What you will learn
Welcome to the Authority Hacker podcast, the place to learn field tested, no BS tactics to grow hack your online business, and finally, live life on your own terms. Now, your hosts, Gael and Mark.
Gael: Hey guys, welcome to the Authority Hacker podcast, today I have Mark with me, how is it going Mark?
Mark: Great, thanks.
Gael: Cool, so today we are going to talk about our building to sell and that is a strategy that is pretty interesting for people that are looking to generate cash fast, I mean, fast in a medium range. And the idea is to build websites and what we call “flip” them, sell them and you know, we are going to talk about that but they can sell for pretty high multiples and generate a decent amount of income for your company and if you specialize in building them and selling them and kind of cycling through that, that can be a very lucrative business. Today I am basically going to ask questions to Mark because he is actually a bit more experienced in that and he actually sold our last company which was kind of similar, right?
Mark: Yeah, it was an agency business, but essentially it works in very similar way, the selling process any kind of digital company, the selling process will be the same.
Gael: Okay, so who is this for, is that for all our listeners, or like should some people just-
Mark: Definitely, so even if right now you think there is no way in hell I am ever going to sell this website, I am going to hold on to it, make monthly income from it, keep owning it forever, you still need to listen to what we are going to say here, for two reasons: one is things can change, you never know when you might need some money, you might forget to pay tax and some big tax bill comes up, you might want to buy a house, you might have a divorce, all these things can happen that might require you to sell one of your websites. And secondly, doing many of these things which is essentially preparing for sale will help you even if you are not going to sell so you know, we’ll get into it a bit later, but things like systematizing your processes and making those able to be passed on easy, that’s really important, and it can help you a lot in the short term because if you are not going to be bothered about selling it, you might do that later, and you get stuck in this, kind of like you become the bottle neck of your own company if you don’t address those kind of things. And there are other options as well, but yeah, everyone should pay attention to this, not just if you are planning to sell.
Gael: Okay, so if your site is making money every month and paying your rent or whatever, isn’t it a bit weird that you are trying to sell it, what’s the catch?
Mark: Well, not really, if your site is making money it’s nice and stable, great, you can keep that running and make income from it. But, you are able to sell it at the moment for, depending on various factors, something like 20 to 30 times monthly profit, so 20 to 30 times multiple is the technical term for that. So if you decide to sell today, that can get you access to a lot of cash, you know, even if you are making relatively modest amount of money, like five figures a month, you can make, or even four figures a month, you can quickly end up with the six figures sum of money in your bank, in a couple of weeks time. And that can be really game changing for a lot of people in their businesses, because, a lot of people when they start their first site, it’s not exactly built the correct way and there is various things which you would have done differently if you are starting again, this can be an interesting opportunity to actually start again but have a hundred thousand or two hundred thousand dollars to do it with and that’s a complete game changer when you are starting out. Of course, not having the security of that like regular income is a problem, but when you build the site and you get it to that level, when you’ve done that once you know you can do that again, quite easily.
Gael: When do you decide okay, now I should sell my website, now is the time?
Mark: Well, I guess there is two ways of thinking about it, if there is some kind of like actual need in your personal life to sell it, than obviously that is going to dictate when that happens, if your goal from the start is to sell the website, then the best time to sell it is when the growth curve is like peaking, if that makes sense, so you don’t want really want to be selling a declining business, and you don’t want to be selling something which is just stable, I mean, you can sell both of these, but you get a much higher valuation if you sell it when it’s on a growth trajectory, so month on month there is more traffic, there is more revenue, there is more profit, all the numbers are going up, then people will go crazy for your site, so that’s the best time to sell it. What I would also say the flipside of that is like the worst time to sell it is when someone just makes you an offer randomly, like if you are not used to dealing with lots of like these big figures and someone comes along, a competitor, whatever, and says, “hey we really like your business” it happened to a couple of our friends actually, they flew them out first class to Miami they took them out in their private yacht, did all these wining and dining basically and then made them an offer to kind of integrate their business and essentially buy them out, but they didn’t take it, just because they got that offer because it wasn’t a good offer, so the time to sell is when you are on a growth curve, when you are at the top or when you think you are the top of that and that’s when you can get the most money.
Gael: When the site is growing, how do you know you are going to get a fair price until the growth kind of stabilizes?
