Shoemoney - Skills To Pay The Bills

Buying or selling a website? How much should I pay or sell for? Part 2

Posted: 26 Sep 2013 06:30 AM PDT

Selling a website

This is actually a pretty fascinating real life experience I had. I had a website that I tried to sell to several companies for only 25,000.00 and nobody was interested. Then one day a company called me and I ended up selling the site for over $150,000.00. Thanks to the TV show Shark Tank!

Selling the site section of this post is shorter than the buying section because a lot of it is up top in the other section but here it is.

A couple years ago I had this site that was a web service. I don’t think many people knew that it was even mine.

The details of my site for sale:

The revenue model was to offer the service initially for free then up-sell other services on the backend. This was done through an email drop campaign giving value but up-selling people into our subscription model, affiliate offers, and random other stuff.
The site was getting about 500 new users per day into a very specific vertical.
The site didn’t do a huge amount of traffic but the conversion rate for the free users was huge like 70% of the users that visited the site initially opted in.
The site paid out 100% to affiliates OR users could get additional products in the service by referring friends.
The majority of traffic was coming from affiliates.

The site grew very quickly between affiliates or active users referring people. It was a great viral free user acquisition method.

The first month revenue was about $1,000 first month, 2nd month – $2,400, 3rd month – $4,200, 4th month $7,200. This was top-line gross revenue. Only about 10% was profit. So while those numbers looked awesome in growth, and they were, the 4th month in it was only at $720 in profit. It was snowballing well though because a lot of it was subscription and compounding.

So the valuation of the site from a baseline of 4* annual profit on the high side of the 4ths month revenue would be around $35,000.00.

I was only into this site about 4 months but it was a side thing that turned into something bigger and now needed support and affiliate management and all that crap I hate to deal with or divert resources to.

So I was ready to sell it.

I figured it would be a easy quick sale. Remember these users were awesome leads in a very targeted niche. Most of the companies that service these users will pay $2-$5 PER LEAD so I figured I would have people going nuts trying to buy this site. Forget about current revenue the value in hundreds of free leads per day was amazing. Or so I thought…

I went to several companies pitching it to them at $25,000.00. I was amazed that NOBODY was interested. I mean WTF!!!!!

Then a friend told me about this show called Shark Tank. If you have never seen, basically people pitch all their ideas to these 5 investors and sometimes they will fund them but most of the time the ideas are stupid. But what I found amazing was how the “Sharks” positioned their deals. It really got my brain cooking.

Then one day a company in the vertical called me and said that they heard I wanted to sell it and wanted more information about it.

The Position:

They asked the standard questions… traffic, revenue, asking price, offers before etc..

I cut the guy short and said, “I appreciate your interest and as you can imagine we get a lot of interest because it’s generating so many free leads per day that would be a goldmine for companies like yours. Just to get to the point I would take $125,000.00 for 90% of the website. I really love the site and want to stay involved so I would still like to be part owner. Also if the site sells within 1 year I want 25% of the purchased price. I am sure you can get 10x what I am asking for the site and if you are just looking to flip it then I would like to be compensated for that.”

Sounds crazy right? Well the guy said that sounded fair and the deal was done within 48 hours from the time he called me.

Here is the kicker. He sold his parent company that bought the site only 3 months after he purchased it. He emailed me to let me know and that he was not sure how to evaluate what 25% of that property would be worth being it was wrapped up in a big deal. He offered to send me $25k extra instead of trying to figure out what 25% of that part of the sale was worth. I am sure I could have got more, but I agreed to it. I figured – shit I already am happy, let’s not get greedy.

So that is how I sold the site. A site I couldn’t sell for $25,000.00 – I was able to sell for $125,000 with a 25k bonus kicker. Thanks to Shark Tank.

Its ALL about the positioning.

I have been involved with so many website sales in the last 5 years it’s crazy. Whether it’s my own or someone else’s. I also consult with this Venture Capital firm out of Omaha Nebraska that buys and sells websites, anyway, what I am trying to say is please pay attention to this when you are selling:

POSITIONING IS EVERYTHING

I made several mistakes in selling the site above.

I was contacting people and I sounded desperate.
I had thrown out a round number, 25k I was asking.
I was trying to sell a 25k site to 5-20 million dollar companies.

In the example above I not only changed the price but I also drastically changed the way I was selling it. I was no longer just looking to sell something cause I was done with it.

