Do you own an online business? Have you ever wondered how much money you could sell it for?
While the basics of valuation are the same whether a business is offline or on, one thing is different with online businesses. They are easier and cheaper to start than brick and mortar businesses. And because they are easy and cheap to set up, potential buyers always have the option to start their own online business instead of buying yours.
It’s not 1997 anymore. Just having a web-based business isn’t that special. The truth is that a marginally profitable site that sells products or services that are indistinguishable from all the other sites in their category are worth little to a buyer.
To sell your web-based business for a significant amount of money you will have to develop at least one aspect of the business to a level that the typical new site can’t match.
World famous investor Warren Buffet calls this advantage a “moat” – an advantage or capability that can’t be easily duplicated by a competitor. And he never invests in a business that doesn’t have at least one.
Another term that describes this idea is “barrier to entry”. A barrier to entry is not something that can’t be overcome, it just means it is going to take time, money and risk to do so.
The more barriers there are that prevent a start-up from quickly equaling your site’s profits the more your site will be worth.
Here are the three most valuable features you can offer the buyer of your web-based business.
#1. A 3-4 Year Track Record Of Growing Profits
I hear from a lot of people whose site has been up and running for just 3 or 4 months and they already want to sell. Their plan is to annualize what they’ve produced so far and then price the business based on that projection.
If that is your plan then all I can say is good luck!
The hardest part of building a business is developing a concept that works…. and then proving that it works. Buyers will pay a premium for such a business. The longer you have been in business generating profits the more interest you will get from qualified buyers.
If you have only be open for 3-4 months you still haven’t proven that the idea works. Just-launched web sites with a little bit of traffic and a few dollars in sales are everywhere. Anyone who wants to invest in a site like that will have thousands to choose from.
And because of the technological ease in starting a website, buyers will always have the option to start from scratch. Sure they may not make money on day one but they won’t have to lay out a large pile of cash either.
Trying to sell your business too soon violates Buffett’s rule about moats. A few months isn’t enough time to distinguish yourself from the thousands of other owners who are trying to sell their web sites. It isn’t enough time to develop those strengths and advantages that can’t be easily duplicated.
Unfortunately, website brokers like to hype the quick-hits, the new site that sells for tons of cash. If such businesses exist they are the exception not the rule. And you almost always make more money by observing the rules of the game instead of chasing the exceptions.
The longer you have been in business and the more consistent your growth, the less competition you will have from other sites that are for sale, and the higher a valuation you will get.
And it is not like you are making a sacrifice by holding on to the business for a few years. As you grow the business you grow your income as well. Or at least you should.
If you are not making a nice income from the site then it is going to be hard to sell it. If it is truly worth a lot of money to a buyer than it should be able to provide its current owner with a great income.
#2. Multiple Sources Of Unpaid Traffic
Ranking high on Google for important keywords can be a blessing and a curse. It can mean a massive stream of traffic ……. until something changes at Google.
And while you may have built your traffic the proper way – by generating high quality links through high quality content – if Google is your only source of substantial traffic you will still be vulnerable. You are completely dependent on that one source.
A source that can change it’s algorithm at any time.
All business buyers have one thing in common – they hate risk. Being overly dependent on one source for the majority of your traffic will be seen as big risk factor by potential buyers. And they will price you business accordingly.
Even if you are thrilled with the amount of traffic you get from Google it will be worth your time to develop at least one additional, reliable sources of visitors before you put the site up for sale.
E-mail marketing is still the most valuable, predictable source of traffic and paying customers. It takes longer than pay-per-click to see a payoff and it gets a lot less attention these days than social media. But the audience you build is yours and yours alone. And there are no upheavals at Google or Facebook that can take it away from you.
From the perspective of the buyer your email list may be your most valuable asset.
This is an example one of those moats we spoke of earlier. And buyers will be attracted to the immediate benefits your list can provide them. A responsive email list is one of those assets a buyer will pay a premium for because it is the fastest way to acquire a high quality, responsive customer base. And it is something they can’t create for themselves overnight.
#3. Own One Niche Instead Of Competing In Ten
Instead of offering 5-10 categories of products or services you will be worth more if you focus on, and dominate, just one category.
This is also the very best way to create that barrier to entry we discussed earlier. If you offer every possible service, just like all your competitors, then you will have a hard time separating yourself from those competitors.
But if you specialize, and everyone in your niche knows you dominate within that specialty, you can offer the buyer of your site access to a market no one else can.
I am sure you have heard of the 80-20 rule. 80% of your sales come from 20% of your products. Or 80% of your sales come from just 20% of your customers. Take some time to examine your business. Is the 80-20 rule true for you?
If so, great. You now know where to put your focus. Concentrate on that 20% of your business that is making all the money. Become the expert, or go-to resource, for the subcategory of your business that is most profitable.
For service businesses specializing means that you and your staff don’t have to learn a hundred disparate skills. You can all become experts in one.
A service business with a dozen generalists on staff isn’t worth much. Anybody can go out and duplicate that business. But a business with 2 or 3 specialists in one narrow, specific area becomes known as the go-to resource for that one service. And they can charge a premium for their services because no one else can do it better.
The acquisitions that dominate the business media are the best demonstrations of this reality.
When Facebook bought WhatsApp, and when Google bought Android (and YouTube and Motorola and Zagat and Nest Labs and on and on) they did so because the smaller company owned a valuable piece of the market that would have been hard and expensive to take away from them.
It is easier for the bigger company to buy the smaller one than to go into competition with them for that piece of the market. Even if you are not a candidate to get acquired by one of the big boys, the concept is the same. You maximize your value by owning a specific category or niche within a bigger market.
Once you have built that kind of business you won’t have to go out trying to find a buyer, they will find you. And that is when you will be able to sell your website for the highest premium possible.
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