We all work hard building our businesses.
We put in the sweat equity and all the tears that can come with it to build something truly great. After another day hustling at the office or typing furiously on your keyboard, you might be wondering… what is the end game here?
What are you really going for? Is there a glowing neon sign with the word “Exit” marking the path to your ultimate goal?
For the majority of businesses, the end goal is to eventually sell that business to another entrepreneur who wants to take the reins and simply enjoy the profits from the sale. Alas, most of us don’t even know what our business is worth, much less how to go about selling it — or if it's even sellable to begin with.
That's where Empire Flippers comes in. We've been brokering deals for years in the online business space, serving a quiet but hungry group of investors who are looking to acquire digital assets. The demand for profitable digital assets has been growing so much that our brokerage was able to get on the Inc. 5000 list two years in a row, both times under the 500 mark.
We can say with confidence that, yes, there is indeed an exit for your business.
By the end of this article you're going to know more about how online businesses are valued, what buyers are looking for, and how you can get the absolute top dollar for your content website, software as a service (SaaS), or e-commerce store.
(You might have noticed I didn’t include the word “agency” in the last paragraph. Digital agencies are incredibly hard to sell; to do so, you need to have streamlined your process as much as possible. Even though having clients is great, other digital assets are far easier to sell.)
If you’ve built a digital asset you’re looking to exit from, the first question you likely have is, “This sounds fantastic, but how do I go about putting an actual price tag on what I’ve created?”
We’ll dive into those answers below, but first let’s talk about why you're already in a great position just by being a reader of the Moz Blog.
Why is SEO the most valuable traffic for a digital asset?
SEO is by far the most attractive traffic source for people looking at purchasing online businesses.
The beauty of SEO is that once you’ve put in the work to achieve the rankings, they can maintain and bring in traffic for sometimes months without significant upkeep. That's in stark contrast with pay-per-click (PPC) campaigns, such as Facebook ads, which require daily monitoring to make sure nothing strange is happening with your conversions or that you’re not overspending.
For someone who has no experience with traffic generation but wants to purchase a profitable online business, an SEO-fueled website just makes sense. They can earn while they learn. When they purchase the asset (typically a content website for people just starting out), they can play around with adding new high-quality pieces of content and learn about more complicated SEO techniques down the road.
Even someone who is a master at paid traffic loves SEO. They might buy an e-commerce store that has some real potential with Facebook ads that's currently driving the majority of its traffic through SEO, and treat the SEO as gravy on top of the paid traffic they plan to drive toward that e-commerce store.
Whether the buyer is a newbie or a veteran, SEO as a traffic method has one of the widest appeals of any other traffic strategy. While SEO itself does not increase the value of the business in most cases, it does attract more buyers than other forms of traffic.
Now, let’s get down to what your business is worth.
How are online businesses actually valued?
How businesses are valued is such a common question we get at our brokerage that we created an automated valuation tool that gives a free estimate of your business’s value, which our audience uses with all of their different projects.
At the heart of any valuation is a fairly basic formula:
You look at your rolling 12-month net profit average and then times that by a multiple. Typically, a multiple will range between 20–50x of the 12-month average net profit for healthy, profitable online businesses. As you get closer to 50x you have to be able to show your business is growing in a BIG way month over month and that your business is truly defensible (something we’ll talk about later in this article).
You might see some brokers using a 2x or 3x EBITDA, which stands for earnings before interest, tax, depreciation, and amortization.
When you see this formula, they’re using an annual multiple, whereas at Empire Flippers we use a monthly multiple. There's really not much of a difference between the two formulas; it mainly depends on your preference, but if you’re brand new to buying and selling online businesses, then it's helpful to know how different brokers price businesses.
We prefer the monthly multiple since it shows a more granular picture of the business and where it's trending.
Just like you can influence Google SERPs with SEO knowledge, so can you manipulate this formula to give you a better valuation as long as you know what you’re looking at.
How to move the multiple needle in your favor
There are various things you can do to get a higher multiple. A lot of it comes down to just common sense and really putting yourself in the buyer’s shoes.
A useful thing to ask: “Would I ever buy my business? Why? Why not?”
This exercise can lead you to change a lot of things about your business for the better.
The two areas that most affect the multiple come down to your actual average net profit and how long the business has been around making money.
Average net profit
The higher your average net profit, the higher your multiple will tend to be because it's a bigger cash-flowing asset. It makes sense then to look at various ways you can increase that net profit and decrease your total amount of expenses.
Every digital asset is a little different in where their expenses are coming from. For content sites, content creation costs are typically the lion’s share of expenses. As you approach the time of sale, you might want to scale back your content. In other cases, you may want to move to an agency solution where you can scale or minimize your content expenses at will rather than having in-house writers on the payroll.
There are also expenses that you might be applying to the business but aren’t really “needed” in operating the business, known as add-backs.
Add-backs
Add-backs are where you add certain expenses BACK into the net profit. These are items that you might’ve charged on the business account but aren’t really relevant to running the business.