By holding on to a percentage of it I now took the position that I was looking for a “partner” that would have full control over the site but I still wanted to be an owner.

I also was now asking a price that the company would pay attention to. Again this was a 10 million dollar firm and while 125k property was not a HUGE risk for them it also was significant. A 25k purchase is perceived as “cheap”.

Important thing about taxes! Specifically long and short term capital gains. If you own a property for over a year then you only have to pay around 15% long term capital gains tax. If you own the property for less than one year then you are taxed at your normal rate (I think).

Anyway with the Auction Ads example it was about a 22% difference if we could get long term capital gains. Even though I only had that company for 4 months we were able to get long term capital gains because the core assets contributed were from another company called ShoeMoney Ads which was over 2 years old. That was a make or break deal so I am glad that worked out.

Reasons not to sell your website:

Ok here is the thing. Having excess money sucks. Now you have to figure out what to do with it. Yes I know…cry me a river. Just ask anyone though it’s a major pain in the ass and sometimes it seems like all you can do is lose it. Mo money Mo problems – Biggie

Do you have a plan on what you are doing with the money you are getting? If it’s just going to be to put in the bank then DO NOT SELL IT. I can’t tell you how many people I know worked their asses off to build a website. Sold it for 4 times revenue. Went on to their next ventures that flopped and now it’s 5 years later and their original property has grown 10x the size and they have a little money in the bank left over.

Reasons to sell a website:

If you are getting long term capital gains in one lump sum that is pretty awesome. Especially when you take into account how long it would have taken you to earn that much money paying your normal income tax. Also factor in if you sell and get one lump sum you will be gaining compounding interest on that money which even makes it sweeter.

What I am trying to say here is that your valuation might be at 4 years revenue but your actual true profit might be 7-8 times revenue by getting long term capital gains and compounding interest on that money. Hopefully that makes sense because it is a BIG deal.

Seth Godin wrote a book about quitting called The Dip. I don’t mean to say that selling your website is quitting… but when you think about it… it is. The best reason to sell a site is that it’s not something you enjoy doing anymore. For me AuctionAds, when it hit 2 million dollars a month in revenue, was now a bigger operation than a one person show. To grow the company I needed to hire a full support team, CEO, CFO, etc etc. Bleh that was not for me at that time. I was done.

Key Points I want to leave you with

Be careful - I have known people who have gotten sued for false or misleading claims when selling a website. While that might sound pretty easy and straightforward lemme tell you I have seen some CRAZY shit. Here is a example that isn’t even that extreme. One of my friends bought a domain name from someone saying that it was for his father for a father’s day present so it wasn’t really worth that much to him. Well he took the domain and launched a website that became very popular. The person he bought it from sued him for 10x what he sold him the domain for. He cited that the person made false claims on why they wanted to buy it and for some reason I guess that holds a little water. Anyway my friend ended up paying him 50k to go away (he only bought the domain for 10k). Anyway just be careful.

The deal isn’t done until it’s done - There are several reasons deals fall through. Usually from my experience its from a pride perspective over little stupid dumb shit. I was selling a site in 2009ish and everything was cool except for this one little stupid thing that me or the buyer were willing to budge on. It was so stupid. But it ended badly… something along the lines of me telling him to take his agreement and shove it up his ass. I know… Super Classy! But 2 days later we ran into each other at a conference and he was the last person I wanted to see. Long story short we got hammered together and the deal was done the next day.

Now on the other side of that I have had deals that were completely done and wrapped up. Even signed contracts….. but were not actually executed until the money was delivered. At the last minute the person pulled out. Yup it happens. It’s not money in the bank until its money in the bank.

Have a plan - I know I touched on this before but no matter if you are buying or selling have a plan with, know what you are going to do with the property or money you get from it. It sounds SO EXCITING to sell a company/website for millions of dollars… But there is a reason 80% of lottery winners end up worse off after 5 years from getting their money. I’m telling you money can really suck… especially if you have never had it or any experience on what to do with it.

On the flip side of that when buying FOR SURE have a plan. With my example in the first part of this you can see I had a general outline of what I needed to do as far as staffing goes… my expenses for that… my monetization plans.. So keep that in mind

Guy Kawasaki says there are 3 times you will sell your site: Too early, Too late, or just at the right time. I can’t agree more.

I hope you enjoyed these posts. HOLY BALLS, combined they’re about 5500 words!

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