Almost two years ago, Andy Hagans wrote one of the best articles I’ve ever read: How to: Build an Affiliate Site You Can Sell for $1M. It was great not only because it was so practical, but because the information came from someone who genuinely knew what he was talking about. It’s an absolute must-read if you’re at any stage of building an online business.
I’ve learned over the past year, though, that hitting the $1M mark isn’t the finish line. You actually have to sell it for $1M, and that’s where so many people fail. Selling a site is like nothing we’ve ever done before, so it takes skills we’ve never developed. We simply don’t know how to sell a website. And unlike the process of building the site, you don’t get to make mistakes. Screw this part up, and it could easily cost you several million dollars.
So after selling my own site to Internet Brands (NASDAQ:INET) and helping countless others with their sales (and in many cases the decision not to sell), I want to pass along the basics of how to sell a website in order to help people avoid the costly mistakes that so many others have made. The specifics will vary, but these principles apply to every website sale that I’ve been a part of.
Is the Site Worth $1M?
Or, more accurately, is it reasonable to believe that this site could sell for $1M or more? This is the first question you have to answer because it determines the most crucial aspect of the sale: whether you can get the attention of investment bankers. (More on why that’s important later.) I’ll go way into depth on how to value a site in a later post, but all we need right now is a rough estimate.
Start by determining your net revenue (i.e. income minus costs) over the last 12 months (called the Trailing Twelve Months or TTM). That’s your starting point. Most solid Internet businesses should be able to sell for at least two times that number (abbreviated as 2X), but that multiple can be raised or lowered by a number of factors. Among them:
- A Strong Brand – A site with a well-known name is worth more than an identical site that has no name recognition.
- Defensibility – In other words, how stable is your business? (See Brian’s description and Andy’s 10-point quiz for a more thorough understanding of defensibility.)
- Still Growing – Is the business still growing? The more that is apparent, the better.
- Valuable Topic – Sites on more valuable topics (e.g. mortgages and credit cards until last year) are obviously worth more than sites on topics that no one’s interested in buying.
- Many Interested Buyers – The more buyers you have interested, the more they work against each other to bid up the price.
- Uniqueness – If the buyers really want to buy into this niche, are you the only option or are there others they could buy?
- Market Leader – Being the clear market leader in a niche is worth an extra premium over being one of the other guys.
This is just a partial list, but it demonstrates how many factors, both tangible and intangible, go into valuing a website — and why it would take far more than a few paragraphs and some bullet points to cover it. The only thing we’re trying to determine is whether it’s reasonable to believe that the website could sell for $1M. Don’t get too hung up here right now.
Are You Sure You Want to Sell?
My biggest concern was always figuring out how much my site was worth, and most people I talk to are the same way. I see very few people questioning whether selling their website is actually a good idea, though. We’ve spent so much blood, sweat and tears getting to this point that when a legitimate buyer flatters us by expressing an interest in what we’ve built, we don’t always think straight. Add to that the thoughts of a huge payday, and we can easily lose sight of the big picture — and that’s where everything begins to go horribly wrong. We’re blind to anything but finding out how to sell.
Why Now is Not the Time to Sell
The best time to sell is when you can sell for enough to be financially free for the rest of your life. Unless you only have a couple of decades left, though, $1M isn’t enough.
You may rationalize it by saying that you can sell and then leverage the proceeds into enough to retire on with your next success, but the problem with that is that you’re never guaranteed another success — regardless of how easy it was for you the first time. The odds that you hit that mark even once in your lifetime are slim. Think about how many people try and fail.
For all who do succeed, though, how many have ever had a second success? The numbers are even lower, especially online. People who have more than one huge success are few and far between.
So don’t bank on being able to do this again. Treat it like your entire retirement depends on it — because it might.
Why It Is
So when is it the right time to sell? Here are a few situations, though not a complete list by any means.
You’ve Hit Your Financial Freedom Mark
Use this calculator to get a rough idea of how much you need in order to feel reasonably sure that you’re financially set for the rest of your life. If you can pocket that much from selling your your website, you may want to go ahead and pull the trigger (after consulting a reputable financial advisor, of course).
The Business is Risky
This was the situation I was in. Because 85% of our traffic came from Google, a simple algorithm change could have put us out of business (and almost did). The environment can change, too. Online gambling used to be huge before the U.S. virtually made it illegal. Credit card sites were huge, too, before the economy crashed.
If your business could suffer a huge blow at any time, you have to decide when it’s smart to just take your winnings and walk away.
You Need the Money / You Just Can’t Do It Anymore
Especially these days, you might find yourself genuinely needing the money that a sale would bring. I’ve talked with others, too, who are burned out and just feel like they can’t do it anymore.
The problem with these scenarios, though, is that the short-term solution of selling the site has significant long-term consequences. To solve your problem today, you give up all that you could have had in the future.
If you just can’t maintain the status quo, look for options other than an outright sale. For instance, you could let someone buy in to the business — either as a partner (to let you take a break) or just for some necessary cash. Sell only as much as you need. (I know some excellent potential partners if you’re considering going this route. Contact me.)
How to Sell for the Maximum Price
Alright, if the answer to the first two questions is yes, you’re ready to sell. Your priority now is to get the very price you can.
Three Ways to Sell a Website
Sell It Yourself
The advantages of this method are two-fold. You’re not bringing in a third party that you have to develop trust in, and you’re not having to pay anyone a fee. The downside, again, is that you’ve never sold a website before.
Use a Broker
A broker markets your site and handles the business of closing the sale. They’ve sold websites many times over and can add expertise that far outweighs their fee (typically around 10%). The downside is that their marketing is relatively passive. They make people aware of your site, but don’t actively pursue buyers or create a market.
Use an Investment Bank
Like a broker, sell-side investment bankers are experts in selling a business. The biggest difference is that they actively create a market for your site and pursue buyers. And not only do they have access to potential buyers that few people could ever get in touch with, they actually have buyers contacting them on a regular basis looking for particular types of sites.
The Right Way
You get the maximum price by creating the best market, and that’s something that you can’t do alone or with a broker. People who know how to sell websites know that if you want to get the best price, you have to use an experienced investment bank.
Way too many times, people take the first offer that comes along or, when they do try to create some other interest, they have no idea how to do that. When that happens, they often leave millions of dollars on the table.
That’s because no one in this league presents their best offer first. These guys live by the motto “You make your money when you buy” — meaning the goal is to buy for a low enough price that they’re guaranteed to make a profit. Without competing buyers, and knowing how to run a bidding environment, you won’t get anywhere near what the buyer would actually be willing to pay.
That’s why it’s crucial to use someone who knows how to sell a website for the maximum price that the market is willing to pay. The right representation is the difference between selling a blog for $15M and selling something worth far more for less than $1M (to cite a couple of the very few public examples). And it’s why you have to be able to sell for at least $1M: because it’s such a labor-intensive process, it’s not worth the risk for them to take on anything less.
Every Situation is Different
I constantly see people selling for far less than they could have, and it kills me to know how much they left on the table. You almost never get a chance to correct that. Once the sale is over, it’s over — regardless of how good a deal the buyer got. I hope this can help someone avoid that.
I may have created as many questions as I answered, though, and while these basic things are true for every sale I’ve ever seen, things rapidly get unique the deeper you get into the specifics. If you’d like to talk more in-depth about how to sell a website, definitely contact me. I enjoy talking about it, and I have a pretty flexible schedule.