When you are selling your website here is what you need to know. What your about to read is a summary of the process that we use to filter, value, prepare and sell websites. We offer an internet business broker service if you are looking to sell.
Warning: this post is currently 4500 words long so you might want to bookmark it and come back to it later. If you only want to read one post on this website make it this one. I plan to make this the Ultimate sell your website resource on the internet and will be continually updating it with the most recent information.
Is My Website Fit For Sale?
The first question you need to be asking yourself before venturing down the selling path is “is my website actually fit for sale?”. What I mean is do you have a profit producing asset that is of value to potential investors. If it fits into any of these categories then you have a winner:
- #Profit producing website
- #Most likely older than 1 year
- #That makes at least $3,000 per month net profit
- #That has consistent earnings
- #That has stable traffic
- #That has some type of systems in place
Why You Can’t Sell Potential?
Ideas are cheap. Every man and his dog has an amazing idea for something. It is only the people that get moving on those ideas and turn them into a profitable business that prosper. Key term there profitable. Most seasoned buyers, the first thing they will ask is “How much does it make and what is the net profit”. Notice how that question wasn’t whats the potential in the market. Buyers are ruthless, logical and calculating that love crunching numbers and beating you down on price. So wipe that word from your vocabulary, no-one is sitting around looking to pay for your unproven ideas, or pay for your poor development or crappy sales strategy. Buyers pay a multiple of net profit.
As a generalisation, most sites sell for a multiple of 1-3x net earnings. Or 1 years net profit to 3 years net profit. Example: on a site that makes 100k net profit per year, that is a sales value of 100k-300k depending on the site and the type of buyer. You may be sitting there thinking, but instagram just sold for $1 billion dollars and it wasn’t making an money. ***Reality Check*** if you are reading this article, then you are no instagram and you probably never will be. I’m referring to private market sales of small to medium businesses that are normally sold to businesses, entrepreneurs or investors.
Each Part Of Your Website Doesn’t Give Extra Value
I get asked all the time, why isn’t there extra value for my domain, traffic and email list?
The simple answer is no there is no extra value. The sum of all your assets does not add up to total value.
Value is derived from the profit that those assets generate.
A site makes $20,000 per month. It has a great brandable domain, massive traffic, large subscriber list and good web design.
You think it is valued like this:
Site making $20,000 per month X 2.5 years earnings = $500,000
Domain = $20,000 (it cost me this much)
Traffic = $50,000 (because I should get extra value for my traffic)
Subscriber list = $50,000 (because I can email my list any time and make money)
Web Design = $10,000 (because that is what it cost me for this site)
Total Value: $630,000
Site making $20,000 per month X 2.5 years earnings = $500,000
Why Now Is The Right Time To Sell
A good website can make a lot of money. But a good website will also make you a lot more money in the future. So why sell?
When the Opportunity Cost is Higher not selling
With limited resources such as time, energy, talent, people, capital. If they are better invested in other ways then it may be time to sell . The opportunity cost of being involved in your current Company/Business might include giving up:
- #Another business venture or opportunity
- #Time for rejuvenation and reflection
- #Friends, family, and grandchildren
- #Diversification of investments or reduced risk
- #New challenges, intellectual stimulation, or education
- #Health, travel, community involvement, spiritual service
- #Or, any other opportunity that can not be pursued because of the demands of your current Company.
If the need is greater for any of the above then it might be the right time to sell.
You receive a highly inflated offer:
You know the market. If you receive an offer that is well above the market and well above the value it may have in 5-10 years time, get out now. Pigs get fat, hogs get slaughtered.
The Business In Risky
If there is a high risk level of the business, whether that be a heavy reliance on one traffic source or income source. Or in a volatile market like gambling or credit cards that can change dependant on government legislation or market forces. You could suffer a huge blow at any time, maybe it is the right time to take your money and run.