These could be drinks, meals, or vacations put on the business account, and sometimes even business conferences. For example, going to a conference about email marketing might not be considered a “required” expense to running a health content site, whereas going to a sourcing conference like the Canton Fair would be a harder add-back to justify when it comes to running an e-commerce store.
Other things, such as SEO tools you’re using on a monthly basis, can likely be added back to the business. Most people won’t need them constantly to run and grow their business. They might subscribe for a month, get all the keyword data they need for a while, cancel, and then come back when they’re ready to do more keyword research.
Most of your expenses won’t be add-backs, but it is good to keep these in mind as they can definitely increase the ultimate sales price of your business.
When not to cut expenses
While there's usually a lot of fat you can cut from your business, you need to be reasonable about it. Cutting some things might improve your overall net profit, but vastly decrease the attractability of your business.
One common thing we see in the e-commerce space is solopreneurs starting to package and ship all of the items themselves to their customers. The thinking goes that they’re saving money by doing it themselves. While this may be true, it's not an attractive solution to a potential buyer.
It's far more attractive to spend money on a third-party solution that can store and ship the product for you as orders come in. After all, many buyers are busy traveling the world while having an online business. Forcing them to settle down just so they can ship products versus hanging out on the beaches of Bali for a few months during winter is a tough ask.
When selling a business, you don’t want to worry only about expenses, but also how easy it is to plug into and start running that business for a buyer.
Even if the systems you create to do that add extra expenses, like using a third party to handle fulfillment, they’re often more than worth keeping around because they make the business look more attractive to buyers.
Length of history
The more history you can show, the more attractive your business will be, as long as it's holding at a steady profit level or showing an upward trend.
The more your business is trending upward, the higher multiple you're going to get.
While you can’t do much in terms of lengthening the business’s history, you can prepare yourself for the eventual sale by investing in needed items early on in your business. For example, if you know your website needs a big makeover and you’re 24 months out from selling, it's better to do that big website redesign now instead of during the 12-month average your business will be priced on.
Showing year-over-year growth is also beneficial in getting a better multiple, because it shows your business can weather growing pains. This ability to weather business challenges is especially true in a business whose primary traffic is Google-organic. It shows that the site has done quality SEO by surviving several big updates over the course of a few years.
On the flipside, a trending downward business is going to get a much worse multiple, likely in the 12–18x range. A business in decline can still be sold, though. There are specific buyers that only want distressed assets because they can get them at deep discounts and often have the skill sets needed to fix the site.
You just have to be willing to take a lower sales price due to the decline, and since a buyer pool on distressed assets is smaller, you’ll likely have a longer sales cycle before you find someone willing to acquire the asset.
Other factors that lead to a higher multiple
While profit and length of history are the two main factors, there are a bunch of smaller factors that can add up to a significant increase in your multiple and ultimate valuation price.
You’ll have a fair amount of control with a lot of these, so they’re worth maximizing as much as possible in the 12–24 month window where you are preparing your online business for sale.
1. Minimize critical points of failure
Critical points of failure are anything in your business that has the power to be a total deal breaker. It's not rare to sell a business that has one or two critical points, but even so you want to try to minimize this as much as possible.
An example of a critical point of failure could be where all of your website traffic is purely Google-organic. If the site gets penalized by a Google algorithm update, it could kill all of your traffic and revenue overnight.
Likewise, if you’re an Amazon affiliate and Amazon suddenly changes their Terms of Service, you could get banned for reasons you don’t understand or even have time to react to, ending up with a highly trafficked site that makes zero money.
In the e-commerce space, we see situations where the entrepreneur only has one supplier that can make their product. What happens if that supplier wants to jack up the prices or suddenly goes out of business completely?
It's worth your while to diversify your traffic sources, have multiple monetization strategies for a content site, or investigate having backup or even competing suppliers for your e-commerce products.
Every business has some kind of weakness; your job is to minimize those weaknesses as much as possible to get the most value out of your business from a potential buyer.
2. High amounts of traffic
Higher traffic tends to correlate with higher revenue, which ultimately should increase your net profit. That all goes without saying; however, high traffic also can be an added bonus to your multiple on top of helping create a solid net profit.
Many buyers look for businesses they can optimize to the extreme at every point of the marketing funnel. When you have a high amount of traffic, you give them a lot of room to play with different conversion rate optimization factors like increasing email options, creating or crafting a better abandoned cart sequence, and changing the various calls to action on the site.
While many sellers might be fantastic at driving traffic, they might not exactly be the biggest pro at copywriting or CRO in general; this is where a big opportunity lies for the right buyer who might be able to increase conversions with their own copywriting or CRO skill.
3. Email subscribers
It's almost a cliche in the Internet marketing space to say “the money is in the list.” Email has often been one of the biggest drivers of revenue for companies, but there's a weird paradigm we’ve discovered after selling hundreds of online businesses.
