Dec 29, 2020 - 01:34 PM
Tony Robbins seminar attendee doing a firewalk. Image credit: Quora
Congrats on your success! There are a few ways to look at it. By the way, the term is "valuation" not "evaluation" but that is neither here nor there!
1. Revenue/Profit Multiple
The first way to determine how much your business is worth is to use a simple profit/earnings multiple. Based on your description, your business would be considered a media business.
The revenue multiple for a media business is usually between 2.5x to 5x trailing 12 month revenue. So if you bring in $100 per day that is roughly $3,000 a month or $36,000 per year. If we used a 3x multiple, that would be $108,000 ($36,000 x 3).
Given the wide range of valuations a few factors to consider are:
+ Size of the business: Larger businesses command higher multiples. So if you were doing $1000 per day, the multiple would likely be 3.5x and if you were doing $10,000 per day, the multiple may be closer to 5x.
+ Profitability: A business like yours with 90% gross profit margins is superior to one with only 10% to 20% margins, which is why I used 3x conservatively. It is possible that a buyer could pay 4x to 5x simply based on the profit margins but then again I am assuming that does not include your salary. Is the business making money on autopilot? Or do you have to be actively engaged? Chances are, it is the latter which means you are barely profitable from the view of an outside buyer. The revenue in one year would be consumed by paying out a living wage to the operator of the business.
2. Daily/Monthly Active Users and Per User Valuation
Social media companies are sometimes valued based on a per user metric that is loosely based on daily/monthly active users and how much information is available about each user.
Facebook for example has an $800 billion market value and 2.4 billion monthly active users, equating to $333 per user, but this is based on the 'law of very large numbers' noted previously. A business with a small number of users will be luck to get even a few dollars per user.
On the second point (information available about each user) Facebook scores really highly--users 'like' stuff and share personal preferences and so the audience is highly monetizable because advertisers can precisely target people based on interests, demographics.
Quora, with 300 million users, scores poorly because little is known about its users and it is not a destination site. People stumble on the content through search queries and do not browse Quora directly in the same way that they check in to Facebook regularly to see what friends are up to. Quora therefore has a valuation of only $6 per user! (It last raised capital at a $1.8 billion valuation)
For you, since the users are not on a platform that you own, a huge discount would be applied. Pinterest, Instagram, Facebook could pull the rug from under you anytime. Let's say you have 2.5 million users across all the platforms unified by their interest in inspiration and connection to you, you would be lucky to get 20 cents per user so that is $500,000. One thing you can do to increase the value of your business is to get as many of them as possible to opt in to your email list. Offer gifts of various kinds, direct them to a site you own and collect emails. That way you have an asset that you control entirely.
3. Whatever it is worth to a Buyer
Lastly, your business is worth whatever a buyer is willing to pay for it regardless of profitability or user numbers. Sometimes a strategic buyer will pay an insane amount unsupported by any logical financial analysis, usually to get a hold of a valuable team, to fend off a competitor or to do a roll-up of many smaller businesses in order to benefit from the 'law of very large numbers' (pertaining to valuations).
For example, in your case, a Tony Robbins might pay you $300k as part of an acquisition campaign to amass millions of social media followers that are interested in inspiration and effectively 'corner' that market on social media.
Alternatively, the numbers might not make financial sense to an outside observer but the buyer might know how to monetize your audience far better than you (maybe they have some 'secret sauce' you do not know about).