You need the money / Your sick of it
Sometimes you just need the money, it happens. Or you have just lost your passion and are burnt out. Whatever the reason the pain can be alleviated in the short term, but it might not be the best in the long run. Thus solving your problem today, you have to give up potential in the future. An option might be to to partner with someone or sell some equity.
You can get better returns elsewhere
In my opinion a website should be seen as an investment. Generally you can achieve the below returns from there respective investment channels . These rates obviously can vary dramatically depending on the market, your skill and knowledge of these sectors.
- Cash – 4%
- Bonds – 5%
- Real Estate – 6%
- Stocks – 10%
- Small/Medium Business – 33%
If you can make more money elsewhere, then jump ship, or if you are underutilizing the current site, and you think someone else can do better, then it might be time to move on.
Market Is at It’s peak.
If you think your site has hit it’s full potential then it may time to offload the site.
Why Now Is The Wrong Time To Sell
Selling your business and having a million dollars in the bank is plain stupid unless you have a plan for it. If you don’t have an asset that is appreciating at the same or greater rate than the asset you are selling (where an asset is defined as something that makes you money, could be property, a business etc.) then it may not be the right time to sell.
Selling in a bad financial position
You are going to get a significantly lower multiple for your business if you have had a bad financial record in the last year or two in comparison to historical data. If possible, holding onto the business and improving the financial position of the business will get you a larger sale price. Or, if you need the cash quickly, to pay an impending bill, deadline. Ask yourself are there other avenues to take that might be a possibility. For example, selling a percentage of equity or asking for an extension on the impending deadline. You will be cutting yourself short if you don’t explore all avenues.
Selling to pay off manageable debt
Let’s say you have $25,000 in bad debt from college. You are thinking of selling your website for $100,000 to pay of that debt and put some cash in the bank. The payments on that debt are $300 a month. So the current site can maintain that debt can probably. It may be an idea to take that $25,000 and over the next year and invest that money into your $100,000 website and after 12 months it is now worth $200,000. Think about the opportunity cost of that money and take that into consideration when selling.
What Is My Website Worth?
What your website is worth is purely determined on, not by what you’d like to get, but what buyers are likely to pay. Therefore the pure definition of what is my website worth is: What someone is willing to pay for it. That is purely determined by how quickly can a buyer get their money back.
If a potential buyer sees no way to make their money back they are not going to purchase the site. People will then go onto say your website is worth a multiple of earnings. 12-36 months earnings get’s adopted for web businesses. So what determines that number? To get a better understanding of that we first need to determine what real value is:
What Is Value?
Value in its purest form, by definition is “the monetary worth of something” So what determines the monetary value of a website, quite simply this: There is a return on investment to be made by the buyer. If the potential buyer can’t see a way to make his money back and then some, he’s probably not going to buy and thus your website has no value (monetary worth).
Just because you invested $30,000 into development of your website doesn’t mean it automatically has $30,000 in value if that website isn’t producing income.
What Level Of ROI Is Required
To understand why buyers will pay more for some things and less for others we need to look at return on investment (ROI). If a buyer pays a 1x multiple, they will likely get their money back in 1 year. 2 x multiple, money back in two years. 3x multiple, money back in 3 years. However if we look at these as percentages you will start to see a trend arising here as to why other asset classes (stocks, bonds, real estate etc.) get valued the way they do.
If you were to pay a 2x multiple your would be receiving a 50% ROI. That is you would get your money back in 2 years. Generally small to medium business multiples are 2-3 times earnings because it is a 33%-50% return on investment. Small business are classified as a riskier asset class than lets say residential property, which normally sits in the 4-5% ROI (20-30) year return because it is deemed a safer investment with a more secure future revenue stream.
Risk and Value
So the amount a buyer is willing to pay will be based on the level of risk they are willing to take. The higher the risk the lower the price.
What Website Buyers Will Pay More Money For
These factors below lower the risk of losing future earnings and thus increase the price you are likely to receive for your website
- #Solid earnings
- #Positive growth trend
- #Processes automated
- #Defensible Market (a site on CD’s has little value today)
- #Room for growth
- #Strong brand
- #Diversification (of revenue and traffic)
- #USP (some type of unique asset)
- #Key assets (like email list, premium domain, supplier contracts etc.)
