Why and how to value Digital Assets / Online Presence of a company ?
What constitutes assets of a Company?
In the accounting world, assets are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. A company’s assets can be broadly divided into two categories:
- Physical assets – includes cash, account receivable, inventory, machinery, furniture, land, equipment, vehicles, investments like stock; and
- Intangible assets – ranging from patents, trademarks, copyrights, goodwill, brand recognition, customer lists, employment contracts or other intangible fruits of a company’s innovative capacity.
Traditionally, physical assets have been responsible for the bulk of the value of a company and were largely responsible for determining the competitiveness of a company in the market. With the customer engagement changing more and more to digital, the situation has changed significantly. Increasingly, and largely as a result of the IT revolution and the growth of the service economy, companies are realizing that intangible assets are often becoming more valuable than their physical assets.
Very often, companies protect and measure their intangible assets, where they meet the criteria for intellectual property protection, by acquiring and maintaining IP rights in the form of patent, copyright, trademark and trade secret.
However, other than the Intellectual properties of the company, digital assets like companies’ website, app and social presence which gradually taking center stage in engaging customers for SMEs. Every business owner should be familiar with the real value of the firm and ignoring the value of a digital asset is a big mistake. Although it is very important, it’s also a very hard thing to do. Setting the accurate value of your digital asset is necessary so you know the exact value of it, and you can avoid capital loss or overvaluation.
How to value a company’s digital assets or online presence
A digital asset is an important part of many businesses nowadays and to most of the start-ups it may be the only asset. It mainly includes websites, app and social presence now. There are mainly three approaches to value a company’s digital assets:
- Income approach – compute the value of an asset based on the income the asset generates. The most common ways how to monetize a website are advertisement (Google AdSense, affiliates, etc.), merchandise (selling some original products through your website) or subscriptions (offering a subscription for your members to get access to your website’s content). Income approach determines the fair market value by dividing the benefit stream generated by the assets times a discount or capitalization rate.
- Market Approach – is a method of determining the appraisal value of an asset, based on the selling price of similar items.
- Cost Approach – the monetary value requires to rebuild the digital assets to the current status. There are many areas one should look at and below listed a few key ones that impact most:
- Engagement level – Reaching millions of people means nothing if they are not interested in what a company offer. If the audience is engaged, no matter how small that audience is, it will grow organically and generate more leads. Engagement can simply mean the number of clicks, likes, shares, comments, brand mentions, profile visits, active followers of any sharable contents of a company. Social platforms like Facebook and Twitter see engagement as a sign of quality and popularity. From the digital asset’s worth perspective, engagement is the pulse of the assets, it shows how active those established digital assets are and the potential to convert leads to sales or mindshare.
- Total amount of unique page views, visitors and followers – it is logical that the more unique visitors to a company website, application or the extend of the established social reach in the likes of Facebook, Twitter, Instagram, Linkedin, YouTube etc, the higher value it earns. The traffic to those assets and the audience reach can means business leads which can be converted to sales. The effort to rebuild the audience can be estimated by the advertising cost in various channels to reach the similar size of audience.
- Ranking of the site in key search engines – Appear on the first page of the search engine when end users key in the relevant key words will for sure getting much higher exposure than the others. The search engine ranking will very much depend on the site’s content. In case your website offers only basic information about the company and the prices of your products or services, the value won’t be high. But if the company website has some articles related to your business, it is more likely to rank higher in the search engine .It will also be affected by backlinks or inbound links towards your company website, mobile responsiveness and other Search Engine Optimization techniques (SEO). The value of the rank estimated based on Cost per Click (CPC) of specific keywords and the search volume of that key words. In Investplify, we also consider each backlinks quality, link ages and domain authority.
- The values of the company domain name – the name of the company website is very important because it plays an important role in Search Engine Optimization (SEO), marketing and brand competitiveness. In case a company domain name associated closely with a product or service, it is more likely that potential customers will find their way to that company website. On the other hand, if your domain name makes no sense or is not even a real word or associated to a brand, its value will be lower.
The valuation of your company’s digital asset is a very important but also complicated process. It requires to understand the underlying cost in reproducing those assets to the current stage, potential of those digital assets in generating leads or sales, collect and analyses tons of information. Investplify has made a digital assets worth calculator available for free. It is advised to track the value of the digital assets over time and identify ways to drive the performance of your company through digital means.