Selling your online business is not difficult. What is challenging is to sell it at a price that would make the seller (you) and the buyer happy.
To win this challenge, you need to do some preparation work in advance. Making an impulse decision to sell your website will not get you the maximum value.
You have to design an exit strategy that will help maximize your business’s worth and make it an attractive opportunity for potential buyers.
I’ve sold a number of websites so far in my career and in this post I’ll show you how to sell your online business at the highest possible value, as quickly as possible.
You’ll learn about the importance of planning your exit strategy in advance, how to calculate the value of your online business, how to increase the worth of your business, and how to actually sell it online.
What’s Your Exit Strategy?
There are many reasons why people start an online business.
Maybe you started your business as a side hustle. Maybe it was the best way to turn your hobby into a full-time profession. Maybe it was your path to quitting your job, thanks to the sustainable income your business brought in.
As a reader of this blog, you’ve likely been thinking about how to grow your business. Yet, like so many entrepreneurs I've seen, you might have never considered what your end goal is.
And it’s understandable—being in the trenches every day makes it hard to think about your exit strategy.
Unless you’re in the business of mergers and acquisitions, the exit plan for your business is likely to be more of an afterthought—something to get to once the business is humming along or when you’re ready to retire.
But knowing your end goal can help you plan for the best possible outcome, especially when it comes to a successful exit.
Starting with the End in Mind
So, the first thing you should do is set your goals with the end result in mind. This means that if your intention is to sell your business, you should start thinking of how you can increase your website’s value to get a sale price closer to your expectations.
Armed with this knowledge, you’ll have insight that could influence how you decide to build your business to make it an attractive acquisition for online business buyers and how to grow it in conjunction with an exit strategy that positions you for a potentially life-changing exit.
How to Calculate the Value of Your Online Business
Website brokers use a simple formula to calculate the value of an online business. This takes into account the monthly net profit multiplied by a multiple. The end result is the estimated value of a website.
For example, a business that generates an average net profit of $10,000 per month and has a 36x multiple would be valued at $360,000.
Let’s go into the specifics of these two variables and how you can improve on them to increase the value of your business.
Net Profit
Typically, the monthly net profit figure is the net profit averaged over the last 12 months of business operations.
A 12-month timeline is standard, as it takes into account seasonal fluctuations and captures an in-depth snapshot of the business performance that a buyer can expect to see when taking over.
Sometimes a shorter time frame is used when calculating a business’s average net profit. For example, a 6–10 month average might be used if the business hasn’t had 12 months of operations or if there was a recent spike in revenue to where the business is consistently operating at a new baseline.
If you’re not in a rush to sell, it is recommended to build up 12 months of operations, as businesses with less than 12 months of data are seen as riskier investments and are less likely to sell.
For example, if you saw sudden spikes in revenue over the last two years due to an increase in online shopping, maybe it’s a good idea to sell before sales return to normal levels.
Multiple
The ‘multiple’ is a score usually between 20–50x that is decided based on several factors. Ultimately, is an indicator of the financial health and value of a business.
From a buyer’s perspective, a multiple can be seen as the number of months it would take for them to recoup the capital invested.
A multiple of, say, 36x means a buyer would see a full return on their investment in 36 months, assuming the business generated the advertised average net profit each month.
Some online business brokers might use an annual multiplier, meaning a 36x monthly multiple would be the equivalent of a 3x yearly multiple.
While it’s clear how the monthly net profit is calculated, how are multiples determined and how do sellers maximize this multiple and the valuation before listing their business for sale on a website broker’s marketplace?
How to Increase the Value of Your Business
Generally, a business’s multiple will increase or decrease depending on how well the business generates consistent revenue and is protected from external factors.
There are several variables and metrics that help measure this, including the following:
- Average Monthly Net Profit
- Age of Business
- Email List Size
- Traffic Diversity
- Owner Involvement
- Revenue Split
Average Monthly Net Profit
A higher monthly net profit shows that a business has validated its business model and niche.
