What does "Justify the price" means?

Question

I am selling a website and the company wants me to justify the price

Answer 1

When you say yo're selling the website, I'm assuming you mean a seperate company is buying the content, the domain, and all the "assets" related to it.

So, you've asked them to pay a price for your website and now they want you to "prove" it's worth the price you've asked.

If it is truley just the website, domain, content, and any of the programming, then there are only a couple of ways to justify the value:

. Cost to replicate - They easiest way to justify the cost is by computing what it would cost, in terms of people, salary and time converted into a "labor" cost that would be required to replicate what you have done. Often this is expressed as a number of "engineering hours" either turned into annual people cost or as consulting hours. If something you did, for example, would require four developers working full time for five months then you would have 4*160*5 = 3,200 total hours. On average, a "Manyear" is 1860 hours (some will say 2,000) but 1860 is the number of hours the government uses and is based on paid vacation and holidays). That would be about 2 "man years" of work. If the average cost for a full time engineer to do the work is $110,000 per year including benefits, then the cost to replicate would be about $200,000. Therefore, your site is worth "At Least" 200,000 1 year from now. To get it "now", saving the year, would mean you would get a Premium because a) you're done now and b) there is risk to re-create it themselves. That premium is typically 20 - 30%. If the time is multiple years and the market is hot, that premium can be as high as 300 - 500%. For us, for now, let's just assume 30%. So, that would be $200,000 + 30% ($60k) = $260,000.

. Unique Property - If your site has any Intellectual Property that is patentable or trademarked, then there is another premium related to this. The vaue of a new patent has a whole science to itself and so I can't really address that here.
Unique graphics, unique programming that includes complex formulas and rules that require specialized knowlege also have value. For simplicity, if it's not patented, it's usually expressed in the complexity to replicate, i.e. it increases the amount of hours needed to replicate.

If you have a full company and are selling things and are therefore selling the company and not just the "Technology", there is a whole seperate method of valuing the company that include (in very simple terms):
. Discounted cash flow - a method where you take a series of cash flows (income) created by the business (revenue - expenses - taxes = net income). The future value of all the cash flows (typically over 10 years) are then "discounted" back to today to arrive at a value. That value is what the company is "worth". Again, I've over simplified it but that's how the big kids do it and it's pretty complex if you haven't done it before.

. Comparables - Often, if there are enough businesses around like yours, you can get "comps" or the values of comparable transactions that have been done. So, if three other companies like yours sold in the last couple of years, you would take the average of them and that would be the "comp". That kind of thing.

That's probably much more than you wanted but hopefully it helps you. If you need any more info, feel free to email me at [e-mail]

Answer 2

What it means is: They wont you to tell them, why they should pay what ever the asking price is. A company will not by something they see as being over priced unless they are given a good reason .

Basically they wont to know, what is in that website for you to JUSTIFY the asking price .

Answer 3

It's saying that whatever your ending result with should justify the means (or the way) you went about getting that result. For example: If I spent 1,000,000 dollars in total expenses for college and medical school and various other things, such as books, supplies, etc., would the spending of that money be worth it to become a doctor? Most would say it does, since this doctor now has the means of helping to make the sick well again, and to help prevent other illnesses and diseases. Hope that makes sense!

Answer 4

Show them why you think your website is worth the price you are asking for it.

Say for instance you receive 1,000,000 hits per day and it has been making you $20,000 a month. That would justify a much larger price tag than say a site that gets only 50 hits a day and makes $0.00 ever.

Answer 5

Most of the answers above are correct. However, I think that it "really" means that the company does not want to pay the price that you are charging and wants you to offer a lower price.

Answer 6

Why are you charging what you are charging.....
If you want to buy a printer for homework your parents would want you to justify the amount..example....say you wanted a printer for school work, and you needed 200 dollars, they would say why do you need a printer...then you would explain to them that you need a printer, so you can complete your homework in a timely manner and work more efficiently rather than having some friend do it, or running to the library before school...

Answer 7

You have to say why it's worth what you're asking.

If you're selling a Hyundai for $100,000, you have to do a lot of justifying.

If you're selling a Porsche for $1, not so much.

Answer 8

on my view i think you need to explain to them why you impose such amount ? what you need to do is to give precisely explanation may i just impose this cost because my website contain this and this such like that.

Answer 9

that means they want to know what's so good about YOUR site that makes it worthy of the cost to them.

Answer 10

Explain why It`s worth what you say!