A lot of people have approached me about making it big on the internet. They’ve heard of the Jerry Yangs, the Jeff Bezoses and others who have made billions on the web.

Truth be told, these are the very tiny, almost non-existent, exceptions to the rule. Most people who enter the business never make it, especially when they enter a niche not related to porn or gambling. The web business is dynamic and challenging endeavor that requires an enormous degree of creativity and luck. There is no magic formula, and a lot of trial-and-error is necessary.

But not to get discouraged! While few people, including this blogger, have struck it rich, many have been able to make a decent living off the web. In fact, tens of thousands of people make a living selling on eBay and other marketplaces.

I think the key is stop looking for an easy way to make a lot of money. Instead, do what you love. The online business is fiercely competitive, where you have to go up against people from all over the world. It takes an incredible amount of learning, tedious work and inspiration to gain the edge over your competitors. It’s hard to get inspired if you don’t do what you love and, instead, focus on getting rich.

This is a question that has often crossed my mind. There are many online valuation tools that attempts to estimate what your site is worth based on its Google PageRank, traffic rankings, niche, age of domain, and so on and so forth.

These tools, while interesting and entertaining, are mostly useless and should not be used, even as only one of several factors, to appraise a site.

It goes without saying that a site is worth only as much as someone is willing to pay for it. But how do you know how much to ask for your site? What is the ballpark figure?

One method is to price it as you would a brick-and-mortar business. You could, for instance, price your site at 3 times your annual net profits. At 3x net profit, you could ask for $36,000 for a site that earns $1,000 a month (minus all advertising expenses).

But a website isn’t a brick-and-mortar. It does not have tangible assets that you can liquidate to recoup some of the loss should your online business fail. Therefore, the value of a website should be adjusted (i.e. downward) accordingly.

Another consideration is that the web business is generally much more fluid than a brick and mortar one. More than the current profit, one should also consider the ever-changing nature of the internet technology. A site that is useful to a lot of people today may become a thing of the past the next year. So, one must take into account the risk associated with this and the amount of work needed to keep up with the trends so that your site does not become obsolete. Therefore, the price should be adjusted downward further.

Most companies would not consider placing contextually-targeted ads on their commercial sites. An obvious reason is that these ads may make their sites look less professional and somehow diminish their online credibility. A more important reason, however, is that the ads that will be appearing on their sites will be for competing products and services.

Due to the rising costs of pay-per-click advertising, revenues from ads can help offset advertising costs. Plus, people who find your site by clicking on an ad are more likely to click on ads on your site.

As for displaying ads for competitors, I think people are inclined to do comparison shopping any way. So why not make a few bucks from their habit? If you have confidence about the product or service you’re selling, then there’s really no reason to fear.

Personally I have no qualms about placing contextual advertising on a commercial site. I don’t mind ads offering competing services. If you’re worried about your direct competitors’ ads appearing on your site, you could go into your Adsense account and filter them out so that only products and services that are complimentary to yours appear.

Since there is no industry standard for pricing a website, a site is only worth as much as someone is willing to pay for it. This isn’t helpful if you’re considering selling your site and don’t know where to begin. In my opinion, a website should be priced as one would a brick-and-mortar business.

One might price a site by taking its annual profit and multiplying by some factor, say 2.5, to arrive at a “fair” value. Unlike brick-and-mortar businesses, the internet business is volatile and everchanging, so a profit one year may not translate to one in the next.

Other considerations for valuing a site include the site’s niche, market reach, traffic, search engine rankings, age of domain name, number of inbound links, number of paying sponsors, Google PageRank, Alexa rankings, number of competing sites, and so on.

dnScoop has an interesting site valuation tool that attempts to value a site based on various factors. However, one should be forwarned that the results, while useful and interesting, should be regarded for its entertainment value rather than taken seriously for valuing a site.

Perhaps a better way to get an idea of how much your site is worth is to hang out in forums like the Digitalpoint and Sitepoint marketplaces and see how much sites comparable to yours are selling for. Ebay is another place to search for past sales of websites.