For businesses selling a physical product, that could mean it’s cornered a larger portion of the market than its competition, has a larger total customer base and can leverage its reputation to expand further.
A higher net profit also provides a new owner with more monthly cash flow with which to grow the business, whether through hiring employees or paying for advertising.
Age of Business
An older business has demonstrated its ability to withstand the external forces that threaten all online businesses.
This may be the website that has shown resilience to Google algorithm updates or an eCommerce business that proves its products are not just a trend that will burn out after a season.
An older business also provides a buyer with more data for spotting trends, such as if the business is generally growing year-over-year or if there are any significant dips or spikes in revenue.
Ultimately, it provides a new owner with greater confidence that the business will live on after acquiring it.
Email List Size
An email list is considered one of the few assets that a business owner might truly own, as many other parts of an online business are often dependent on a 3rd party for generating their income.
Active email lists can be used to drive revenue by sending traffic to an eCommerce store or affiliate page. More advanced email marketing campaigns can involve segmentation and automation to recapture and re-engage leads.
Traffic Diversity
Similar to having an email list, driving targeted traffic to your business through multiple channels is another method of reducing risk in an online business.
It communicates to a potential buyer that the business will continue to operate even in the event of a single point of failure.
For a content-based website, this could mean that traffic is being driven from several pages rather than relying on just one popular blog post that could lose traction over time or be impacted by a Google algorithm update.
For a physical product business, this could mean selling your products through multiple channels, such as Google Ads, Amazon, Facebook, or even brick-and-mortar locations.
In particular, the organic traffic that comes from SEO is a very attractive traffic source for buyers, as it is a channel that drives revenue without additional costs or significant maintenance.
Owner Involvement
Buyers tend to want to acquire businesses that require fewer hours per week of direct owner involvement—they want to purchase investments, not time-consuming jobs.
They’ll want to be sure that a business can operate seamlessly without excessive supervision on their part.
For small business owners, this could mean establishing business systems to automate more time-intensive tasks or hiring freelancers to replace anything skill-based that a new owner might not be able to fill personally.
Even if a business owner isn’t quite ready to sell, having an up-to-date succession plan can organize business processes that enable the owner to remove themselves from the daily operations.
This could include clear SOPs, organized bookkeeping, and a list of all assets associated with the business.
Revenue Split
Similar to traffic diversity, a business is more resilient when it generates revenue from multiple sources.
For a content site, this could mean working with multiple affiliate marketing programs, using different advertising platforms, just in case some of them shut down or change their commission structure.
For an eCommerce business, this could mean expanding the product line to generate revenue from multiple products in case interest in one product dries up or if there are supplier delays causing inventory issues.
How to Sell Your Online Business
Once you decide that it’s time to sell your business, you should follow these steps:
- Step 1: Get your financials ready
- Step 2: Calculate how much your business is worth
- Step 3: List your website for sale with a broker
- Step 4: Review proposals
- Step 5: Understand how the business migration process works
Step 1: Get your financials ready
Many small business owners don’t know how to create a profit and loss (P&L) statement. Reputable brokers can help you compile a P&L as long as you have the following information prepared:
- Your tax records for the past three years
- Balance sheet
- Income statement
- Cash flow statement
With the financials in order, buyers can see a business’s financial track record and performance. Many buyers find it easier to trust a 3rd party appraiser to assign the multiple and create the valuation.
Step 2: Calculate how much your business is worth
While you can use the basic formula explained above (net profit X multiple) to get a rough idea of your website’s worth, it’s recommended to use a third-party valuation tool to get a more accurate estimate.
Step 3: List your website for sale with a broker
Once you know how much your business is worth, the next step is to decide how much you want to sell it for and how to sell it (privately or using an online website broker service).
Before setting your selling price, you need to consider two important parameters:
1) Buyers will use the same business valuation tools to come up with how much your business is worth so your asking price should be close to that number.
