Want to become a millionaire? It’s easy. Start as a billionaire, then launch an airline. – Richard Branson
Not everyone has the luxury of starting out as a billionaire in order to become a millionaire, or being Richard Branson and being able to say such things. But hitting that millionaire mark may not be as far away as you think it is. Businesses have been changing hands for more than a century, but even just 15 years ago it was difficult to imagine anyone paying a few million dollars for something as intangible as a website. As a website broker, I’ve helped clients buy and sell websites ranging in price from the low five figures into the millions. So what makes a million-dollar website? It’s not easy to get there, but it’s not impossible, either.
Cash Flow/Owner Benefit
This seems obvious, doesn’t it? The more revenue a business is generating, the more attractive it will be to potential buyers. To hit that million-dollar price tag, cash flow and owner benefit should usually be above the $300,000 to $400,000 mark. As with anything, there may be exceptions from time to time, such as when typical market valuation method isn’t used. But the vast majority of businesses (I’d estimate 95% or more) will need to be in that $300K to $400K ballpark.
Three- to Four-Year Track Record of Success
You’ll find very few exceptions to this rule of thumb. An online business becoming an overnight sensation is actually a rare occurrence, although stories like that seem to be in the news quite a bit. The media just isn’t reporting on the sites that slowly built their success over a number of years, and those are the businesses that are usually more stable. If you can show a successful track record that spans at least three, maybe four years, you’re in a better selling position than if you just launched six months ago.
Upward Trends in Traffic and Revenue
Upon examining traffic and revenue for any site, especially over a period of three to four years, you’re going to see ups and downs. It’s the nature of any business, online or otherwise. The key is, do you see an overall upward trend in both? And is that trend demonstrable year over year, and in the most recent months leading up to the sale? If so, you’re in good shape for garnering that million-dollar valuation.
Sure, just about any business can be bought or sold. One of the components that makes a business more easily transferable is the branding. If you’ve created a business that is very tightly woven with your personal brand, it will be much more difficult for anyone to step in and continue moving the business forward without rebranding and restructuring. As I just mentioned, the less work the buyer has to do, the more willing they are to pay the higher price. This is especially true for personal sites. Think Dooce, Single Dad Laughing, The Pioneer Woman, or even The Oatmeal. No matter how big, popular, and profitable the site is, if it won’t work without the person who is so closely associated with it, it will likely be a tough sell. In addition, making a business transferable can mean it has a higher number of “replaceable parts,” these being the services your business relies on, such as bookkeepers, your site’s hosting, SEO consultants, content creators. The fewer embedded services and personnel your business has, the easier it is for a buyer to either continue with what’s there, if they desire, or install their preferred services. A higher level of customization commands a higher price.
Clear Path to Growth Opportunities
Just because a site is valued at a million dollars doesn’t mean it’s hit its limit. If the buyer can continue to grow the business, and the opportunities to do so are easily identifiable, then they’re not just making a purchase, but an investment in future growth and income. If the site does seem to have hit a plateau, and there doesn’t seem to be much more to be done with it to grow beyond its current state, a buyer will likely be inclined to pay less for that site.
High Barriers to Entry for CompetitionThis one’s important. If just anyone can build an online business in the same vertical as the one you’re thinking of selling, and with a fair amount of ease, you’ve already lost a good chunk of your site’s valuation, and are further away from that million-dollar goal. It’s the truly unique businesses that achieve higher revenue, and subsequently, higher valuation. The more difficult it is for competitors to horn in on your turf, the more attractive the business is to potential buyers because it likely means higher continued revenue with less work to maintain it. Speaking of less work…
Low to Reasonable Workload
Few people will spend a million dollars on anything that will require them to work eight hours a day, five days a week, if not more. That’s not what big-ticket buyers are looking for. They want an online business that is already past the difficult building stage, and is stable enough to continue to generate income with little effort on their part.
Multiple Streams of Traffic and Income
If your business relies solely on organic search traffic, and more specifically on Google, you’re not only less likely to earn that million-dollar pricing for your website, you’re less likely to find a buyer. This single-channel dependency is the proverbial “putting all your eggs in one basket.” Relying solely on Google means your site lives and dies at the whim of one company and its algorithm. Nearly every time Google releases a major update, there’s upheaval among numerous online businesses that are either engaging in negative practices targeted by the update, or that are simply ill-prepared to ride out an update while they wait for search results to even out again.
No business should be 100% reliant on Google, or on organic search as a whole. If you’ve built traffic to your site through social media, email marketing, paid search, and the like, your website will be better able to sustain itself while Google sorts out its algorithm. The ability to continue to generate revenue despite major external fluctuations makes your online business all the more attractive to buyers who won’t mind spending more to get more in return.
Solid Financial Record Keeping
I can’t stress this one enough. Regardless of what business you’re in, keeping track of your finances is of paramount concern. But if you ever plan to sell your website—whether you’re looking for that million-dollar deal or not—meticulous financial record keeping is crucial. Do yourself a favor, and get your financial records in order now. Disorganized or non-existent financial records are a huge red flag. A buyer will be less likely to spend any money, let alone a million dollars, on any business that can’t properly account for its revenue and expenses. In addition, the less you have to go back and fix at sale time, the quicker the deal can progress. Take too long to get everything together, and you run the risk of the buyer losing interest and walking away, or worse, suspecting you’re hiding something, which can damage not only the sale, but the potential for any future relationship.
Of course, every business has its nuances that contribute to its success—and its price tag. Striving to meet most or all of these goals, though, will put you and your online business on the path to million-dollar possibilities.
Featured image photo credit: Clara Rico via photopin cc