How to estimate revenues/valuation of an advertising-supported internet website?

Do you have a rule of thumb that calculates approx. advertising revenues of a Website based on the traffic generated?
How form there can you estimate a valuation of the website?

Let's take some website examples : digg.com, stackoverflow.com, goal.com... ? Can you estimate their advertising revenues?

Since I am writing a Business Plan for an internet business, this kind of information will help me to provide some real data and consistent revenue expectations.

Thank you,

Fabien.

There are a whole lot of variables that go into estimating the revenue potential of a website, but there is one variable to rule them all. It's the audience.

Asking "if my site gets X pageviews, how much can I sell it for" is like asking "I have X pounds of metal, how much can I sell it for?" Since gold sells for $1000/ounce and iron goes for $200/ton, it's a pretty silly question. The same holds true for pageviews.

HR.com, a resource for HR professionals, charges upwards of $80/CPM. I've heard that MySpace and Facebook charge in the fractions of a penny per CPM. That's a pretty big spread of zeros, and your site will fall somewhere in the middle depending on the audience.

For your projection, I'd start with two "number of zeros" estimations and pick the midpoint. Guess these based on how close your audience aligns to the top end (say, Fortune 500 CEOs at... oh I don't know, $100.00/CPM) and bottom end (children in 3rd world countries... at $0.000001/CPM).

If you were to pick $0.10 and $1.00 (a range I'd say appropriate for young American professionals earning >$50K), you'd have $0.55. Then multiply it by the number of pageviews each month.

All of the other variables (such as numbe of ads per page, layout, etc) aren't really important now since those have a relatively small impact (relative to audience) and can be adjusted later.

From what I researched so far, there's no good way to do that. There are so many variables that influence advertising income.

With CPC, ad revenue depends on the ad's position, its integration, your target audience, and your site content. According to a Yahoo answer, price per click vary between $0.05 up to $0.98 although it's known that some keywords are a lot more profitable (up to $50 according to SpyFu ).

With CPM, ad revenue depends on the number of ads on a site and their size, for example. As a rule of thumb, they pay better: According to the above Yahoo answer between $1 and $5 per thousand impressions. But you need quite a bit of traffic to get into CPM programs.

In general, advertising is only worth the trouble if you have more than 5 million unique visitors per month. This is the number I have in my notes, but I lost the reference.

You may also be interested in the leaked docs of Yahoo's "Project Fraternity" . They tried to estimate the value of Facebook, assuming traffic and CPMs. You may use this as an example for your own calculation.

Some blogs also publish their ad incomes, including their Visits and PageViews. You may use this to calculate an average income per visit or page view to calculate your own numbers. Here's are some examples:

• Shoutmeloud.com
• caroline-middlebrook.com
• mytechquest.com

Your best bet is to go to Sitepoint marketplace or the new Flippa and search for people selling sites in the same niche. They will likely give full disclosure of ad revenue, CPM rates, pages per visit and so on.

http://marketplace.sitepoint.com/ http://flippa.com/

everyone knows you're lying. no one can predict future advertising revenues or user growth.

do a "home run" revenue plot, an "okay" revenue plot and a "we're hurting" revenue plot. this way you hopefully cover your bases, base them off similar vertical markets.

it shouldn't be that hard to find out a advertising revenue - ask them. pretend to want to advertise, and they'll tell you all their costs. et voila.

remember that its really really really hard to make money off online advertising, especially now.

I think you have to look at your site. Perhaps I'm being way too simplistic and obvious with this but here's how I would estimate for a fairly straightforward site:

• Your site map - how many pages on your site.
• How many ad units on each page and what type (300x250, 160x600...)
• How many visitors and average page views they'll generate. (This includes how you'll drive that traffic to the site.)
• How many page views do you estimate for each of the pages.
• Total ad impressions then that generates for each size ad.
• Going CPM rates for each size ad in your industry.
• Do the math and you'll come out with a number. And a good suggestion from pclark to do a "best case", "worst case", "expected case" scenario.
• Note that other variables will affect these rates. They include whether an ad is above the fold or not, context of the pages, etc. But this will give you a ballpark for business plan.

The correlation between website traffic and revenues is variable, mainly on what type of people are going to your site and what kind of business are you talking to. For example, I used to work for Jewelry Television, and I noticed that they are advertising on more progressive blogs, which will tend to attract a certain type of audience.

Then, what type of traffic do you get, do you have pages where people will be there for a while, perhaps solving a puzzle, or carefully reading something, or is it just to click-thru. On click-thru sites the ad rate will be lower as there is less chance people will click on ads.

You can look at what Google Analytics tracks to get an idea what you may need to be able to estimate, to help with the guess.

pclark does have a good idea though about the three scenarios, as, he is correct, we don't know what the economy will do, and so we have no idea what the advertising budgets will look like, so you have to cover your bases, to show that in the worst case you have a plan on how to not go completely bust.

You will also want to get an idea as to what the percentage of each browser type is, going to your site, as some browsers are more likely to have ad-blockers, which will reduce the views those ads will actually get, which will also impact your bottom line.

So, there is no real equation that can accurately tell you for any arbitrary site what the correlation between visitors and ad revenue will be as there are so many variables that it would be at best a guess, and most likely a horribly bad one. You may be able to find an equation for certain types of sites, given a particular target market, and this is what a marketing person should be able to do.