Telling someone they should use an email list is pretty similar to telling someone to go to the gym: they agree it’s useful and they should do it, but often they do nothing about it. Then there are those who do build an email list because they understand its power, but then never do anything useful with it.
This results in email lists being a hit-or-miss on whether they actually add any value to your business’s final valuation.
If you can prove the email list is adding value to your business, then your email list CAN improve your overall multiple. If you use good email automation sequences to up-sell your traffic and routinely email the list with new offers and pieces of high-quality content, then your email list has real value associated with it, which will reflect on your final valuation.
4. Social media following
Social media has become more and more important as time goes on, but it can also be an incredibly fickle beast.
It's best to think of your social media following as a “soft” email list. The reach of your social media following compared to your email list will tend to be lower, especially as social organic reach keeps declining on bigger social platforms like Facebook. In addition, you don’t own the platform that following is built off of, meaning it can be taken away from you anytime for reasons outside of your control.
Plus, it's just too easy to fake followers and likes.
However, if you can wade through all that and prove that your social following and social media promotion are driving real traffic and sales to your business, it will definitely help in increasing your multiple.
5. How many product offerings you have
Earning everything from a single product is somewhat risky.
What happens if that product goes out of style? Or gets discontinued?
Whether you’re running an e-commerce store or a content site monetizing through affiliate links, you want to have several different product offerings.
When you have several products earning good money through your website, then a buyer will find the business ultimately more attractive and value it more because you won’t be hurt in a big way if one of the “flavors of the month” disappears on you.
6. Hours required
Remember, the majority of buyers are not looking at acquiring a job. They want a leveraged cash-flowing investment they can ideally scale up.
While there's nothing wrong with working 40–50+ hours per week on a business that is really special, it will narrow your overall buyer pool and make the business less attractive. The truth is, most of the digital assets we’re creating don’t really require this amount of work from the owner.
What we typically see is that there are a lot of areas for improvement that the seller can use to minimize their weekly hour allotment to the business. We recommend that everyone looking to sell their business first consider how they can minimize their actual involvement.
The three most effective ways to cut down on your time spent are:
- Systemization: Automating as much of your business as possible
- Developing a team: The biggest wins we see here tend to be in content creation, customer service, general operations, and hiring a marketing agency to do the majority of the heavy lifting for you. While these add costs that drive down the average net profit, they also make your business far more attractive.
- Creating standard operating procedures (SOPs): SOPs should outline the entire process of a specific function of the business and should be good enough that if you handed them off to someone, they could do the job 80 percent as well as you.
You should always be in a position where you’re working ON your business and not IN.
7. Dig a deeper moat
At Empire Flippers, we’re always asking people if they built a deep enough moat around their business. A deep moat means your business is harder to copy. A copycat can’t just go buy a domain and some hosting and copy your business in an afternoon.
A drop-shipping store that can be copied in a single day is not going to be nearly as attractive as one that has built up a real following and a community around their brand, even if they sell the same products.
This fact becomes more and more important as your business valuation goes into the multiple six-figure and seven-figure valuation ranges because buyers are looking to buy a real brand at this point, not just a niche site.
Here are a few actions you can take to deepen this moat:
- Niche down and own the market with your brand (a woodworking website might focus specifically on benches, for example, where you’re hiring expert artisans to write content on the subject).
- Source your products and make them unique, rather than another “me too” product.
- Negotiate special terms with your affiliate managers or suppliers. If you’ve been sending profitable traffic to an affiliate offer, often you can just email the affiliate manager asking for a pay bump and they’ll gladly give it. Likewise, if you’re doing good business for a drop-shipping supplier, they might be open to doing an exclusivity agreement with you. Make sure all of these special terms are transferable to the buyer, though.
The harder it is to copy what you’ve built, the higher the multiple you’ll get.
But why would you EVER sell your online business in the first place?
You’re now well-equipped with knowledge on how to increase your business’s ultimate value, but why would you actually sell it?
The reasons are vast and numerous — too many to list in this post. However, there are a few common reasons you might resonate with.
Here are a few business reasons why people sell their businesses:
- Starting a new business or wanting to focus on other current projects
- Seeking to use the capital to leverage themselves into a more competitive (and lucrative) space
- Having lost any interest in running the business and want to sell the asset off before it starts reflecting their lack of interest through declining revenue
- Wanting to cash out of the business to invest in offline investments like real estate, stocks, bonds, etc.
Just as there are a ton of business reasons to sell, there are also a ton of personal reasons why people sell their business:
- Getting a divorce
- Purchasing a home for their family (selling one digital asset can be a hefty down payment for a home, or even cover the entirety of the home)
- Having medical issues
- Other reasons: We had one seller on our marketplace whose reason for selling his business was to get enough money to adopt a child.
When you can collect 20–50 months of your net profit upfront, you can do a lot of things that just weren’t options before.
When you have a multiple six-figure or even seven-figure war chest, you can often outspend the competition, invest in infrastructure and teams you couldn’t before, and in general jumpstart your next project or business idea far faster without ever having to worry about if a Google update is going tank your earnings or some other unforeseen market change.
