When assessing 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 the best valuation for you, we need to weigh 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 valuing a website, such as their ability to reduce complex information to a single value and their failure to account for the nuances 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, without considering its current position or future growth. They do not allow easy comparisons between companies and may not be relevant to certain types of businesses.
In the next section, we will examine the valuation multiples you can use, along with 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 depends on whether revenues are rising or falling.
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, multiply it by the multiple 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 where your profits are headed.
Traffic Multiples
The third commonly used website metric is traffic multiple, which values your website by measuring how much traffic it receives. 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 the pros and cons of each.
Revenue Multiple
By basing multiples on market prices, revenue multiples are the quickest and easiest to use to assess the financial value of an adult website, as they show how much revenue a company has generated relative to market benchmarks. 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 change based on market conditions and trends, so you could lose value on your website if you choose to sell during a rocky period. Finally, revenue multiples may not be as accurate as net profit multiples for determining a website’s value, as they rely on a single factor.
Net Profit Multiple
When focusing on a net profit multiple rather than a revenue multiple, a few benefits arise in 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 provides a reliable, 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 are susceptible to accounting decisions and manipulation, which can distort a company’s financial performance and lead to an inaccurate valuation.
In addition, net profit doesn’t include non-cash expenses such as 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.
Conclusion
To wrap up, when choosing which valuation multiple to use when selling your adult website, consider the stage of your business’s life cycle. Is it a 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, easy estimate, it should account for your company’s current position and potential for future growth.
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