Web site value is a popular topic on message boards around the Internet, and the postings often focus on revenue as a way of establishing a site’s worth. But revenue is misleading.

A number of Web sites provide calculators that claim to show the value using publicly available information such as estimated audience from Alexia.com, a site’s presence in the search engines and other factors. Those numbers are misleading as well.

The best way to determine Web site value is with an accurate view of profit.

A common measure of the value of a company on the major stock markets is price divided by earnings, or the price/earnings ratio. The average ratio usually ranges over time between 15 and 20, meaning that the company is valued at 15 to 20 times its profit.

A small Web site that generates $1,000 a month in revenue and has $900 a month in expenses has a profit of $100. At 15 times its annual profit, the site is worth $18,000 or $100 x 12 x 15.

Why is revenue misleading? What if a second small site also has $1,000 a month in revenue and $1,000 a month in expenses. It is left with no profit at the end of the year. Why would someone pay $18,000 for a site with $1,200 in profit and someone else pay $18,000 for a site with no profit?

An online publisher who is thinking about buying a site, selling one or just wonders about the value of a current site should start with profit as a way of determining its value. Once that value is established, the publisher should look at revenue, audience and value of the domain name, among other considerations.

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- Web site value for other insights and articles about building an online business.

Scott Bateman is a professional journalist and online publisher with lengthy experience in media including newspapers, radio stations and television stations. He has worked extensively for two major media companies and has launched numerous Web sites for media, local businesses and non-profit associations.

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