 1/10th…” – now of course these are the noob sellers with mediocre / slightly better but not so premium domains which would fetch $2 – $3k, in reality would no where get $100k even if that one “premium, major category killer” domain sold for $1.2 million.

    Rob is one of the more professional business men I know in this domain industry that continuously keeps showing his colors of being a true business man. Not to mention, he must be quite busy with his work but always finds the time to say “wassssuuuppppp” back :-p

  • Attila says:

    oh, forgot to say, wish the best on the wifi.com sale

  • Joel S says:

    As a buyer, and I can only speak for myself, but I believe others will soon come to realize this: a 5 year ‘projection’ of anything is too long. The internet and world itself is moving far too fast to assume anything will be “consistent” for the next 5 years.

    Domains, PPC, Adwords, etc may not even be around in 5 years. Your tagline touches on this: “The Internet is evolving” … at a very fast rate at that. If I were to sell a domains based on a current revenue multiple… (as a buyer) a 5 year revenue stream is too far out.

    This is a reality in the world we live in. What if I did the same 5 years ago… PPC has taken a SERIOUS hit … it’s not the same it was years ago so all projections of 5 (and at that time some were even doing 10) years out were all way way off. Now, everything is moving even faster now.

    Just my 2¢.

    • Rob Monster says:

      @Joel S — I completely agree about the pace with which technology and the web are evolving. It is 100% true. However, I believe this further reinforces the need to secure sustainable and defensible sources of organic traffic. Google’s algorithm will change, but the web and domain name addressing system is likely to be with us for a very long time to come, just as phone numbers have been with us for a very long time. Business — including big business which largely sets policy through government as proxy — has too much invested in domain names and the web as a commerce platform for there to be an abrupt transition from domain names as a primary addressing system. So, I do think 5 years is a logical valuation horizon.

      There are a few scenarios I can think of that would shorten it to less than 5 years, but I weight them with such low probabilities that there is not worth factoring. Sure there are X-factors but many of them are positive for the web even though it would be a disruption on various levels. A few illustrative examples:

      – Gasoline could go to $25 a gallon in the next 5 years. It would lead to more people shopping and interacting more online, while traveling less.

      – China could dramatically reduce shipments to the US. It would lead to more domestic production, barter and trade of used goods. This is again a positive for the web though it would be disruptive to a number of major importers of consumer goods.

      – There are a number of scenarios that would cause the web to be disrupted regionally. Service would be restored. People would be reminded how much they have become dependent on the web, and develop further counter-measures against interruption. Some bandwidth-hogging services like video would cease being free. And that would be about time!

      – ICANN could dramatically increase annual registration fees. It would effectively punish anyone who has failed to move beyond parking as a mode of value-creation. Just as there are property taxes on idle property, I fully expect TPTB to figure out a way to tax domain names in a more significant way. Financial transactions and carbon consumption are already heavily taxed. Domains are basically tax-free. That won’t last.

      – Etc.

      To date, I would argue that the single biggest disruption to the importance of domain names since their invention was the emergence of Google as the dominant onramp to content discovery. This is the primary reason why PPC volumes have cratered. Why? Because (1) type-in is an inferior and arbitrary method for content discovery compared to Google, and (2) Google has become the de facto price setter for the price of advertising impressions.

      I realize that there are pundits who assert that the domain naming convention may be replaced by the next big thing. Perhaps but more likely is that these same folks completely missed the boat when it came time to secure domain names when they had the chance to do so. This is otherwise known as “sour grapes”!

      So, yes, we live in uncertain times but I am of the opinion that the web has staying power. I have more to say on this topic here: https://localhost:8888/epikblog/boom-why-domains-are-better-than-dollars.html

  • Mikey(idealideas) says:

    Amazing posts guys – gives so much food for thought.

  • Rob,

    So happy to see someone else use a legitimate valuation model for domain names & websites. Not, “I think this name is worth X because I just think it is, and 3 years ago the .mobi sold for Y.”

    This is a straight forward model, based on facts which can and should be used on the majority of active assets (an investment that throws off cash).

    My estimations are nearly the same, however, I do discount for the risk of this business as well because this is not yet the majority accepted valuation model and your likelihood of exiting to anyone but an end user at the numbers you estimate are extremely unlikely.

    I discount significantly, to the tune of about 40% (use a 3x valuation because I don’t think you can look 5 years out in this business at the current time – although I think that the prospects are actually far greater the further you get out…but that is just my assumption and not a fact)

  • brian k says:

    @andrew
    what if your sites primary source of revenue is coming from adsense?
    And you know that an end user will monetize much better.
    A 3 times multiple on adsense revenue might not cut it.

    When its go time and you are negotiating I would try to determine what I think the site is worth to the potential buyer and try to get a multiple of that number.

    I think when it comes down to it your site or domain is worth what you get for it.
    Not a penny more.

  • Duong Trung says:

    As an outsider, I am amazed by these deep posts.

    I have a few domains purchased for business purposes but now I want to sell them out for some changes. Some of which would be branded well:

    https://www.Kentom.com

    Can you give me some hints?

    Thanks,

    dvtrung@kentom.com

  • Ouch, Rob. All those numbers and stats and stuff makey my noggin hurt.

    Let’s just say: the domain name WIFI.COM is a natural category killer, and a top trending domain that will make money if you sneeze on it.

    There, I said my free 2 cents!

    Great diagram, seriously.

  • Stuart says:

    FYI – There are a number of other factors which make the model Rob offers inconclusive of a domains “actual” value. This model may be used as a baseline (domain on its own), but as a partner in WiFi.com (disclaimer added) I can tell you there are factors such as active members, number of software downloads, returning traffic, backlinking (i.e. our “geocity” one way linking program), and an active and healthy website which is about to be overhauled, which are not accounted for. Furthermore, let us not forget the addition of income outside the realm of PPC dollars. WiFi.com can and will sell anything related to “WiFi.” Think about relationships with the likes of Boingo, iPass, Trustive, The Cloud. Furthermore, potential affiliations with personal or corporate wifi system installers and management. These are all in play and NOT considered in Rob’s model.

    This can apply to ANY category killer.

    Food for thought.
    Stuart.

  • Tom says:

    Nice valuation mode. Thanks for the post!

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