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Blog Valuation for Business Owners
By Ian Drogin
If you’ve built a successful blog, you know that it requires skill, knowledge, and a lot of hard work. In many cases, blogs are extremely valuable, both personally and financially. Therefore, shouldn’t you understand how the blog valuation process works?
Despite the time and energy it takes to build a blog, many owners don’t know how much their blogs are worth. If you pay attention to your home value, stocks, or crypto investment portfolio, you should absolutely be tracking your blog’s value too. Not only does understanding blog valuation enable you to see your personal financial situation more clearly, but it also provides key insights for growing your business.
In this article, we’ll share how the blog valuation process works. We also talk about why it’s important.
Why Determine Your Blog’s Worth?
Before going through the ‘trouble’ of valuing your blog, it’s important to know why the valuation process is important.
The valuation process reveals key insights that allow you to make better decisions and maximize your success. It does this by helping you in several crucial ways:
- Identifying opportunities
- Minimizing risks
- Maximizing value
- Understanding your exit options
“The valuation process reveals key insights that allow you to make better decisions and maximize your success.”
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The blog valuation process allows you to explore all of the opportunities that exist within your blog business.
Sometimes, there are key content marketing strategies that represent easy growth opportunities. At other times, a blog owner may have great content but isn’t effectively leveraging social media or affiliate marketing. Even the best entrepreneurs can overlook promising growth opportunities.
“The blog valuation process allows you to explore all of the opportunities that exist within your blog business.”
Additionally, some opportunities are less about growth and profitability and more about the business’s operating practices. For example, perhaps you have great blog content but your business is lacking effective management or bookkeeping procedures. Whatever opportunities exist should be discovered during the valuation process.
Sometimes, business owners fail to recognize the element of risk. The valuation process can help you identify and minimize various risks that exist within your business.
For example, if 90% of your website traffic comes from just one page on your travel blog, that could be concerning. If that page stops ranking, your blogging statistics and KPIs could drop significantly.
Of course, there are many different kinds of risks and each blog must be evaluated on an individual basis.
Improving Your Blog and Maximizing Its Value
The blog valuation process provides owners with a clear roadmap for maximizing its value.
Above, we discussed two of the core benefits of blog valuation (taking advantage of opportunities and minimizing risks). When you follow the steps to improve your business in each of these areas, your blog becomes more valuable.
In addition to opportunities and risks, the valuation process provides you with a realistic assessment of how ‘transferable’ your blog is.
“The blog valuation process provides owners with a clear roadmap for maximizing its value.”
Not all blogs are created equal when it comes to transferability. Some blogs can be easily transferred to a new owner, while others are much more difficult. By doing a valuation, you gain a clear understanding of what is required to maximize transferability when selling your blog.
Understanding Your Exit Options
When you know the market value of your blog and what buyers are looking for, it’s easier to do accurate exit planning.
If you work with qualified advisors, they can explain how your business fits into the market landscape for similar businesses and digital assets. This allows you to have a better idea of what to expect when trying to execute an online business sale.
“When you know the market value of your blog and what buyers are looking for, it’s easier to do accurate exit planning.”
Blog Valuation Method
Like most online businesses, blogs are typically valued using the SDE multiple method.
To calculate the value of your blog using the SDE multiple valuation formula, you first need to determine two important numbers: SDE and the multiple.
There are other valuation methods that apply in certain cases (i.e. large SaaS companies). However, the SDE multiple method is the most common.
“Like most online businesses, blogs are typically valued using the SDE multiple method.”
Seller’s Discretionary Earnings (SDE)
In simple terms, Seller’s Discretionary Earnings is how much money a business earns for a single owner.
In ‘business terms,’ SDE is a business’s net profit taken before taxes, interest expenses, non-cash expenses, one-time investments, owner’s benefit, and any unrelated income of expenses.
The reason that these expenses aren’t accounted for in SDE calculations is because they are not transferred to a new owner. For example, if you sell your blog business, the new owner won’t take on responsibility for your business credit card interest expenses. Therefore, these expenses shouldn’t be included when calculating SDE or EBITDA.
In some ways, calculating SDE is similar to performing calculations for normalized financial statements.
Determining the Multiple
The multiple is a number that is multiplied by SDE to determine the value of your blog. For example, if your SDE is $200,000 and it’s valued at a 4X multiple, its value is $800,000.
