If you have had a small business web designer build your website, how much is it worth?

There has been a lot of buzz about how much facebook will be valued at, and how much it will raise when it is floated with some estimates are as high as $100 billion. Yes, that’s correct, one hundred BILLION dollars. That’s double the value of Hewlett Packard.

This made me think about how much my website is worth. Not that I could sell the site as it is an integral part of my business. However knowing its value is important so I know if the investment I made is making money or not.

You might think the obvious way to value a site is based on the amount you paid for it. However, it is more complex than that because your websites value is based on the income it generates through leads or sales - not what you paid to have it built. In other words the original price paid isn’t its value. The value is the income generated via marketing and sales on the website.

If you know the value of your website, and how much you paid to have it built you can figure out if you are in profit. This is something that you should do as a business owner in the same way as you calculate profit and loss for your business. If you don’t, then how do you know if your website is making money or not?

Should you sack your website?

I like to think of my website is as a salesman. The websites job is to sell the services I offer, bring in leads, and convert them so that they become customers. If I were to hire a person as a salesman then I would assign sales targets and make sure that they earned more money than it costs me to pay their wage. If they didn’t meet the targets then I would be losing money and would have to fire them. The same policy should also be applied to your website.

So should you act like “Lord Sugar” in the Apprentice and fire your website?

Well, if you don’t get any leads, sell any widgets, or find any new customers then I would say it’s time to say “with regret, you’re fired”!

How much do most websites make?

In my experience the vast majority of small business websites don’t earn much, if anything. The reason for this is actually quite simple. Most business owners and small business web designers don’t concentrate on how money will be earned from the website when it is built. It may be a consideration for an online shop, but even then it is secondary to creating a thing of beauty that will look great in the small business web designers portfolio. It’s as if the most important thing is creating something pretty that the designer and business owner can be proud of as a piece of art.

However a website is not a piece of art. It is a business tool with a single aim – to earn money. If you lose sight of this you are very likely to lose money.

How do you figure out what your site is worth?

I did a little bit of research on selling and flipping websites, and typically a site can be sold for a price of about 3 times the reflected annual income, or what it could earn over the span of 3 years.

So if your website generates £1000 per month in sales via the website (either by selling widgets or via enquiries from the website) then the calculation would look like this:

£1000 per month x (3 years x 12 Months) = £36,000

So how much is your website worth? Do a quick calculation and see – you will be amazed!

So how much should it cost to build a money-making website?

You should spend as much as you can afford. Sound like a cop out? It isn’t, honestly!

For example if you send £1000 on your website and it earns £0, you have just lost £1000. However, if you spend £1000 and earn £250 per month then your website would pay for itself in 4 months. Better than that it would be worth:

£250 per month x (3 years x 12 months) = £9000

So your return on your investment is £8000. Even Duncan Ballanyne and his fellow Dragons would see that as a shrewd investment!

So when it comes to building a website decide on how much you would reasonable expect it to make. You can do this in a number of ways.

1. Figure out your average customer spend
2. Decide how easy it might be to get a new customer based on your experience in the real world. Things that can help include totalling how many phone enquiries do you get through other marketing efforts such as ads.
3. Put a conservative estimate on how many new enquiries or sales you expect to get. If you have an existing website perhaps look at your visitor statistics to see how many people look at your site to get an idea. Your current website designer should be able to help with this
4.Multiply customer spend by number of new sales over 3 years to figure out your potential earnings.

For example if your average sale was £100 and you expected 3 sales generated via the website per month then the income should be:

3 sales x £100 per month x (3 years x 12 months) = £10,800

Now you know the income, you need to decide how much to spend to generate this income.

Personally, I would suggest spending 25% - 30% of your income you expect to earn over 3 years on the site. The bigger the budget the better the website will be at creating new sales and the more likely it will meet your targets.

In this example the budget should be:

£10,800 x 25% = around £2,700

Summary

So now you know
• how to value your website
• how much to pay for a new website
• how to measure success
• to design your website based on making money – not on looks

Follow these steps and you should end up with a good value website that makes you money. It might not be worth $100 billion but it should contribute to your businesses earnings!