- #Legal Liabilities (you have none)
Buyers will usually utilize one of the following valuation methods when approaching your site.
- Asset Valuation – buyers may make their valuation based on the assets of the website. Be it traffic or customers, buyers will look at ways of leveraging those assets to get a quicker return on investment
- Future maintainable earnings – buyers might look at the rate of return they can expect from the website by capitalizing future earnings. This is achieved by multiplying the average profit by the desired rate of return.
- Earnings multiple – buyers may apply an earnings multiple to your website example net profit multiplied by 1.5X
- Comparable sales – buyers may search for similar sales of you website to find comparable sales data.
How A Buyer Will Deconstruct Your Business
The following is a analysis of what buyers will look at when analyzing your business. These factors will determine the offer they are likely to make.
- Business Model – certain business models are riskier or more labor intensive than others. Buyers will value your model differently based on their perceived risk and understanding of the business.
- Current Year Earnings – how much your website made in the last 12 months is the main basis of the valuation.
- Current Yearly Profits (made up of assets and liabilities) – do the business process and systems affect its profitability? Can we decrease costs somewhere or develop a synergy? These are the things buyers will be asking themselves.
- What is my traffic and where does it come from – buyers will see a high reliance on search engine traffic as risky. Conversely if traffic sources are spread well from multiple sources then there is less risk.
- What is the growth trends – which way is the business trending? A growth trend will attract higher prices.
- What is the market like – a website in the CD market is going to be worth a lot less than a website about golf. Consistent industries will receive higher earnings.
- Where can value be added? – potential buyers will ask themselves where they can add value to the website to get their money back quicker.
What If It Has Been Effected By Google Updates ?
If your site has been hit and lost a large proportion of your traffic then unfortunately it is worth little/or nothing if it was previously profitable. If consistent earnings can be proven the site may regain some of it’s previous value.
8 Ways To Prepare Your Website For Sale
Below is the top 8 things your must do to
- Don’t change anything – buyers are wary of any recent changes and will wan’t to know why things were changed. This includes site redesign, change of monetization methods, new server, domain change or any other changes.
- Organize your statistics -get your traffic statics for the last year. Create an excel spreadsheet of your profit and loss statement for your website since it’s inception.
- Fix up any website errors -do a quick check for any errors in your web code and clean them up
- Check your legalities – don’t let anything come back and bit you later.
- Establish a selling price – based off the advice from this article figure out how much you think a potential buy might pay for your website then add a small margin on top of that as a starting asking price.
- Create your Information Memorandum – develop your selling document outlining.
- Identify anyone you think might be interested in buying your website
- Create time – you’ll need some time to talk to buyers. They will ask lots of questions about your website. You might feel that some things they are asking are irrelevant, however bite your ego and present everything in a polite and respectful way. At the end of the day you never know who will cough up the money for your website so don’t burn your bridges.
The Process To Sell Your Website: Infographic
What should be in your information memorandum (selling document)
In the image below I have taken a screen shot of one of our information memorandum’s used for a client. An information memorandum is document put together to present the facts of a business to allow prospective purchasers to make a fair value assessment of what the business in question is worth.
The image is of the contents page of that document and breaks down each section we present to prospective buyers.
Below I will outline what kind of information goes into each section:
- Confidentiality – this is just a generic clause that we put in the IM that permits people from sharing the document with anyone else.
- General Overview -a synopsis of the business
- Products and services – this is where we explain how the website makes money
- Business operations – What is required to run the site on a daily, weekly and monthly basis
- Traffic – summary of the website traffic
- Growth opportunities – here we outline areas of opportunity for a new buyer to make their money back quicker
- Financials -a summary of the profit and loss including asking price
- Profit and loss – an excel spreadsheet of the monthly income and expenses of the business
- Client interview – is this section we get the client to answer some commonly asked questions that buyers have. This saves us time in the due diligence phase as it cuts out most questions from buyers having that information already listed for them.