Mark: Well, it’s taken into account normally how they work is they’ll take the last three months of revenue and then average those three out, and that’s kind of like the base number which they take as your multiplier. And if your revenue has increased in the last six or twelve months every month you know that this is an upper trajectory, then the multiplier would be much higher than if it’s flat. So that’s what I mean by that. But like I said, you can sell your site in any state, even if you have no revenue, although you are not going to get nearly as much money for that obviously, but if someone else could basically take that and do something with it, there is still value in the site.
Gael: Do you know how much you can sell the site without revenue?
Mark: I don’t know the exact figures, but it would be less than what I said, 20 or 30 is for a profitable site, so maybe less than 10.
Gael: 10 times zero.
Mark: Yeah, 10 times zero is zero, so you’d have to figure it out in a slightly different way. This is one of the things, like if you do plan on selling, then why not spend a couple of months like trying to monetize it much better and making more money from it, that’s probably a very good way to start.
Gael: So you can’t sell your failed site, essentially?
Mark: Look, if you got to Flippa, there is plenty of people selling domains and sites that make no money or hardly any money, but we’re talking maybe a couple of hundred dollars here. And it’s generally not worth it.
Gael: Usually you’d lose money on this.
Gael: Okay. So, we talked about like the good time to sell. Is there any time to avoid as well?
Mark: The opposites of what I said, so when you are crashing like if everything is going down then people are generally going to be a bit weary, like in any business transactions like confidence is a big thing.
Gael: I just have a feeling that if you replace the word site by stocks, it’s like exactly the same thing.
Mark: Yeah, it works exactly the same way, you know, essentially, when someone is buying your website, they have to trust you a lot, in what you say and how you’re presenting your company is accurate, so there is all sorts of ways that can do that monitoring analytics, doing diligence which is when they are like a third party company will come in and I did this when we sold out agency, I had to screenshare my screen with them and then we did all sorts of things looking through our bank accounts online, like live and he recorded everything just to verify that what we said was true. And of course it was. So that is actually one of the reasons why you shouldn’t exaggerate your figures at all, just tell how it is. So yeah, confidence absolutely plays like a big role in that.
Gael: Okay, let’s say you actually feel like, first of all can you just get evaluation without having to sell after, can you say well, I am just going to look at how much my website is worth, I want to go through the process?
Mark: Yeah, you can, there are various companies out there that will give you sort of evaluation, that’s kind of like these brokers, that’s sort of lead magnet essentially, will value your website for you. And, yeah, you can get an understanding of what it would be, but these companies, like Empire Flippas is one, they even say on their site look, if you have a profitable website and nothing’s dodgy or anything, you are going to get probably 20 to 30 times multiple depending on various factors. So, that’s kind of like the ballpark range.
Gael: I want to say as well there is sort of like, kind of like [00:10:37] online, they are complete bullshit.
Mark: Yeah. [laugh]
Gael: So let’s just say that before someone comes back to us with a screenshot saying that their site is worth a million dollars. It’s usually based on like [00:10:50] rank, and this is very very inaccurate and most of all, it’s just not connected at all to the money the site makes. Which is what is used for that kind of calculation. But let’s say you want to sell, like what do I do?
Mark: Okay, so the main thing you want to do before you sell is you want to maximize the value of your business, and at any time when you’re running a business, you want to be maximizing value, so this is why everyone needs to pay attention to this. You want to sell your business while you’re growing, as I said before, you get much higher multiple on it, declining businesses are seen as risky, growing businesses tend to get snapped up very quickly, as people think you know, if they get in now, then the business will be worth even more money in the future, if they can keep it on growing. The second point is that you want to maximize profitability, before selling. Because, as I said, valuations is based primarily on profit, so the last three months, the average monthly profit, last three months multiplied by factor of 10 to 20, depending on various other things but yeah, you want to maximize profitability and there is various ways you can do this, and there is various ways you can do this artificially. And you have to be a little bit careful here.
Gael: Is this tricky? Like I would trick in the value.