Essentially, valuation multiples are based on the desirability of your blog business relative to your SDE. The more desirable that your business is, the higher your multiple will be.
In the next section, we’ll explain the key elements that determine the value (and multiple) of your online business.
Factors that Impact the Value of a Blog
There are four factors that impact the value of a blog, or any other business for that matter. At Quiet Light, we call these the Four Pillars of Value.
The Four Pillars of Value include:
How Growth Effects Blog Valuation
Every investor loves to acquire an asset that will continue growing. Therefore, if your blog has strong prospects for growth, it will be worth more.
The first way to evaluate a business’s expected growth rate is to look at its past performance. If its cash flow and SDE have been steadily increasing, that’s a very good indicator that you’re on the right track. All else being equal, investors will look more favorably on your blog business.
“Every investor loves to acquire an asset that will continue growing. Therefore, if your blog has strong prospects for growth, it will be worth more.”
Another aspect of growth is growth potential. Smart investors will examine your business to understand how they might be able to grow it further after acquisition. As a seller, you want to be sure you’re in a position to point out promising growth opportunities.
Potential growth opportunities include:
- Search engine optimization
- Inbound marketing
- Social media integration
- Email marketing
- Landing page optimization
- Content marketing improvements
Together, your past performance of growth and future growth prospects will greatly influence the value of your blog.
Risk Lowers Blog Value
Not surprisingly, investors are wary of risky businesses. All else being equal, if your blog is exposed to significant risk, it will be less valuable.
A few common risks for blogs include:
- Limited traffic sources
- Market trends
- Algorithm changes
Pretty much all businesses must contend with competition, and blogs are no exception. If you’re operating in a niche in which competition is quickly increasing, that could be a red flag. Therefore, savvy buyers will examine whether you’re gaining or losing traffic (market share) relative to your competitors.
Additionally, it’s important to consider where your traffic is coming from. If you have a large quantity of blog content that is generating traffic equally, you’re in great shape. If one of your blog posts suddenly stops ranking, you’ll still have several others to pick up the slack.
On the other hand, if 95% of your website visitors are coming from one page, you may have an issue. If that page stops performing, your business will plummet. In such a situation, it may be best to build out more stable traffic sources before selling your blog. Otherwise, the business value will take a substantial hit.
Negative market trends can be another risk in certain cases. If your niche is shrinking, the buyers will be wary. Even though your blog may still have some intrinsic value, it could be challenging to find a buyer.
Algorithm changes can be another risk that blogs may have limited control over. However, they’re still important to consider as they can impact blog appraisal.
We already talked about transferability a bit, but it’s still important to address here. The easier it is to transfer your blog to a new owner, the more desirable it will be.
If your blog is highly systematized, doesn’t require your own personality, and provides stable, passive income, it will be worth more. On the other hand, if your blog is essentially a personal diary that relies on your constant presence, it will be more difficult to sell.
“If your blog is highly systematized, doesn’t require your own personality, and provides stable, passive income, it will be worth more.”
Buyers generally don’t want to take on someone else’s mess. Therefore, buyers look closely at whether or not your business is well organized and has sound documentation.
Sound documentation means that you have clear financial records that tell the story of your small business. It also means that you have clear Standard Operating Procedures that provide a clear roadmap for running your business. If you can hand over a list of micro-goals that lead the next owner to success, that can go a long way.
Pros and Cons of Using Automated Tools to Value a Blog
Automated tools are easy to use, but owners should be wary about relying on them too heavily.
Pros of Using Automated Tools to Value a Blog
The pros of automated business valuation tools is that they’re quick and straightforward. As such, it doesn’t hurt to plug in your numbers and see what they spit out.
In general, automated tools can tell you the obvious: the higher your SDE and profit, the higher your valuation. However, what they won’t provide is a personalized evaluation of your blog business.
Cons of Using Automated Tools for Blog Valuation
Like all businesses, including SaaS, blogs can not be understood just by looking at a few isolated numbers.
Since automated tools can’t account for the numerous elements that must be considered, their accuracy is limited.
If you own a blog or content site, the most accurate way to understand its fair value is to sit down with a qualified business Advisor or appraiser. By learning about the valuation process and speaking with the right people, you’ll be well on your way to maximizing its fair market value when it’s time to sell. In some ways, it’s not so different than sitting down with a real estate agent when planning to sell your home.
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