When Should You Sell Your Website or Online Business?
An often-over-looked aspect of online business investing is creating an exit strategy to determine the right time to sell your website. Exit strategies may be complicated to put in place since it will vary from person to person and business to business. After all, how do you truly know the right time to sell your website before you are even ready to sell? In this post we intend to highlight important questions you should ask yourself in the process of creating your exit strategy.
Why Did You Start Your Online Business?
This is an excellent first question to ask yourself; what were your motivations behind building an online business? Some people start businesses for the hope of a big payout one day, some do it for passive income for years to come, while others are not interested in the money but rather do it as a passion. Of course, we cannot summarize all online entrepreneurs into three categories, but consider which of the following closely represents your motivation behind your business.
I’m ready to get rich overnight!
We know. We know. No one is truly getting rich overnight. You’ve grinded hundreds of late nights working on your business with one goal in mind: “I want to sell my business eventually and receive a lump sum payoff”. If this is you, you likely have some form of exit strategy in mind. You know that you want to sell your business, but you may not know exactly when.
I want to generate passive income
You started your online business to create passive income for the foreseeable future. In most scenarios, you likely put in a considerable amount of work up-front with the hope that the business would grow into passive income.
I have a passion for this topic/industry
One of your passions sparked the motivation to start your website. You didn’t start the business with profit as the main goal, however, you began to monetize your website as the opportunities arose. Although you are now making a profit from your website it is simply a side benefit to doing what you love.
As previously mentioned – not every online business owner will fit into the above three categories. However, the important overarching questions remain:
- Why did you start your online business?
- What were your goals? Have you reached them?
- Are you in it for the passion, passive income, long-term growth, or something else?
Am I Ready to Consider Selling My Website?
Once you determine your own answers to the aforementioned questions it is time to examine your answers in depth to begin creating an exit strategy for your business. Now is the time to use your answers to focus on the following: When is the right time to sell my business?
Business Owner Type – “Get Rich Overnight”
For online business owners who began their business to “get rich overnight” the right time to sell is likely driven by monetary goals. You may have goals such as, “I want to sell my business once it is worth $100,000”, or “I will sell my business once I maximize the traffic and profitability”. If you have yet to come up with an exit strategy you should consider:
- How much is my business worth?
- Can I increase the value further?
- Is the work required to grow the business further worth the time, or can I use the money from the sale of my current business to invest in a more promising opportunity?
It may be a good opportunity to sell your website now if you believe you have grown the business to its furthest profitability and traffic. You might not have the time available or want to put in the time required to take the business to the next level. On the contrary, if you can continue to grow and develop the business its likely not be the right time to sell. You may have the opportunity to increase the businesses valuation in order to sell for a higher value down the road.
The Passive Income Investor
Website owners who started their business with the idea to create a longer-term stream of passive income will likely want to consider the passivity of their business. You may have a goal like, “I want to grow my business to $3,000 per month while working less than 20 hours per month”. The following questions will help point you in the right direction to determining an exit strategy:
- Is my business earning the passive income goal I had in mind?
- How many hours am I putting into the business? Is it as passive as I would like?
- Can I sell my current business and invest the money into more passive and/or more profitable opportunities?
You may want to consider selling your business if it is not as passive as initially expected. Maybe there is too much work involved in growing the profits and traffic to your goals. Perhaps there is an opportunity to sell your website and re-invest into a business that will provide higher profits and more passivity. However, if your business is providing your desired profit and amount of work then you likely are in a position to hold onto your business, unless there are other factors at work.
The Passionate Business Owner
Those who began their online business to follow their passion and do what they love may find it tougher to come up with an exit strategy. As opposed to making money, your goals are likely more aligned with doing something you love and helping your readers/customers/subscribers. However, maybe your website has grown so large you cannot resist the payout from selling, or you have lost interest in your passion. Some things to examine are:
- Do I still love what I do? Is it still a passion?
- What is the value of my website? Would I be happy with that amount, or would I be depressed if I sold my website?
- Has my website grown so large I no longer have the time?
Assuming you are still passionate about your business it may be tough to decide on whether to sell your website. If you were to find out your business is worth significantly more than you ever expected, would you sell it? Maybe your business has grown too large and you are losing interest in your passion because the business side is sucking up too much of your time. These are tough questions to answer and vary significantly from person to person. At the end of the day you should consider what is right for you as there is no generalized right or wrong answer.
How Much Is My Website Worth?
For some, this is potentially the most important question. This could be the final deciding question for all three categories of online business owners. The value of your business might be tempting enough to convince you to exit and move on. Without further ado, let’s jump straight in and begin to examine the basics behind website valuations.
Valuing your Online Business using a Market-Driven Multiple
The most widespread practice in valuing an online business is applying a market-driven multiple to your trailing 12-month (TTM) profits averaged to a monthly number. Most online businesses fall somewhere in the range of 20-28x monthly profit. To highlight this in an example:
Past 12 Months Profit: $48,000
Average Monthly Profit = $48,000 / 12 months = $4,000 Per Month
Low Multiple: 20x
Low End Valuation: $4,000 x 20 = $80,000
Median Multiple: 24x
Median Valuation: $4,000 x 24 = $96,000
High Multiple: 28x
High Valuation: $4,000 x 28 = $112,000
Using this approach to website valuation shows the median value (24x multiple) of $96,000. In other words, a business netting $4,000 profit per month is worth roughly $96,000. However, it is important to note some factors that go into determining whether a multiple on the higher or lower end are used in website valuations. Additionally, there are some outliers that may generate valuations over 30x, while others may fall below 20x.
How to Determine the Correct Multiple
This is where things become slightly tougher as it is not easy to perfectly weight the factors that may raise or lower the multiple applied to your businesses monthly profit. Several factors to consider include:
- Hours required per week – generally more passive online businesses will see higher multiples, while time consuming ventures see lower multiples
- Trailing 12-Month (TTM) Profit Trends – lower multiples apply to a business with profits that are trending down during the TTM. On the contrary, a higher multiple will be given to business trending up.
- Monetization Method – how is the business monetized? Amazon FBA, affiliate, e-commerce/dropshipping, and SaaS are among the various monetization methods. Multiples vary depending upon the form of monetization, as well as the number of monetization methods used
- Age of the Business – Typically older websites with more stable profits are given more favorable multiples
Please note – this is by no means an exhaustive list of factors that affect the multiple and valuation of an online business. Each unique business will vary depending on its current situation, so the important take away is that most valuations fall somewhere between 20-28x.
Additionally, please do not hesitate to reach out to us to receive a free valuation of your website.
Beware of crappy value websites out there, however, if you are looking for a simple solution, check out this website value calculator.
Determining when to sell your website is ultimately up to your goals…let us help!
Determining the right time to sell your website and creating an exit strategy vary on a case by case basis. Start with clarifying your goals for the business. Examine whether there are potential opportunities to continue growing the business, or if you have maximized the profitability of the website. At the end of the day, it is up to you to put a plan in place and decide what is best for you. Most websites sell within a multiple range of 20-28x monthly profits averaged over the TTM. Using this number range will provide you with a rough estimate of the value of your website, however, the correct multiple for your website depends on several factors. If you have decided now is the right time to sell your website, please do not hesitate to reach out to us to receive an in-depth valuation.