That begs the question...
When should you sell?
Honestly, it depends.
The answer to this question is more of an art than a science.
As a rule of thumb, you should ask yourself if you’re excited by the kind of money you’ll get from the successful sale of your online business.
You can use our valuation tool to get a ballpark estimate or do some back-of-the-napkin math of what you’re likely to receive for the business using the basic multiple formula I outlined. I prefer to always be on the conservative side with my estimations, so your napkin math might be taking your 12-month average net profit with a multiple of 25x.
Does that number raise your eyebrows? Is it even interesting?
If it is, then you might want to start asking yourself if you really are ready to part with your business to focus on other things. Remember, you should always set a MINIMUM sales price that you’d be willing to walk away from the business with, something that would still make you happy if you went through with it.
Most of us Internet marketers are always working on multiple projects at once. Sadly, some projects just don’t get the love they deserve or used to get from us.
Instead of letting those projects just die off in the background, consider selling your online business instead to a very hungry market of investors starting to flood our digital realm.
Selling a business, even if it's a side project that you’re winding down, is always going to be an intimate process. When you're ready to pull the trigger, we’ll be there to help you every step of the way.
Have you thought about selling your online business, or gone through a sale in the past? Let us know your advice, questions, or anecdotes in the comments.
Depends on the type of the website if you ask me. If its e-com I'd check sales, rankings, traffic, email list then take off the expenses, calculate annual revenue and sell for that probably or even do like 3 years worth and then sell it. But yea SEO probably the most important thing as paid traffic stops coming as soon as you stop ads. So you would have to check it in detail to make sure you are selling for the right price or buying. For affiliate I'd also check commissions, traffic and also potential of the niche. For lead gen you would check calls, traffic, calculate conversion rate and then see how much you could sell each lead for and how much it would bring, I'd also do 3 years worth for price. Not sure what you guys do? I'd like to hear what other people do. Great article by the way :)
Yeah imagine selling a lead gen site to a business for way less than you deserve...
Hey Nickey!
Thanks for the comment. Absolutely SEO is the most attractive traffic source when selling a digital asset for exactly what you mentioned. Organic traffic is viewed more of an asset than paid traffic plays are since the ads can just stop and the business might die overnight from that.
Everything else you said is spot on. Obviously different monetization methods require a little different vetting/valuation processes but I tried to cover all the basics in this post that are fairly universal.
A 3 year pricing is not completely unreasonable for a quality business, that's a 36x multiple. It's definitely on the high end but not at all impossible. We've sold an affiliate site just recently for 52x for example.
What we find is that most people who want to sell their business, especially if they go private over brokerage, way undervalue their business and will sell ultimately for a much lower price than what they could've gotten had they gone with a brokerage (even with the brokerage fees after the successful sale, these people tend to get more for their asset than those who do private sales).
We love lead gen sites, especially if the lead gen site is expandable. So instead of a domain that focuses on just ONE profession in ONE local area, you might have a domain that focuses on multiple professions in one area or perhaps a national or state level directory site for one profession that really helps the end user find the right business for their needs.
I would definitely make sure you have an easy process to transfer all the clients paying for the lead gen site over to the new owner. The easiest method is just using a lead affiliate program type play like HomeAdvisor or RingPartner because then it's just as simple as changing a few links. However, this will usually eat into your margins quite a lot because you'll be making far less per lead than if you'd went direct to the clients though it will make the business more attractive overall since the buyer won't need to manage those clients or find new people to sell the leads to.
No problem. My guess is they undervalue because they are inexperienced. I would check lots of things when selling a website, even if it has google penalty, spam penalty etc. Don't want to dive into technical stuff. Would you rather sell a site on your own or use a broker? And why? Thanks for the reply!
Hey Nickey,
Yes most people sell at undervalue due to lack of experience. Very few people are brokering deals day in and day out like us, so they just don't know what they don't know is typically the issue.
As far as private vs brokerage goes, obviously I'm biased in favor of using a brokerage. A private sale can make sense if you're pretty experienced with how things are valued and if you have built up a large audience in the online business space as this will help you sell the business far quicker than your typical private sale since you have an audience. If you do have this audience you can likely sell for more than your typical private sale too because your audience knows, likes and trust you.
Even if I had though, I would still almost always choose going with a brokerage. They just take so much of the heavy lifting out of it for you between helping you prep the business properly, finding actual buyers and weeding out timewasters, negotiating upon your behalf, helping you accept the deal that is right for you, and migrating/managing any earn out situation you find yourself in.
To me, it is a no-brainer to use a brokerage for all those reasons. It lets you save a ton of time to focus on your other projects while often speeding up the actual sale of your business considerably
I wouldn't know yet if I would let a broker do it for me, I would have to look into that more deeply. If I would do it myself, then no part goes to the broker, so I would make a bigger profit. On the other hand, doing it yourself takes a lot more time because you have to do everything yourself. Everything has its advantages and disadvantages.