2) When entering a sale negotiation, you need to be flexible. Professional buyers are tough negotiators and they will try to purchase your business at a value below the selling price. So, before deciding on the final sale price set a slightly higher value so that you can bargain during the negotiations.
Selling privately or through a website broker?
When it comes to trying to sell your website privately or through a broker, my recommendation is to use a broker service and I’ll explain below the reasons why it’s better than selling on your own.
For a first-time seller, a common assumption is that selling an online business privately is always better than selling through a brokerage, as it allows them to avoid the commission and walk away with more cash in hand.
In many scenarios, this may play out in the opposite way. First-time sellers are particularly susceptible to walking away with less than their expected asking price when working with savvy buyers or brand aggregators who know how to wrestle negotiations in their favour.
Furthermore, an active and qualified buyer pool creates an incentive for all prospective buyers to perform efficient due diligence and ensure they close on a good deal before other buyers.
Selling on the open market or through brokerages that do not vet their buyers can leave sellers vulnerable to those who are looking to copy business ideas or casual “tire kickers” who can turn a normally quick sale into a time-consuming process.
There is also a world of difference in the quality of buyers when selling a small business on a qualified marketplace vs. a private market such as a free Facebook group.
When buying through a broker, buyers provide proof of liquidity and submit identification to demonstrate their serious intent to buy a business.
Ultimately, by working through a brokerage, you have a higher chance of finding the right buyer, closing with a higher selling price, and spending far less time and effort on the selling process.
Where to list your website for sale?
My favourite marketplace is Empire Flippers. They offer free website valuation tools and business migration services to help you make the sale of your website an easy, stress-free, and quick process.
Here is a quick overview of their pricing fees:
Empire Flippers - listing your website for sale is free. Once your website is sold, EF gets a 15% commission on the agreed selling price for the first $700,000. If your website is sold more than $700K (and less than $5M), they take an additional 8% on the amount above $700,000 and below $5,000,000.
Step 4: Review proposals
Once your website is listed for sale, you’ll start getting offers from prospective buyers. If you’re using a broker, the seller's identity is verified so you don’t have to worry about scams but you still have to be careful before accepting an offer.
You need to carefully review the buyer proposal and their profile and never accept to complete the transaction privately but always do it through the broker platform.
It’s difficult to estimate how much time it will take for the sale to be completed. It depends on the niche your business is in, your asking price, competition, and many other factors.
What you need to do is be patient and don’t rush into selling your business at a low value. Decide on what your bottom line is and stick to it until you find the right buyer. It may take some time but it’s worth the wait.
Step 5: Understand how the business migration process works
Once a sale has been closed, the process of migrating a business from the seller to the new owner is arguably as crucial as the sale itself.
A sale is not fully complete until the transfer of the business is complete, and there are many pitfalls and issues that can occur with the transfer that can delay or even reverse a sale.
In a private sale, this is where things can get tricky, especially if this is your first time. There’s a lot to consider in making sure ownership is transferred securely without getting triggering suspensions that might lead to revenue or traffic drops.
Most brokers have a team of migration advisors and specialists who guide the process of transferring assets and make the transition as safe and smooth as possible.
Leverage and Legal Protections
The sale and transfer of a business can be a huge undertaking that comes with many potential liabilities for both sides.
Brokerages can provide escrow-type services, acting as the 3rd party by holding onto funds and ensuring a deal is seen through to completion before closing the transaction.
They can also provide legal protections in the form of a formal purchase agreement and specific terms that protect both parties.
Conclusion
Even if your exit is months or years away, or you don’t have plans to sell at all, reviewing your business’s health and viability for an exit is still a great way to assess current performance and to establish clear milestones for growth.
When the time to sell comes, the first thing to do is to calculate how much your business is worth. Then, using the parameters explained above, you should try and increase the value of your business as much as possible.
The next step is to list your website for sale on your favourite marketplace and be patient until you find the right buyer.
This article was co-authored with Nick Chi of Empire Flippers. After many years in online business, Nick joined Empire Flippers in 2019 to help his kindred spirits on the marketplace transition their own businesses.