Mark: No, not at all. Maximizing profitability is making as much money as possible, which, unless you are a charity, most businesses exist in order to turn a profit, right. So, you are essentially, but a lot of the time people get distracted by okay my goal is actually to get more traffic, or my goal is actually to get this amount of followers, or you know, become a part of this community, and those are all great secondary goals, and those are all great things to think about and work towards, but at the end of the day, profitability how much money you make, is everything in business. And, it’s true for valuation and you it should also be true as you’re running your business, you should be thinking about this. As I said, there are ways to sort of artificially boost this, even further, like for example if you are running an authority site, you can start doing email promos every single day, and just like hammer home lots of the same offers that convert really high and maybe they are a bit more spammy but you know, you hammer them for a little while, and you can often see like quite a [00:13:34] in revenue based on that. but it’s actually might be a bit detrimental to your business in a long run, it’s burning out the list or you are losing some trust-
Gael: So, should you do it?
Mark: If you are going to sell, again, it’s up to you, probably you should do that to an extent, but you have to be careful as well that your business isn’t sold until it’s sold and if no one buys it and you mess up the trust with your customers and then suddenly like the next month you lose like massive amount of subscribers, than everyone stops buying, then you’re suddenly in this downward trend and it’s a bad thing for your company. It’s a bad thing for the sales as well, so you know, there is certainly a balance to be thought about there. I think more than that, more than trying to sort of skew the numbers is just it’s something you should always be thinking about, if you are not making, if there is areas which you can quickly boost or quickly increase revenue, you need to be asking yourself why aren’t they already like at a good rate, what am I not doing there that I should perhaps be doing in my business, am I sending enough email promos out, am I monetizing as much as I could be or should be, have I tried these channels, or these offers, you know. So yeah, you can definitely experiment a lot more there. And that can help improve things.
Gael: Okay. I want to ask like based on fact that it’s using like the last three months of revenue, how does seasonality play on that?
Mark: Well, again, this is the thing, if you’ve been running your website for 12 years or something, then you are going to have 12 years of financials that’s fine. A lot of websites, they’ve only been going like a year and a half, and the last like year has been, last six months has been really effective, so obviously if you’re running a website about like skiing or you know, selling Christmas jumpers or something, your revenue in July is probably going to be pretty terrible, so people will take that into account, if you make 90% of your revenue in December and January, then they’ll probably look at the December, January numbers or average over the whole year, you know, instead. So again, these are not hard and fast rules, what I was saying, those are more like the principles and the way brokers and buyers will think about buying a website or indeed buying any business, it works the same way, not just website. So one of the things I was going to say is we’re talking about increasing profitability, it’s really important to have well put together and accurate financials, and I know it can be a bit when you’re starting a website, especially if you don’t have a company incorporated and maybe you’ve been using like your personal credit card to pay for Upwork or some advertising expenses and things can be a bit all over the place, and that’s fine, that’s quite normal but you just have to be able to collect them all in like a spreadsheet and show like a monthly profit and loss. And, of course you’ll have your Google analytics in there, your affiliate accounts will show how much money you are making in each program for example, but again, you’ve got to be careful, are you using the same affiliate account for multiple sites, if so, than that’s going to make it tricky to show where the revenue, which revenue came from which site, unless you have good tracking set up properly, which a lot of people don’t, and it’s just going to make it harder and more difficult for the buyer potential buyer to determine whether the numbers you are actually claiming are true. And you want to basically have as little friction as possible there. Like the person who bought our agency, he told me that he actually went through that whole process with like four or five other companies and they just didn’t have their shit put together with that, and it was very difficult to see where all the money was coming from and that was the reason he chose us over them.
Gael: Do you need to do it from day one or like is there some kind of like time history you need to have?
Mark: No, of course you don’t need to be doing like full accounts from day one, that wouldn’t make sense, but you know, when you start to think about selling, then start to think about getting these in order. Again, a lot of the data you can easily go back and pull just go through your online banking statements for the last year, and check the PayPal, all this, the data is already there, it’s just pulling it together is a bit time consuming, so when you are starting to get ready to sell, that’s when you want to be doing this. But even if not, it can be very useful like let’s say you have multiple sites, it can be very useful to actually start doing individual profit and loss for account for each website, not that you’re going be reporting that to the IRS, or the tax authorities or whatever you report that like, but it lets you see which of your sites are really making money, which are really on the way up, which are on the way down, and it gives you a much better sense of how your business actually, businesses or sites are actually performing. And that can be really useful for decision making purposes like what should you focus more on, what should you cut your losses on, what should you be doing next month. Because with access to that data than you are just kind of going off of- okay, not just an estimate, not just a guess but like an estimate based on a lot of intuition and feeling about how things are going.