Hey Elias!
Yes you definitely have to ask yourself which way is more beneficial for you. I will say that from what I've seen, private sales almost always lead to the seller taking a lower offer than what they would had with a brokerage. So while they're not paying a fee for the sale of the business, they are still getting less money (even if you calculated taking our commission out of the final amount the seller would get from using a broker).
This isn't always the case. If the seller has great connections in the online business world or has an audience built up in that niche, then they can sell their businesses easier but they also need to have a pretty good working knowledge of how the business is valued in the first place and hopefully be a great negotiator to help close the deal.
Definitely advantages and disadvantages to both, and obviously I'm biased but I'd always prefer to go with a brokerage just from the time saving benefit alone
At the very least too people should be really taking time to cultivate a good social media following as well. I'm going to share what to use, but there are programs out there that let you get a calendar eye view of the year, and let you have preloaded posts and campaigns dripped into your social accounts.
I really think in the next few years from now people are going to stop undervaluing social signals, and sites that have both traffic and followings are going to be incredibly covetted.
Really well written article mate!
I agree on a good social media following, it really shows that you have a brand people dig versus just a thin affiliate or ecommerce site.
One thing I suggest people to look into heavily is Pinterest. Pinterest works a lot like SEO nowadays and it can be a huge boost of recurring organic traffic once you get that machine going with pretty minimal hands on work once it is set up. I've been seeing a lot of content sites especially killing it with Pinterest.
Also glad you liked the article!
Yeah just salvaged my old pinterest account just for those organic reasons... I was soooo blind to the facts for too long haha but Pinterest for being kind of minimal work for some creative types, actually is just a good idea.
Thanks!
Hey Michael!
Yeah Pinterest is great man. I would recommend the tool Board Booster to automate a lot of the Pinterest process. I know many content site owners getting tens of thousands of visitors from Pinterest in an organic fashion that is similar to Google. It's the only social media I'm pretty bullish on when it comes to organic reach
Social signs are on the rise, surely! IT's interesting to see how people are changing their aproach to social engagement metrics and it'll be nice to see it translate on company value in the future!
Thanks for putting this up Greg! This is literally a roadmap for Agency owners to follow as the formula and guides to have systems in place, as well as what buyers are looking for is gold!
Hey 7Storms!
Glad to hear you enjoyed the post so much!
Agencies can be REALLY hard to sell. Not impossible, just a lot more difficult than other assets and you'll usually get lower multiples for it in comparison to a comparable asset with a different business model.
For SEO agencies in particular that want to sell, I suggest something along these 3 options:
1. Niche down. Instead of just being an overall SEO, be an SEO specifically for wedding photographers or something along those lines where there is a very defined niche for marketing.
2. Switch to a Rent & Rank method. This is basically where you just create your own niche site in that profession you're wanting to rank high for, then you find a business who wants that #1 ranking spot and rent the site out to them. This builds some inherent assets into the agency because if the client leaves all you have to do is replace the renter of the site with another business that wants the leads.
3. Move out of the sales/fulfillment points: This is one of the biggest obstacles in selling the business. The buyer needs to be able not only to fulfill the service, but they also need to actually sell the service and that often is done through expert strategy calls. A lot of buyers are just not interested in doing this. Look to build out a quality sales team that knows all the lingo and can convert those leads, while also looking at a white label SEO service that you can scale up or down with instead of having you do it all. This allows a well-connected buyer to scale their marketing campaigns, have their newly acquired sales team convert those leads, and there is no stress to the system in fulfilling the service because of the white label provider you've connected with.
Not a requirement but another thing that can make an SEO agency more attractive to a buyer is if you productized the service. Instead of doing custom packages, you just had clearly defined packages for a clearly defined price. You'll need to aggregate all your costs per project and create a kind of local tiered pricing (i.e pricing in Leopold Missouri vs. Dallas Texas is going to be different by virtue of locality) and ideally tiered pricing for professions too (i.e pricing for a window cleaner is likely going to be less than a plumbing company).
Always look for ways to make the business as plug and play as possible. That will serve you well even if you decide not to actually sell the business!
Hi Greg, thanks for sharing these additional points along with the awesome post.
The points you mentioned for the SEO agency are quit helpful...
Awesome guide man! I 100% agree that organic traffic from SEO efforts is the most valuable traffic source, especially when looking to sell a business/website. Average net profit and hours required for running the digital asset are great points as well.
Thanks man! Glad you got a lot of value out of the post!
It has certainly added a few new ideas into my head, things I didn't even think about when it comes to putting a price on a website.
I'm glad!
A lot of people in our space have no idea they can actually sell these digital assets, much less people outside of our space. Always love educating people on this kind of stuff!
