I would have thought that a number of other factors would come into play other than just current income. After all, It could take a site 2 yrs+ just to get position. The business could be loss making so far but have massive potential.
A loss making business correctly positioned in the market ready for the next level of development could be of significant value as it has passed the start up phase and may be established for volume sales and have vast potential for the purchaser.
When agreeing a value:-
1. What is the Potential revenue capacity to someone else that can market the business more effectively
2. Is the domain/ brand worth anything?
3. Has it a data base of any information?, registered members etc
4. What would it cost to buy in traffic of the sites current level?
5. How long would it take to build a similar site and get position with it?
6. How many links has it got and how many pages are indexed by the search engines.
Recently a website business that was making an £8 million loss a year but turning over £1 million was sold for £7 million. Reason being that it had brand awareness a good membership base and had potential to do multi million turnover in the right hands. A quality site of the nature of this one would take time and serious investment to establish.
My understanding is that an idea of value could be based on the following formula:-
Annual Income X 1 +
Brand / Domain Value? +
Annual Traffic Value X 3 +
Data Base Value X per member +
Factor for potential revenue the site can achieve
Hence why a loss making web business or low turnover one that has got established pages and high traffic levels is worth a small fortune.
In conclusion i would say that, on the one hand, if a site is small time and only has small potential to do more, then a multipal of income, plus a bit for traffic is i guess fair enough for it. on the other hand, If a site has vast potential and is positioned well, has high traffic and is sought after, frankly its in a totally different league all together and the price falls down to what its worth to someone else!