Gael: How accurate do you need to be when you do that, when you prepare these financials and all that, like does it depend on the buyer or like is there some kind of industry standard of how accurate you need to be?
Mark: I’m sure it depends on the buyer a lot, but in general, like as close to a 100%. Think of it this way- if I am going to buy a website, and someone says ok, the website makes 10,000 dollars per month, 5,000 off of ads, 5,000 off of affiliate. Okay, great. Show me your adsense account, and the adsense account says like 3,200 a month, and the affiliate thing says something similar. I’m like, well there is 30 per cent gap here, what’s going on? Like, oh well, you know, there is some story in there, basically, that’s like a massive warning sign, and as we talked about earlier, buying and selling companies is all about confidence, like how confident are you, the numbers that are presented are accurate. And if anything creeps in there, something to sort of put you off, or ruin this confidence, than that can be a massive problem and make it much more difficult to sell or decrease your valuation significantly. So yeah, I would, if anything, underestimate how much you make because it will come up and people go through your financials in the exquisite detail and you need to be able to show that you’ve been accurate completely throughout all of that.
Gael: Okay, so how do people do that properly, like we’ve talked about the principles like all of that, like how would you do it?
Mark: Well, there is actually a couple of other points that I need to mention as well. And, one is diversification of traffic and sales. You are not, think of it this way, if a 100% of your income comes from selling one product which is all comes from search traffic, let’s say, all the traffic comes through search. Then what happens if something happens to the Google update, and you lose half that traffic? Then the business value essentially gets cut in half, so there is a risk factor there. And, that’s why it’s very important to have your search traffic, social traffic, paid traffic, email, just focus a little bit on everything, and okay, I’m not saying like split them all evenly, that’s not really realistic, I know in some of our sites still, search is like 90% of the traffic or whatever, but have other channels and work on other channels as well to diversify where your income is coming from, or where your traffic is coming from, and similarly, where your income is coming from, so don’t just rely on adsense, or like one thing, like do some affiliate offers, create your own products, do these things as well. You don’t have to do everything I said there, but again, these are the factors which are going to a- make easy to sell, and b- get you the most money. And, if I wanted to start selling a website, the first thing I would do, well aside from trying to maximize the value and checking that all my financials are in order and stuff, is think about how you are going to hand that business over to a new owner. Generally, if you started the site from scratch, there is going to be a lot of processes, a lot of things which you do which you probably just don’t think about, you just do every month on autopilot and that’s how it gets done, but a new owner coming into that is going to need to really know how the business operates and it’s going to need some good understanding of the day to day processes. So, you should essentially try and create like a process manual for your entire business, so your content production process, who writes the content, how do you decide what content to write, how does it get published. That’s not a massively complicated process but it’s something you should explain and document somehow, so that you can literally just give this document to the new owner, and they can pick it up and like ok, that’s how this works. And then, if they need to refer back to it, they have this document. Same for the things like content, promotion, by the way, all these processes are pretty well documented in Authority Hacker pro, so you should totally sign up for that, if you want to improve that. Shameless plug. But there is tools you can also use to sort of map out in your head, I haven’t use this one specifically, but someone recommended it, it’s called Sweet Process, it’s like a process mapping tool, which is apparently very good for this kind of situation, but this whole thing forces you to sort of systematize your business, and when you systematize your business you can outsource it and you can have other people do it, so even if you are not selling a business, you should always be thinking in your mind like how can I do this, how can I systematize my processes, how can I outsource this process, that freeze up your time and it stops you becoming the bottle neck in your own company, which is a very common thing, as a website or a company starts to take off.
Gael: Yep, you are telling that to a guy that is still doing the Facebook updates, you know.
Mark: If you do all of these things well, it can literally mean you will get twice as much money, for the same business, versus if you do all of these things badly, a new owner is going to have to figure everything out, if you haven’t really maximized your value so much, I mean, it could be very easy if new owned would come and do it but if you haven’t shown that it can be done, and you haven’t shown them diversified traffic, and income and accurate financials, you can expect like half as much money for that, so it’s worth putting in the effort to do this properly, if you are intending to sell, and it’s worth thinking about and doing some of these things even if you are not, because it’s going to help you make better decisions and run a better more efficient business.