Great article, really valuable! I don't have to worry about what price I would like to get for my website because I'm just starting out, but what is being told here is all I will ever need to know if I ever want to sell in the future. Although people do not sell their children for any amount of money, I certainly do not intend to do that ;)
In general, people trust search engines, and sayings such as "just Google it" reinforce that humans are tied to the search engine. So I certainly think and agree that organic traffic is (one of) the most valuable things to have for a website nowadays. However, paid search, display, or even offline campaigns can also drive searches, which may increase traffic while those campaigns are running. The disadvantage is that those campaigns need to be running and are very dependent on many variables for them to be successful.
Thanks again Gregory! Wish you the best.
Elias
Thanks Elias! Appreciate it!
Yes, if you are super in love with your business it's probably never going to be the right time to sell it! Most people that sell their business are beyond that honeymoon phase and ready to move onto a different project typically.
Paid traffic is still for sure very valuable. If you have a great converting cold market funnel, that is a golden ticket for the right buyer who has paid ad experience with the money to scale that campaign to the moon. SEO likely will always be the most valuable form of traffic though!
Thanks for the awesome post Greg! I'll definitely have a better idea of what my sites are worth should I decide to sell. Often times it is hard to find a starting point without short changing yourself.
Hey John!
Glad you loved the post. It can be hard to find a starting point, which is why I recommend our free valuation tool. It can give you a pretty accurate ballpark estimation of what the business is worth and it is something you can come back and use again and again as you make changes to your business to track where the value is going. What I see most often is people shortchanging themselves on the price of their asset just because they have no real knowledge on how these businesses are priced.
Hopefully this article and our valuation tool will help you avoid that pitfall :-)
I asked myself the same question, and I was looking for a million unanswered sites to sell the company, I think I felt quite overwhelmed, but in the end I took a few days off and returned with more strength. Having sold my company would have been the biggest mistake of my life. But after that, now I wonder how much it would be worth. But this post has helped me to solve it.
This post is an invaluable article, I wish I had written it before,
Thank you very much really Greg
Hey Jonathan!
Glad to hear you avoided the mistake! It really is more of an art than a science when it comes to the right time to sell off the business. And as far as the valuation goes, definitely check out our free automated tool, it'll give you a pretty accurate ballpark of what your business will be worth on the open market should you ever decide to sell it.
Also, really appreciate the kind words on the post. Glad you found it so valuable!
Hello Greg,
Thank you very much, I hope not to do it, but if I do, I will consider your tool
Best regards!
For sure man. You definitely want to be bullish in selling the asset before you do. I think in someways we're never 100% ready to sell the asset, but at least be in the 95% range for selling it is what I'd say and make sure it is a price that would make you happy if you did end up selling it .
If you do ever end up selling, make sure you have a minimum sales price threshold that is the absolute lowest you're willing to walk away from the asset for. A lot of people don't do this, and it can really hurt them if they do a private sale because they get beaten down by low offers and might start questioning if they valued the business right. By having a minimum threshold, at least you can make sure you're going to get something that still makes you happy at the end of the day. This is a good strategy to keep in mind during negotiations so you don't get lost to the heat of the moment. If you go with a brokerage, it is good to tell them this minimum price too so they know what they're working with in terms of flexibility (of course it is the brokerage's best interest to get you the highest price possible that is still a fair market value).
If our websites could be paid for the effort and desire that we put them, they would be worth millions. At least mine is like a second son to me.
I hear you. We put a ton of sweat equity into our projects, unfortunately the emotional connection to them doesn't drive up the overall value of the site.
Luckily, that passion for our business can drive up the revenue as we work harder and smarter on the business that can ultimately increase the multiple quite significantly.
Exactly. I don't consider doing it now but I believe in a couple of years I will. Who knows, obviously timing is crucial here.
Thanks for this Potential article, Website valuation can be imagined as a multi-stage process that takes multiple factors into consideration and produces a single value as a result.
You can do more than you think in order to have a valuable website. Even if you are on a budget there are plenty ways to fine-tune your site.
Aiming for high-quality design is a good idea. You don’t have to spend thousands on templates. You can find decent ones under $20.
If you are having a blog, try to find a topic that really “clicks” and always aim for quality content instead of quantity.
Organic search is King! Having strong backlinks means that you don’t have to run as much paid ads; in addition, it also increases the value of your site.
Multiple proven traffic sources that are both responsible for a significant percentage of annual revenue and have long-term staying power.
Be consistent everywhere. Every part of your website should fit together giving the impression of a “whole”.
A business name that is trademarked and consistent from the domain name to all social media handles.
Provide pleasant user experience. Time is money and if the potential customer needs a guide to perform the desired action on your website you should really consider optimizing your website. If you ignore this, then your conversion funnel will leak traffic. There are tools like session heatmaps designed to reveal certain pain-points in the user flow.
Absolutely.
One of the cheapest investments you can make in my opinion to really level up the value of your business is by using those heatmaps and doing some hardcore conversion rate optimization or hiring someone to do it. You can see really quick wins with that.
We've even seen it at Empire Flippers. We recently did CRO on two of our best lead magnets and increased leads by over 50%, which equates to a lot of new business for us with the exact same quality traffic :-)
By far the best article on this subject I've read. Thumbs up Greg!