List of 32 FAQ’s we generally get answered (you are welcome to include these in your IM):
1. What is your full name and location?
2.What are the name, address and entity type of the business?
3. Please describe in a few words what your website does and when it started?
4.How did you get this idea?
5. What related websites did you have in the past and do you have currently?
6. In an average week how much time do you spend running this business?
7. What are the typically daily, weekly, monthly duties for the business?
8. Do you have any plans to remain in this industry moving forward?
9. What documentation and 3rd Party statements have you got to verify financials? (i.e. tax returns, merchant account statements, bank statements, credit card statements etc. )
10. Please identify the strengths of the business?
11. Please identify the weaknesses of the business?
12. Please identify the Opportunities of the business?
13. Please identify the threats to the business?
14. Where does the majority of traffic come from?
15. Describe what happens monthly to maintain traffic?
16. Have you ever done paid advertising? How does/is it working for you?
17. Who contributes the content for the website?
18. General traffic comments
19. How does the site make money (Please list in order of most revenue to least)
20. If you were not selling, how would you double the business over the next 5 years?
SPECIFIC TO SITE
21.What skills (both technical and business) will a new owner absolutely need to be successful owning site?
22.What skills are not necessary but would be helpful?
23.Do you believe that one efficient person could run this operation? Please describe below:
24.Will you sign a standard 2-year non-compete agreement?
25.How much training will you provide the new owner?
26.What else would you like to share with potential buyers?
27.What is the site programmed in?
28.Where is it hosted?
29.Where is the domain registered and when does it expire?
30. If the new owner is not technical, what skills should they look for when hiring contractors?
31.What are the monthly expenses?
32.How much time on average per week do you devote to the site?
33.What do you do during that time?
34.Please describe the staff including yourself.
a) Who is involved? Myself
b) What does that person do? See above
c) How many hours a week does that person work? ? See above
d) How much does that person get paid? ? See above
35.What regular seo efforts do you engage in?
36. Do you have an email list, if so how large is it?
Should I Use A Website Broker?
What does a website broker do?
A website broker helps you sell your website by getting it ready for sale, showing it to potential buyers, negotiating offers and then finalizing payment and handover.
Why Hire A Website Broker ?
There are generally four main reasons why people hire a website broker. Marketing, Price, time and confidentiality. By hiring a broker you get access to their network of qualified cashed up buyers (marketing), they can apply the appropriate valuation methodology to your business to come up with the highest asking price possible (price) saving you time bringing their knowledge and experience to the table (time) all while showing your business to select qualified buyers so you don’t have to advertise to the world that you are selling your website.
What does it cost ?
Brokers charge a standard rate of 10% commission. 15% for smaller sites and negotiable rate for sites worth over $1,000,000. They only get paid when you get paid, and the more you make, the more they make so rest assured they will be working hard to get your site sold for the top price possible.
Do they charge fees upfront ?
No. Brokers work on 100% commission basis. If you don’t get paid, they don’t get paid.
How Long Does It Take?
It normally takes about two weeks to four months to finalize a website transaction. However some sites can take a week and some sites a year—it really depends on the site in question. The longest part of the sales process is normally the due diligence and the back-and-forth between buyer, seller, and broker. Some buyers need more time than others. If buyers request things like tax returns or older financials, it usually takes a little while longer.
What happens if they can’t sell my website?
A typical exclusive agency agreement lasts around 60-90 days.
Where To Find Buyers
Below is a list of where you may locate a buyer for your website.
Website Brokers: Brokers attract buyers due to the volume of listings that they have. There is usually no upfront fee, however a percentage of the successful sale is taken for the service rendered.
Classified Sites- are mainly aimed at selling traditional brick and mortar businesses. They will charge you a listing fee ($100-$250) to place an ad on their website for a certain time period.