Gael: Do you need to like support the new owner on his processes?
Mark: Yeah, usually there is a sort of one month, for a website, there is alike a one month kind of hand over period where you’ll agree a certain amount of like support, it can be explained in like I’ll give you 20 hours of support, or I’ll answer any questions by email for one month plus, beyond that, you can just not offer anything or you can set like a flat fee to if they want to talk to you beyond that one month they would have to pay you, 200 dollars per hour or something like that. It obviously depends on the size of the website and the business and all that kind of stuff.
Gael: Yeah, you don’t want to make it too cheap so they just use you all the time.
Mark: Yeah. But generally, you need to have that hand over period because there will always be questions, which people have, just things you forgot to put in your process manual, and things which come up, which you maybe happen once a quarter which you haven’t dealt with in a couple of months and you maybe forgot to mention, these kind of things, but generally, I think most people are quite helpful when the new owner needs to know something.
Gael: Cool. I guess this supporting also depends on the market place and I think it’s a good occasion to talk about which market places people can go to.
Mark: Yeah. So I mean the most, the biggest marketplace, at least I think it’s the biggest one in terms of quantity of listings would have to be Flippa.com, they are not just for selling sort of authority sites, but you can even buy sort of like domains without site, and all these kind of stuff on there, so there’s quite a broad selection, and to be honest, quite a lot crap on there as well from what I have heard. Like you get a lot of these sites adsense sites that are making 250 bucks a month but have some pbn behind them supporting them.
Gael: And then they cut all the pbn links after they make the sale, right?
Mark: Exactly. So you’ve got to be a little careful with those.
Gael: Ok, what else?
Mark: Flippa it has like a, I actually checked, it’s little listing fees like 19 dollars, but they also have a 10% success fee, so whatever you sell on Flippa, 10% of that price goes to Flippa. 10% is very common, it’s like pretty much the average which any broker, even like a high end broker will probably take around 10% of your sale value as the sort of broker fee. And, with Flippa and with the others, they tend to use sort of escrow systems where you transfer the domain to a third party and then the buyer transfers the money to that same third party, and then the third party gives both each, if that makes sense.
Gael: Yeah, that’s what the broker does, essentially.
Mark: That’s what the escrow does, broker and the escrow is not necessarily the same person. You generally use an escrow company, I think Flippa has the whole thing built into their system, I’ve never actually sold the site using Flippa so I am not a 100% sure of that.
Gael: I sold the site like a few years ago, and they had nothing but maybe it’s different now.
Mark: But, I mean, maybe for like lower end things you don’t need a broker but definitely for, if you have a big site, like for sure use an escrow, so we actually, the broker we use to sell our old agency was called Digital Exits, and again, they take around 10% fee, which is pretty reasonable, and I find, they are more like a high end, higher value, if you just have like a 200 dollar a month site they are probably not going to be interested, but anything sort of five figures and above definitely get in touch with them, they are really good. And my experience with them was flawless actually, I was really impressed even though at the time I thought our company would be quite difficult to sell due to various things, literally, in two weeks they had found like three or four different buyers who were interested, so yeah. That was pretty good. And another big one is Empire Flippas, I think they actually charge a bit more, 15% but they are like a hybrid between a broker and marketplace, from what I understand at least you sort of submit your site on there and then there is like a pre approved list of buyers who are going to be checking it out, it’s not like an open marketplace in the same way Flippa is. At least that’s how I think it works, correct me if I am wrong.
Gael: Yeah, that’s how it works, you need to pay to see the domain, but they have some kind of public information about each.
Mark: Yeah, so that’s quite an important thing as well. If you are publishing your financials and all the information about how your business works, then competitors can just look at that and then use that to defeat you without buying your company. So a lot of these, the brokers especially, and even Flippa, you can protect your actual domain without revealing that, so people can’t end up copying you, until they like commit to a certain part of the process and they sort of put deposits down and all this kind of stuff, so there are safe cards in there but just consider that as well.
Gael: Yep. Let’s talk about the selling process, let’s talk about how this actually works in real life, and how you get this done if you are interested in actually going to these market places.