Totally agree that selling SEO agency can be challenging, especially when lots of guys have their businesses wrapped around their names. And being able to sell for x50... you must be an animal to pull that off.
¡Muchas gracias Greg por tu artículo!
Creo que eso introduce una persepctiva muy interesante al ingresar para valorar la web como un activo de la empresa. Después de todo, es el activo digital principal y tendría que tener, en mi opinión, un reflejo contable.
De hecho, si este fuera el caso, las cantidades dedicadas al entorno en línea se convertirían para las empresas en un gasto para convertirse en una inversión, como maquinaria o bienes inmuebles. ¿No crees que al final todos son elementos de la empresa para transformar la entrada en producción?
Una variable que me gustaría añadir a su publicación es la poca conciencia de este valor de la web. Así que vemos cómo los propietarios de los sitios web "morir" diarios no los renuevan y se pierde el valor SEO que tienen. Incluso veo un negocio en conseguirlos para preservar ese contenido posicionado, DA y PA
Thanks Greg. This post really make sense. I do agree that organic traffic is the most important factor for us to evaluate the value of a website.
Awesome Greg! Is the first time I read something about how to calculate the real value of a website. I´m not planing to use this info now, but it could be useful when I want to get retired ;-)
Hi Greg,
Great post of website worth, you cleared some of my mishap. Thank you for sharing
Glad you enjoyed the post!
Thank you very much Greg for your article!
I think that introduces a very interesting persepctiva when entering to value the web as an asset of the company. After all, it is the main digital asset and I would have to have, in my opinion, an accounting reflex.
In fact, if this were the case, the amounts dedicated to the online environment would become for the companies an expense to become an investment, such as machinery or real estate. Do not you think that in the end they are all elements of the company to transform input into output?
A variable that I would even like to add to your post is the little awareness of this value of the web. So we see how daily "die" websites are not renewed by their owners and the SEO value they have is lost. I even see a business in getting hold of them to preserve that positioned content, DA and PA
Fascinating.
I think this industry is pretty fascinating. It is definitely eye opening seeing all these awesome businesses being sold, and even the mini-moguls whose entire focus is buying sites, fixing them up and flipping them later. I'm fairly sure we have one business we've now sold for 4 times on our marketplace haha. Cool stuff :-)
Awesome post, Greg. I had never considered selling my business, but I will keep this post in a visible place in my library. The truth is that making accounts the prices you raise are really interesting. My napkin is fuming. Greg can be the culprit in the sale of my company! I'm just joking, I'm not ready for it yet.
Thank you very much for this post, Greg!
Hey Estentor!
Haha glad I got your napkin fuming ;-)
When you're ready, we can definitely help you with any kind of exit planning that will help your business sell for the highest potential multiple. If you ever meet me at conferences, I often tell people my job is to hangout with highly successful online entrepreneurs and then when morning comes they're wondering what happened to their business and why they have multiple six-figures in the bank... ;-) haha.
Seriously though, love to help when you're ready or if you just have general questions always feel free to hit me up
Great article by the way! My question is and I might have missed it, but was is the typical broker fee % wise?
Hey Bob!
Great question. So every brokerage is different in the way they do this. We have a sliding tier system based off how much your business is actually worth and could be sold for on our marketplace.
It goes like this:
15% on any business less than $1 million
12% on any business between $1 million - $2 million
10% on any business between $2 million - $5 million
8% on any business over $5 million
Hello,
is it necessary to always use a tool that allows an audit to be paid or free. The results are always different, even google tools sometimes deceive
Hey Elg,
Not sure exactly what you're asking here. We use our valuation tool we've created to find the valuation of a business. As far as I know, we're the only ones with a tool like this in the brokerage space that is actually based off real life sales data.
Hey Greg,
Great post man, you just cleared some of my mishap! Thanks for sharing
No problem Ankit! Glad I was able to help with the article!
Hello Greg,
One lovely article and love the application from Empire Flippers, provides excellent result and evaluation of your business looking at various different signals like social media followers. Love the support from Empire Flippers and very engaging as well. Thank you for providing such knowledgeable input and expecting the same on you next post as well.
Hey Sandy!
Thank you for the kind words! We love educating the space about buying and selling digital businesses. It is amazing how few online entrepreneurs know they can even sell the business they've built. The market is still growing big time and we haven't yet even touched the more "mainstream" public at large that still don't know that much about online business to begin with.
Super exciting times!
In my opinion, apart from the points mentioned in this article, for a content rich website, there have to be many more points that need to be factored in arriving at the right valuation.
Size of the website, number of URLs or articles, number of images and videos on the site if any (developed in-house), youtube channels and subscribers, country traffic source, number of years in business, website niche, value of the URL, likely amount that would have been invested in building the website or what would be the equivalent amount that would need to spend in building a similar sized website.
When we talk of SEO, it is time bound process. Becoming an authority in that domain takes lot of years. Newer websites and domains will not have it easy to break in to the top SERP for competitive keywords, so the age of the website and the growth graph during those years should matter all the more in arriving at the right valuation.