Larger Buyers (normally in the millions)
Private Sale – Private sales usually occur when webmasters find a strategic buyer (competitors/suppliers/customers) in the similar market who will benefit from from the acquisition than a financial buyer. The advantages for a strategic buyer would be cost savings or customer cross promotion.
Different Types of Buyers
First Timers – It is said 70% of businesses are purchased by people coming out of corporate jobs.
Financial Buyers – These buyers are just looking for a return on investment and will value your business in a way to get their money back as quickly as possible.
Strategic Buyers – Usually consisting of competitors, suppliers, customers or complimentary businesses.
Investors – These buyers purchase websites for their portfolio and usually buy hands of automated businesses where their is little day to day management of the website.
Good negotiation starts with good preparation. Those that fail to prepare, prepare to fail. In the case of selling your website preparation comes in the form of organising all your information to present to prospective buyers in a clear and concise manner.
Note: These tips only come from experience.
- Be in a strong negotiating position (basic fundamental have a good website that lots of people will want)
- He who wants it less wins in negotiation
- Figure out the minimum you want for you website and then add a margin on top of that for negotiation (be aggressive)
- Don’t take things personally
- Understand the power of anchoring
- Read Harvards negotiation tips
What Will They Offer (Types of Financing)
All too often negotiations get sidetracked with emotional sellers high valuation and shrewd buyers low valuation. This is a lot easier to control if you enter into a pure cash sale, however it can be a struggle if the sale involves a level of seller financing, work-out or future earnings agreement. As a buyer you need to determine what is more valuable,time, risk or money. A cash sale will have smooth negotiations if the earnings multiple is agreed upon. As a note Independent advice can mostly sway a valuation. It is in the interest off all negotiations to be quick and painless. It is thus a good idea to set.
That being said if you are not offered a pure cash sale to settle on your website the other option that sellers will present in most smaller website deals is some type of seller financing.
Seller financing is a loan provided by the seller of a website to the purchaser.
There are three types of seller financing:
- Straight Financing – Like taking out a loan from the bank except the the person lending the money is the website owner
- Performance Based – making payments based on the future performance of the website
- Holdbacks – a small amount of money (usually 10% of total sale price) that is help back and paid at a later date (usually 30-60 days)
Seller Financing Example
Example 1- A website is sold for $200,000. $150,000 is paid upfront in cash and the remaining $50,000 is paid off over 12 months at 10% interest. So in the end the seller gets $205,000 for their website.
Performance Based Examples
Example 1 – A website is sold for $200,000. If after a 12 month period the websites monthly income has been more than $18,000 for the past three months running, a bonus payment of $40,000 is to be paid.
Example 2 – A website is purchased for $200,000 and the seller is entitled to 8% of gross profits for the website over the next twelve months.
Example 1 – A website is sold for $200,000. $180,000 is paid upfront and $20,000 is paid after 30 days once the website seller has provided training to the new owner.
How Do You Tranfer The Money?
If you have a deal completed and it is time to handover your assets you probably don’t want to run the risk of transferring your domain name without getting paid first. And the buyer doesn’t want to transfer his money without getting the domain. Kind of like the chicken or the egg theory.
Enter third party escrow services. An escrow service is a company that acts as a middle man for a transaction. You emply the services of an escrow service. The buyer transfers the money to the third party
Who Provides Escrow Services.
Generally a lawyer or realtor provides an escrow service when transferring a house. When selling your website you may want to engage the service of a lawyer to act as an escrow service. They normally charge anywhere from $500 to a few thousand dollars.
Alternatively you can use an online escrow service
An online escrow service is just like using a lawyer, except the system is more automated. This doesn’t mean it’s safer, it just means they can use economies of scale and reduced costs equaling lower transaction fees for buyers and sellers.
How much do they cost ?
We use escrow.com for all our transactions. This doesn’t mean other options aren’t good, we have just had experience with them. Note: we are in no way affiliated with them and do not make any commissions from recommending their services.
How much do they cost ?
Check out escrow.com fee calculator here:
How the process works ?