Mark: okay, so the first is to advertise your site, I am assuming by the way that you’ve gone through all the optimization process we talked about before, got your financials in order and all that kind of stuff, you need to advertise your site and usually that involves putting together some kind of like stat pack, or report, or sort of like prospects essentially that you can give to potential new buyers who can read through that and really get a full understanding about what they are buying. So in some cases, you broker can prepare that for you, if you are using a broker or if you are doing on Flippa you need to sort of write all that out yourself, but from what I’ve heard, like one of our friends just sold the site on Flippa and he said that he got 30 times multiple for it, and the reason, he said the main reason that he thinks he got that is because he put together such a detailed prospect of just everything. all the details he could find, screenshots of everything, all the analytics, all the reports, all that and he consequently got a lot of interest, so advertise as best as you can, as I said before be accurate in the numbers, answer questions to potential buyers when you post a listing, quickly and fully, at Flippa they have a system for asking questions, you can respond to that really quickly, it really makes a big difference. Same with if you are working through a broker, the broker will often pass on an email with a bunch of questions, just get back to them the same day, make it priority and these little things show that you are serious about selling and you’ve run your company well. And it will increase the confidence they have in buying it. So the preparation is basically the most important bit there. When you do come to sort of start negotiating a price, it depends who is buying and selling, if you are using a broker, you will always get low-ball offers and you’ll get people trying to start low and then you start high and you meet somewhere in the middle, the usual thing when you are buying or selling anything. It works a bit differently on Flippa, depending on how you do it, because I think you can set like a buy it now or like an auction type-
Gael: Like an ebay basically.
Mark: Yeah. With the reserve prices and all that. So you need to think a little bit how you are going to do that. You then agree, so you advertise your site, you then agree on a price with the buyer or a buyer buys it on Flippa, on wins the auction. Often, those are going to be like, if you are going through a broker, some kind of like due diligence phase where as I said happened to us, like a third party company will go through all your details analytic, bank account information, financials, verify everything, the same process happens when big companies are doing merges and acquisitions, it’s not just for websites. And it just verifies everything as it should be, and if it is, then the sale proceeds and there is contracts are drawn up, signed and as I said, usually an escrow process and then yeah, that’s it, you have a month of support and then you can go and spend your winnings.
Gael: okay, well, I think that is a good break down of the way you should be considering selling your website, I think what is important is like when you consider selling your website you end up asking yourself the questions you should be asking yourself when running your site anyway, like how much money am I making, am I doing things I shouldn’t be making, have I documented everything, and documenting everything is pretty boring, so I understand that usually you’d rather do than document, but yeah, I like it for that reason, I think it’s really good that people actually do that.
Mark: It happened to us, Health Ambition site we use as example all the time on Authority Hacker, we actually considered selling it like some time ago now, but we were like ok yeah, we actually agreed about selling it and then we were like ok, so to sell it we need to do all these things, then we started doing all these things and then it started making like quite a lot more money and like you know, the trend was upwards, we were like wow, maybe we don’t want to sell it anymore.
Gael: And we’re basically still doing that.
Mark: Yeah, essentially, that drove a lot of our growth, so it can be quite useful to, as even just as an exercise to say okay, if I want to sell my site, what are the things I need to do, and that can help you to come up with ideas for what you should be doing.
Gael: Yeah, and you just care more about profits, than traffic and all these other things, because you know, the only thing that really counts is the revenue of the site, like not how many visits you have, not how many emails you have, not any of these metrics, it really focuses on the core which is how much money you make. And, I think a lot of people forget that very often. but anyway, that was a pretty long podcast, do you have anything to add?
Mark: Yeah, just one final thing is that we are starting to do these “ask me anything” podcasts, so if you want to ask Gael or me a question, it can be about internet marketing, growing your site, even something personal.
Gael: Cooking French food, that kind of stuff.
Mark: Yeah, then go to authorityhacker.com/ask and you can ask us a question, we’ve just actually recorded a full podcast answering one guy’s question about how we spend our days, but we’ll probably do more in the future where we are answering a bunch of different questions in an episode. So yeah, authorityhacker.com/ask. I look forward to seeing your questions.
Gael: Cool, then we will wrap it up and we’ll see you guys in the next episode, thanks for listening. Bye.
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