Nice Greg. I agree that SEO and organic traffic is the most valuable access to buyers. These tend to be more long term assets and are the result of planning and investment of the site owner. Low PPC costs for instance can mean that the nich of the site has low PPC overall or that the site owner has developed a very good PPC strategy, but this can be very short term, since PPC depends of day by day factors such as the budget of competitors, so it's only natural that those acess mean less to potential buyers.
Thanks for the great article,
For a quick look at the value of a website, I usually use the https://ystat.net tool. It provides quite accurate stats that help me in valuating up a website
Awesome Post! Of course that Organic Traffic is the only top solution to keep alive our sites, sometimes social sites aren´t enough to provide a constant and segmented visitors, as LureCreative said, especially when looking to sell inside a website. I have had a website for around two years now, and I barely appear on the Google Search Results. Practically I started to care about SEO since a couple of months ago.
I've seen site valuations before and wondered, why in the world would someone sell their site. Thanks for answering that question, and providing a new perspective on potential business opportunities.
No problem!
A lot of people don't realize why someone would ever sell. The reasons are so varied couldn't go and list them all, but a lot of those seller reasons are quite attractive when you stop and think about what a six-figure exit could mean for you personally and business-wise.
Hope the new perspective inspires you with your next projects!
Great write up Greg!
Have a better idea on how to value a site, and some good metrics to work on, to improve my sites value.
Thanks again for article!
No problem Aaron! Glad you got a lot of value and insights out of the post!
I'm a little concerned to hear that someone would pay 50X earnings for an online business. That means they would pay $500,000 for a business that has a $10,000 profit or a 2% return on investment.
You make an important point about sites that command high prices because of future growth, but the online world is so blasted risky and unpredictable.
I've seen countless big, high-priced buys go bust in the last 20 years in part because the buyer paid too much or their great idea ended up with 30 competitors.
I'm not doubting you have examples of 50X. I'm just doubting the ability of someone to pay that much and survive.
Hey Scott!
50x is a really aggressive multiple. We have sold as high as 56x, but it was in a super growth hot niche where every month the business was adding several thousands of dollars worth of net profit. I would say the more typical multiples fall between 24-35x with 35 being fairly high.
It is DEFINITELY a risky investment. Online businesses in general are volatile things by their very nature. It is important for a buyer to know what they want and know what they're doing with the asset. Some buyers don't exactly care if the business goes bust in that they're buying 5-10 sites and only need 1-3 of them to succeed to be making an aggressive ROI on their investment.
Not always the case, but have definitely seen buyers like this.
When I first came on board with EF, I was quite surprised how much money was being invested. It is not uncommon to see someone buy a $50k site from us with very little due diligence time (at least from my perspective). Often these are pretty savvy buyers too that know SEO in and out and decide to buy a business within a day or two of discovering it. The big 56x business we sold was all cash upfront too and that was a 7-figure deal that was closed in just 13 days!
If you know what you're doing, understand the market value for the asset, and have the time to work on the asset, it's not a story of survival but rather one of their business thriving.
It'll be interesting to see how the big 56x business goes over the next few months when we circle back on it for buyer case study for sure!
Some of these businesses flop though and nothing comes of it, sucks when that happens but it is important for us that buyers know that is a real possibility they might lose everything they've invested in. At the end of the day, we want it to be a win-win-win situation (Buyer, seller and us of course).
Despite the risks, there is also the huge upside potential too with an aggressive ROI that is hard to compare with other investment options out there.
Thanks for a great answer, Greg. Your comment about buying 5-10 sites with the hope that a few of them pay off big while others failure makes me think of people who invest aggressively in the stock market. It may take only a few stocks to make up for the duds.
I wouldn't be surprised to hear that multiples are declining as a result of declining ad CPMs, increasing competition, ad blockers, and changing Google algorithms.
Engagement beats traffic any day.
One of our clients is a big online magazine company. They increased traffic to their site, sales for ad space was exactly the same. Once they started writing more engaging content, advertisers starting knocking on doors and literally competing for ad space.
Engagement is incredibly powerful. From a buyer perspective, I would be more interested in a high traffic site with little engagement. If their content isn't super high quality, then I can update that content and get huge wins for the site relatively quickly by turning up that engagement.
It's always a two-sided story.
Of course, the seller should want high engagement too as that will likely increase overall earnings and thus increase their list price too, but when you're wearing a lot of hats some things can get dropped in favor of other skills they're better at (for example they might be great at getting SEO traffic but not the best at creating super engaging content, so that will be an opportunity for the buyer).
Personally, I think the focus on buying any new site would go something like CRO ---> Update old content for freshness ---> Scale up content production to upload a ton of new articles to get the benefit of the domain's power --> Revenue stacking (Example an amazon affiliate site might have 70% of its articles being informational articles without any kind of monetization, you can add display ads to that content to create extra revenue right away on the site).
Thanks for this spectacular article