How To Choose Your Valuation Multiple When Selling Your Adult Website

• 18 Oct, 2024
• Adult Site Broker

When it comes to understanding your website’s value, using a valuation multiple is a simple and effective financial tool. It allows you to estimate your website’s worth based on your revenue, net profits, or website traffic. However, when it comes time to choose which valuation is best for you, we need to delve into the advantages and disadvantages of all three options. 

In this article, Adult Site Broker will explain how to choose your valuation multiple when selling your adult website. 

What Is a Valuation Multiple? 

Valuation multiples are a financial tool for calculating a company’s value by comparing one financial metric to another. They are a quick way to value and compare a company.

These website valuation multiples are used because of their many advantages, including: 

Their simplicity allows analysts to make sound estimates based on relevant and valuable information about a company’s financial status.  

However, it must be noted that there are certain disadvantages to relying on multiple methods when doing a website valuation, such as their ability to simplify complex information into a single value and not allowing for the nuance of various factors when valuing a website’s potential sales price. In addition, many multiples are static and provide only a snapshot of a company’s financial status, not considering a company’s current position or future growth. They do not allow for easy comparison between companies and can also not be relevant for certain types of businesses. 

In the next section, we will examine the different valuation multiples you can use before we consider their pros and cons. 

What Valuation Multiples Can You Choose From? 

When it comes to choosing which valuation multiple to rely on, three main ones are used, these are:  

Revenue Multiples: Revenue multiples are a valuation method used to determine a company’s value by multiplying its revenue. Average revenue multiples are at most 2x revenues and often less. The multiple is based on whether revenues are moving up or down.

Net Profit Multiples: This method values your adult website by directly applying a multiple to its net profit. To do so, you need to work out your annual profit. Once this is done, you multiply it by the multiple, allowing you to determine what your site could sell for. Currently, websites sell anywhere between 1 and 3.5 times their net profit. Once again, this is based on what direction your profits are going.

Traffic Multiples: The third website multiple commonly used is a traffic multiple, which values your website by determining how much traffic it gets. This is usually applied when a site is pre-revenue based on what the traffic would sell for on the open market. 

What are the pros and cons of each multiple valuation?

Now that we know what valuation multiples to use, we must understand which to choose and why. Adult Site Brokers has examined each’s pros and cons. 

Revenue Multiple

By basing the multiple on market prices, revenue multiples are the quickest and easiest to use to assess the financial value of an adult website; this is because they determine how much revenue a company has made against a market-based number. Because of this, they are less affected by accounting decisions within your business than net profit multiples. 

However, revenue multiples also have a significant drawback because they don’t assess the profitability of an adult website, which is an essential factor when determining the long-term sustainability of a business, something that heavily influences buyers. In addition, the multiple can also change based on market conditions and trends, meaning that you could lose value on your website if you choose to sell when the market is going through a rocky period. Finally, revenue multiples may not be as accurate as net profit multiples when determining a website’s value, as they rely on only one factor. 

Net Profit Multiple 

When focusing on a net profit multiple instead of a revenue multiple, a few benefits exist for assessing an adult website’s financial health and value before listing it for sale. First, a net profit multiple highlights a company’s ability to generate a profit and its operational efficiency. In addition, it offers a reliable and valid valuation alongside income statements, balance sheets, and cash flow statements, enhancing your adult website’s financial credibility when it comes time to sell.

However, this type of valuation multiple also has a few disadvantages. To begin with, unlike revenue multiples, net profit multiples can be susceptible to accounting decisions and manipulation, potentially distorting a company’s financial performance and leading to an inaccurate valuation. In addition, net profit doesn’t consider non-cash items like depreciation and amortization, which can affect a business’s cash flow. Nor does it consider industry-specific factors and market trends that could impact your adult website’s value. 

Traffic Multiple 

Unlike the other two, which focus on giving a financial snapshot of your adult website, a traffic multiple is the perfect choice for a pre-revenue adult website. This is because it doesn’t require you to have any revenue or profits, just the analytics of your website’s monthly or annual traffic. 

However, being unable to assess the financial health of your adult website also doesn’t help your financial credibility or allow potential buyers to calculate their return on investment if they buy the adult website. 

Conclusion 

To wrap up, when choosing which valuation multiple to use when selling your adult website, you should consider the stage of your adult business’s life cycle. Is it pre-revenue, an early-stage company, or an adult website that has been around for a few years? 

However, while these are the most common ways to value your website, each method has advantages and disadvantages. While its simplicity allows for a quick and easy estimate, it needs to account for your company’s current position and the potential for future growth.

Read more from Adult Site Broker here:  

How To Maximize Value From Your Underperforming Adult Website Before You Sell

How To Manage Personal Risk When Buying a Porn Site

What Can Affect Your Adult Website’s Valuation Multiple When It Comes Time To Sell