What makes for an accurate valuation?
To state the obvious, there are several factors that contribute to a site's value. To continue stating the obvious, the better the data available the more accurate the valuation. Unfortunately, most valuation tools completely ignore the single most critical piece of information in the valuation puzzle.
So what does make for an accurate valuation?
Three basics are required for a good valuation:
1. Collecting the right publicly available information about the site - such as PR & back links
2. Having the right inputs from the owner - such as earnings / time demands and
3. Knowing enough about the market and how much similar sites are selling for
There's a mind-boggling amount of information that can be gleaned from the domain name alone. Even the value of the domain can be worked out algorithmically.
An intelligent engine using millions of previous domain sales as a guide can work out the value of the keywords in a domain name, the value of the TLD associated with the name (it knows what premium a typical dot com has over the equivalent dot net), adjust for negatives like included hyphens and come up with a domain name appraisal that is more often right than wrong.
But a site for sale isn't domain name alone. Surely age, page rank, traffic, source of traffic, page views, backlinks, site growth over time and authority the site commands in its niche are all factors? True, and a lot of it can be estimated from just the domain name!
Valuation tools connect to a WHOIS service to query the age of a site. They can can use online traffic tracking services like Alexa to estimate traffic, page views and site growth. (True, Alexa isn't great on accuracy, but if you combine Alexa data with that from Compete.com, Quantcast and others, a clearer picture emerges.) The major search engines provide back link information. Some are better than others but automated queries are possible at all the big SEs. That backlink list can be filtered to show backlinks from just education and government sites - often an indicator of a site's authority in its niche. There's even more that can be directly queried or deduced with nothing more than the domain name and a few online services.
Our own valuation tool, like some others, does all of those queries above.
Where many other tools fail is by missing out on information that forms the cornerstone of valuation.
Information provided by owner
Even a casual perusal of site for sale venues will reveal that the single most asked question of site sellers is the level of profit. The reason is that this one figure includes a wealth of information. Neither traffic nor PR, nor backlinks have much value to buyers if they haven't been converted into revenue. Sites that haven't exploited their quality assets by making money from them invariable sell for less than if they had. Prices discussed between buyers are sellers are usually expressed as a multiple of earnings. The earnings figures underpin the value of the site like no other site data do.
It is therefore very strange that some site valuation tools completely ignore earnings. To give them some credit, there are a few that attempt to estimate earnings from the PR of pages on the site. And there's a shred of logic in there. Sites with high PR can charge more for text and banner links they sell on their pages.
However, consider this: Yahoo's PR may not change from one year to the next but
they could make a whacking great profit today and a multi-billion dollar loss
tomorrow. Selling links accounts for less than 1% of the way sites earn money.
Using PR as the swiss army knife and sole tool in valuing properties as diverse
as blogs, incentivized sites, forums and ebook sellers works on the flawed
assumption that PR is a major indicator of a site's profitability.
Knowing the market
For a given level of earnings the value of a site still varies depending on the type of site. From our observations - and other things being equal - Proxy sites sell for a much lower multiple than Content Sites. We've created nine categories based on this research. The most data available is for Content Sites as they come up for sale more often than businesses in any of the other categories.
Other influencers include the history and consistency of the profit, the site's prospects for the future, market sentiment and the level of competition among bidders. In theory, other factors should play a part too: the cost of money (interest rates), the rate at which earnings are growing and the seasonality of the subject are all contenders.
To this end, we monitor the markets, collect data on site sales, analyze that data and store it to keep improving on the accuracy of our engine.