This is a guest post from Thomas Smale, the co-founder of the specialist website brokers FE International and serves as a great follow up to Lewis Ogden’s article on building an online business that can last.
Many online marketers that I speak to don’t seem to realise just how valuable their skills are or how they should be putting their skills to good use to make a great income online.
As a broker who specialises in helping to sell online businesses I wanted to offer some advice on how you could go about building a website that you could eventually sell. Having completed over 200 website sales, I’m in a good position to know what will sell easily and how a seller can improve the overall value and saleability of their website.
Invest time in Strategy and Planning
The success of your website stems from your initial planning and leg work. The websites that I have been able to sell for up to 7 figures are always built on a solid foundation as they have taken their time to understand the target market, built out customer personas, implemented a considered content strategy and have developed a strong monetisation method.
That’s not to say there aren’t people who have managed to fall into a niche with their eyes wide shut and make a success of it, but these are very rare situations.
If I have learnt anything in the past few years it is that you can make money from just about any niche online and many of the most profitable businesses that I have worked with have often been in what many call “boring” niches.
During the market research phase really take the time to think about how you are going to monetise the site. Are you going to make money via a monthly subscription model, ecommerce (dropship/stock), Adsense, affiliate marketing or whatever? This can have a significant bearing on the overall sale price. From our own internal data you can see that a lead generation site can see a 12% decrease in its overall valuation (100 being average). It’s also very important to think about the type of platform or CMS you might want to use. A widely familiar platform such as WordPress will make it easier to find a buyer than something you custom built later down the line. If you are struggling for inspiration to find a niche to start with have a look on Flippa at some of the most recent high value website sales (broker listings are private so this is harder to do). Sometimes some of the most “boring” niches can offer profitable opportunities.
Always be Testing
As an online marketer you already know it can often be cheaper and quicker to double your conversions than it will to double your site traffic.
There are a lot of sophisticated buyers we work with who can easily see opportunities in websites. After running dozens of online businesses they can see the holes in your ‘leaky bucket’ and know that if they can buy your site for X they can probably double their money in 6 months if they invest in improving the user experience and conversion testing on the site. If you want to truly increase the sale value of your website then make sure that you are testing your design and layout from day one. By maximising the revenue potential for your site with consistent A/B testing of different hypotheses you will receive a much higher valuation.
Stable Traffic Generation
This is quite simple – the more stable and diverse your web traffic is the more likely you are to see a great valuation for your online business. Being too over reliant on SEO and Google traffic can seriously impact your sale price. You don’t need me to tell you how volatile the search industry has been over the past few years to understand that seasoned buyers are cautious about an over reliance on SEO.
If you have used any kind of SEO tactics that might be frowned upon by the search engines be up front with the buyer. If you are buying links then these should be declared in the financials as advertising/marketing costs. If you have any links under your control such as a private blog network, web 2.0 properties or any other sites that you control you will need to be prepared to discuss this with your buyer as they may want to include them in the sale or want guarantees that the links will stay in place for a certain period of time.
If your site has received any kind of Google penalty they will soon see it in your analytics software or even using a tool like our Google Penalty Checker, be honest about these types of things. A recent survey of due diligence failures showed that the most frequently cited issues related to backlinks and traffic sources. Steady consistent growth and predictable monthly traffic is what your buyers are looking for. Consider investing your time in other traffic generation methods
- Social Media – Twitter, Facebook, LinkedIn, Pinterest, Instagram
- Video – Youtube, Vimeo
- Email Marketing – Building an email list to market to your customers
- Affiliate Program – Got a product or service that others could promote for a commission?
- Forums – Contribute, promote, advertise. Be the expert.
- Pay-Per-Click – display, mobile, search, social
Documentation and Record Keeping
When you setup your online business make sure that you treat it as a proper business and keep good records. It’s not just about keeping good financial information but take your time to document any processes that you do on a regular basis. If you’ve got an ecommerce business for example, then map out the entire process. You might ship the products yourself, you might have a fulfilment center, you might go through Amazon, or you might drop ship the product. Make sure you’ve got a standardized operating procedure for everything.
If you are the only person in your business who can answer technical questions about your product or service then make sure you create some FAQ documents or setup a ticketing system early on so that there is a database of previous customer queries that the buyer can go through.
Bear in mind that some buyers will not want to be involved in the day to day running of the business and have members of staff who will do many of the administrative tasks. It’s important to be honest about the amount of time you are spending on working on (or in) your online business, many times we have seen site owners claim they only work an hour per day on their online business but in reality are working five or more.
Make sure it is easy to separate and report on the revenue streams from your different websites. It is quite easy to do in Adsense for example but if you have affiliate accounts then utilise the different tracking id’s or if you are using Paypal then setup a separate bill to email addresses for each of your sites.
Putting a Valuation on Your Website
One of the most common valuation models for selling online businesses is the “Earnings-multiple”, and depending on the majority of the business and some of the other factors mentioned earlier in this article that multiple can be anything from 50% to 500% of seller discretionary cash flow (SDC).
SDC can be simply defined as: “The pre-tax earnings of the business before non-cash expenses, one owner’s compensation, interest expense or income, as well as one-time and non-business related income and expense items. If there are additional owners working in the business, their compensation needs to be adjusted to market rates”
Contracts and Due Diligence
If you have followed the advice in this article then the due diligence and sales negotiation should be very easy. For websites that are under $100k then you can expect the due diligence process to be around about 5 to 10 days but for larger transactions i.e. over $1million then it is not uncommon for the due diligence to last anywhere in the region of 30 to 60 days. At this time the buyer will want to look at the traffic sources, the financial accounts and ask any queries surrounding the operations of the business.
Once you have accepted an offer for your online business and due diligence was successful then you are entering the home straight at this time all there is left to do is sign the contracts and make arrangements for the transfer of funds and assets.
If you use a broker for this transaction then they should prepare an Asset Purchase Agreement (APA). The APA is a legal document underpinning the transaction and the contractual agreements between the buyer and seller. As part of the APA there will be:
- Consideration – to ensure the timeliness of the transaction and any conditions surrounding payments or non-payments
- Non-Compete – if the sale is for a large amount then it is quite common for restrictions to be put in place on the activities of the seller in the niche.
- Asset Transfer – all the content, passwords, social media accounts, databases that you have built up
- Transition Support – introductions of owner to key contacts, any agreements surrounding after sale support, the duration of the support and how the support will be provided.
To summarise, if you want to build an online business that you will eventually sell you should look at ways in which you can diversify your traffic sources, keep accurate records, invest in conversion optimisation and do a lot of up front research into the niche so that you can build something that your target audience will want. This isn’t a guide to a get rich quick scheme but following these tips, having a little patience and a lot of hard work you will be able to sell your website with little difficulty.
If you are planning on selling an established website in the next few months or have any questions about this post feel free to reach out to me or my team or leave a comment below.
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