Why Use A Website Broker and How Much Do They Cost?

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    Topics: Make Money Online

WEBSITE BROKER

Sites like flippa.com have opened the market to the possibility of selling your website. However you may be sitting there with a decent business on your hands that is making over $5,000 per month in net profit and you want to sell.

If you research multiples on auction platforms you will find an average of around 8-12 times monthly net multiples. On a site that makes $5,000 per month that is $40,000 to $60,000 at the close of sale.

While this this may be a respectable sum, you might be sitting there thinking about all the hard work you’ve put into your site and you deserve a better return on the sweat equity you have invested.

That is why you need to find a retail buyer not a wholesale buyer.

A retail buyer is an investor that is looking for better places to put their capital than earning low returns in the bank. They want assets that are relatively hands off and have good growth trends. You won’t find these retail buyers on many of the auction platforms because they want to deal with bigger sites with more established revenue streams (minimum 2 years) and pay a premium for them.

That is where a website broker comes in.

You may get $40,000 for your website from a wholesale buyer. Whereas with a retailer buyer you can fetch anywhere between 2-5 times yearly earnings, with the average around 2-3 times yearly net earnings.

Would you rather $40,000 or $180,000 for selling your website?

Website brokers introduce you to retail buyers.

What is a website broker?

Full disclosure here: I am a website broker, so I can answer these questions in full.

The primary function of a website broker is to help webmasters sell their web business.

Your site will get evaluated and then presented in a way to gain the highest possible price.

In that process there are a number of tasks performed to try and maximise price:

  • Determine an appropriate valuation range
  • Compile an information memorandum (sales memorandum)
  • Market the website
  • Present the website to potential buyers
  • Draft and present offers
  • Assist in negotiation on behalf of the seller
  • Protect sellers’ confidentiality
  • Look after paperwork
  • Provide after-sales support.

How does it work?

The process is similar to that of a realtor (real estate agent). You approach a website broker looking to sell. You enter into a sales agreement with them. This is normally an exclusive agreement that is valid for 90 days. The broker will then prepare the information memorandum about the website to be used to show potential buyers. In this document is all the relevant information about the website, its financials, traffic stats and answers to general questions.

The broker will then go out and sell your website to potential buyers. Screen them with their screening process and present you the best offers.

The buyer will normally sign a letter of intent (LOI) and ask for  a set period for final due diligence. It is your choice as the buyer as to whether you allow this to be exclusive or not

They will make a formal offer after due diligence, you will either accept or decline that offer.

Then the transfer process happens. Money is normally transferred using an escrow service. That can either be the brokers trust account, a lawyers trust account or an escrow service. We prefer our own service or escrow.com. The site is then transferred to the new owner, the seller receives their funds and the buyer will take ownership of the website.

What is my website worth?

What your online business is worth is relative to your individual business, the market and what potential buyers are willing to pay. However, there are some common questions to consider, including:

  • What are the sales and profit?
  • How big is the business?
  • What are the growth trends?
  • What channels do new customers come from?
  • What is your market position?
  • How reliant is the business on the owner?
  • What systems and processes are in place to run the business?

Your business is also worth what similar businesses have sold for, we recommend you checkout this website appraisal report that analyses past transactions for internet businesses.  In the report it analyses $267m over 480 transactions.

Which Website Broker should you use?

Marketplaces – best for smaller websites (under $100k) – Smaller business and micro-businesses are usually best sold privately by the owner through forums or classified websites.

To sell your small business, check out:

Website Broker – best for medium businesses ($100k – $7.5m) – Medium sized businesses in the $100k-$7.5m valuation range are best sold through brokers who help with finding buyers, negotiating and structuring the deal.

To sell your medium sized business, we recommend:

Small MA Forms or banks – best for larger businesses ($7.5m +) – Larger businesses are best sold through investment banks or merger and acquisition companies.

To sell your large business, check out:

What is the time frame for selling my business?

Anywhere from two weeks to 6 months. Factors that influence timing of sales include getting access to the relevant website information from the seller, negotiation time and sellers getting finance available.

Who will buy my business?

They are a lot of potential buyers on the market for ecommerce businesses. Through experience, many of them fall into one of the following personas:

  • Corporate Guy – This is someone looking to buy his or her first business. They usually are a high paid employee or C-level executive with disposable cash, IRA, savings or access to an SBA loan. They generally buy businesses up to $1m.
  • Entrepreneurs – These are either online or offline entrepreneurs. They are generally either looking for a business to add to their portfolio or looking for their new venture. They don’t have any size of business that they buy. It is usually dependant on the buyer.
  • Private Equity/Media Companies – Companies that look to keep the existing management in place and grow the business through varying sized stakes in the business. They generally acquire larger businesses in the $4m plus valuation range

What does a website broker cost?

A website broker will generally charge 10% of the gross sale price to sell your website. If the site is smaller some brokers charge up to 15% for the transaction.

Are fees charged up front?

They are 100% commission based.  They do not make any money until they sell your website so there is a low level of risk of listing your site with them.

How do I get a higher price for my online business?

  • Premium money is paid for:
    • With premium domains
    • Have an existing active community
    • Make recurring yearly income
    • Have multiple income streams
    • That are highly systemized
    • Have strong earnings history

What if I can’t sell my website?

A website broker will ask for a 90-day agency period. Good brokers have a clearance rate of about 80%. Main reasons for a site not selling is generally price related and the seller wanting more money than the market will offer them.

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