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We all work hard to build a profitable business or blog. If you’re lucky, you will have built a business around something you are incredibly passionate about. For others, the hustle is to make enough money to sell the company to another individual who wants to take the reins.
If you fall into the first category, that’s awesome – keep doing what you’re doing! However, if you want to sell your business because you fancy a new venture, you must figure out how much your digital assets are worth.
Those who have built an online business and are looking to exit need to understand how it is valued to get the best deal from your content website, software as a service (SaaS), or e-commerce store.
SEO is the most valuable traffic for a digital asset
SEO is the most attractive traffic source for buyers. The best thing about SEO is that a website can maintain and bring in traffic significantly with minimum upkeep if you have worked to achieve the rankings.
Conversely, websites that rely on pay-per-click (PPC) campaigns or Facebook ads require daily monitoring and ongoing costs to keep traffic coming in.
Whether the buyer is a newbie or a veteran of traffic generation methods, a well-optimized site that brings in traffic organically has a broader appeal than any other traffic strategy.
The magic formula for how online businesses are valued
The basic formula is at the heart of any valuation: 12-month average net profit x 20-50 multiple.
To determine your business’s worth, look at its rolling 12-month net profit average and multiply it by a multiple. The multiple will typically be between 20 and 50 times an online business’s 12-month average net profit.
How to get a higher valuation
You can do several things to get a higher multiple, including common sense and putting yourself in the buyer’s shoes.
The two areas that most influence the multiple are the average net profit and the time the business has made money.
The higher your average net profit, the higher your multiple will tend to be because it’s a more considerable cash-flowing asset. It makes sense to increase net profit and reduce expenses to improve this number.
Although cutting some costs can improve your net profit, you need to be reasonable about it, as some cuts could make your business less attractive.
When selling a business, you don’t want to worry only about the expenses but also how easy it is to start running that business for the buyer.
In addition to the net profit, a history showing a steady profit level or an upward trend will also lead to a higher multiple.
Other factors that lead to a higher multiple
While profit and history are the two main factors in a valuation, other factors can increase your multiple.
1. Minimise critical points of failure
What could be a total deal breaker when selling your business? Are you relying on one source of traffic? On one supplier? Diversifying and having a sufficient backup strategy to minimize potential weaknesses is essential.
2. High amounts of traffic
Higher traffic leads to higher revenue, ultimately increasing your net profit. When you have high traffic, you give potential buyers room to experiment with different conversion rate optimization factors.
3. Social media following
Social media has become increasingly important as time goes on, and a large following is likely to drive some traffic and sales to your business. Although figures like ‘reach’ and ‘followers’ can be fickle, proving it leads to conversions will help increase your multiple.
4. Hours required
Most buyers are not looking to acquire a job; they want an investment they can scale up. Your business will be more attractive if it doesn’t require much work from the owner.
If you’re looking to sell your business, you should first consider how to minimize the actual involvement you have.
Automating and outsourcing as much as possible is the most effective way to reduce time spent on business. While these add costs that drive down net profit, they also make your business far more attractive.
One of the first things to outsource should be website maintenance, as updating takes too much time.
Outsource WordPress Website Maintenance
Here at WP Tech Support, we take care of all your core and plugin updates, including any compatibility issues that arise. We also add security to protect your website from hackers and malware infections and make regular secure off-site backups of your entire website and database. Signing up for WordPress maintenance plans is a great investment, whether you plan on selling your business or not.
There are so many factors to consider before selling. When you’re ready, we’ll help with your outsourcing requirements to increase its value.