How to Sell Your Online Business for Maximum Profit

You have invested years of work and effort into building your business and have decided that now is the perfect time to sell it. You may have planned an exit from the start or may have just discovered that you have an asset someone would be willing to pay for.

In any case, knowing how to prepare your business for sale can literally mean the difference of thousands of extra euros in your pocket when the deal closes. In this article, we’ll explain what the main metrics involved in valuing an online business are and then break down the tactics you can carry out to maximize the profits you can make when selling your company.

Understand how your online business is valued

If you want to sell your business for maximum profit, it’s important that you understand what buyers are actually looking for and how those key factors and metrics influence the valuation of your digital business. Below, we’ll give you an overview of these factors to help you get on the radar of potential buyers, but first I’m going to explain “multiples” and how they are used in online business valuations.

Multiples refer to a number used to multiply a digital business’s profits in order to arrive at a sale price. The profit side of the valuation is based on the average monthly net profit, which is calculated by taking the amount of profit generated over a given period of time (usually 12 months, but it can be shorter) and dividing it by the number of months included.

For example, if your business generates €100,000 in profit over the last 12 months, the average monthly profit would be calculated like this:

This helps buyers get an idea of what they can expect to generate from their new business each month. Taking a longer period of time, such as 12 months instead of, say, 3 or 6, can be very useful if your business is seasonal or has had a couple of lower-performing months in the short term.

Once you know the average monthly net profit, the metrics we’ll cover throughout this article are used to arrive at a valuation based on factors that will make the business more or less attractive to potential investors. This figure will likely sit somewhere between a multiple of 15 and 30, although it can be a little higher for especially attractive businesses (bear in mind that this multiple will likely increase over time as more investors enter this market), or slightly lower if there are some real issues with the company or if you need to sell quickly.

This figure gives an indication of two things: the amount of time it will take investors to recover their investment, assuming things remain constant, as well as the annual return on investment or profitability, which is usually shown as a percentage. So, for example, a multiple of 24 means it would take 24 months, or two years, to recover the investment. In this way, investors get a 50% return and recover half of their investment each year.

As a seller, this multiple translates into a period of time for which, in essence, you are being paid after you no longer own the business. Taking the example above, you would receive the equivalent of two years of business management profits in one lump sum and without the risk of the business declining for any reason during that period. Not bad at all, right?

This is the main reason why many entrepreneurs have started “flipping” websites and online businesses, a term that comes from the English word “flip”, meaning to start a business with the intention of selling it, or to buy it, grow it, and then sell it for a higher amount. It is extremely attractive because it can mean spending 1-2 years building a business that is then sold for a 24x multiple or for 2 additional years of profit, which means that the owner has obtained 3-4 years of profit in the space of 1-2 years.

Now that you know about multiples and their importance when pricing your business, let’s explain the main metrics that influence your multiple, as well as a couple of things you can do to increase that multiple.

Site age

This is a fairly important metric in the buying and selling of digital businesses for a couple of reasons. One is that older digital businesses tend to be more stable and remain profitable not only in the short term but also in the long term. This also signals to buyers that the niche and/or products the business sells are not just a passing fad that loses popularity as soon as the virality ends (like spinner widgets).

A longer business history also provides more information for buyers to analyze and use to project possible future earnings. This is very positive because it reduces the level of risk buyers face when aiming to achieve similar or greater recurring profits after acquisition. After all, online business acquisitions are investments, so reducing risk and increasing the chances of getting their money back and more is exactly what investors are looking for.

So when it comes to maximizing the profitability of your business, it may be the case that waiting a little longer before selling can be beneficial and help increase the multiple you can achieve. This will be even more true for companies that have experienced major fluctuations in revenue, sales, or site traffic, as it will give a little extra time for things to settle at a consistent level.

Revenue and profit stability

This is another factor that will influence the valuation of the online business and make it more or less attractive to potential buyers.

That said, it’s worth noting that some buyers have particular strategies when purchasing, as some choose to buy businesses that are in decline and carry out a major restructuring or a business makeover if we want to use real estate terms. But in general, buyers are much more attracted to companies that are going through a growth period, which indicates that they will be able to sustain growth and earn higher profits if they continue operating the business in the same way you, the seller, have done.

So when it comes to getting a higher valuation and then a high sale price, it is always worth trying to sell the business when it is going through a growth phase. It may mean that the average monthly net profit is a lower figure than it has achieved in recent months because a 12-month average has been taken, but this will be offset by a higher multiple and more buyers interested in the business.

If your business is on a downward trajectory, don’t worry, as I mentioned earlier, there may still be buyers who are interested, they just won’t be willing to pay as much as they would if it were growing.

Hours worked per week

This metric is another important factor used when valuing your online business, although it is less important for much larger companies with bigger teams. For digital businesses based on a model where the owner themselves operates the business, a solopreneur or a partnership with a few employees or freelancers, it is something worth optimizing if possible.

Online businesses that do not require much oversight or that require less time commitment are usually more attractive to potential buyers, for several reasons, but essentially it comes down to being able to take over the business and not requiring a large amount of additional resources to manage it, whether in the form of time or capital that would need to be invested in a person to run the business.

Therefore, the important thing is that, when preparing to sell, you try to make the digital business as self-sufficient as possible, and that you, as the owner, are not indispensable to keeping the business running.

Of course, this is not always possible, especially if you have been running the business full-time as your main source of income. However, it is worth stepping back and analyzing how some tasks could be automated, outsourced, or eliminated altogether so that daily and weekly operations are as smooth as possible. That said, be careful not to spend too much on solutions, as this can affect the business’s profitability, which would reduce the valuation, so you should always start by eliminating non-essential tasks, then optimizing them, and finally outsourcing them in that order.

Customer base and following

Another factor taken into account when valuing a digital business is the customer base and social media following. This can be viewed in a couple of different ways, but really it is a factor that is considered both for the business’s growth potential by allowing the new owner to leverage the customer base of people who recognize the business or have purchased before, as well as the potential sustainability of current revenue levels if the business relies on a large number of repeat customers, subscribers if it is a SaaS business, or as a primary source of website traffic for sites that depend on advertising revenue or affiliate sales from their followers.

Therefore, some of the ways to increase your valuation are to build an active social following on the main networks your customers or website visitors use frequently, as well as an active email list that you contact often. The latter of these two is a greater asset to the business, as it is a marketing channel your business fully owns, whereas the former is really owned by the social network on which the business is followed.

Now, there are other factors used in digital business valuations, but these are the main ones most commonly used, and putting in a bit of work here can definitely help you get a better sale price when selling your business.

Before you start automating daily operations or adding email capture forms to your website, here are four more ways to maximize your business’s sale price.

Maximize profit margin

As you may already know if you’ve read the previous section, profit is extremely important when selling a business, since it is the amount of money the new owner will be able to earn as soon as they acquire it and the amount that will go toward recovering their investment.

On this basis, maximizing the amount of profit your digital business generates can go a long way toward increasing the amount of money you would receive when selling it.

Working on revenue as a way to increase profit is, of course, a very valid approach, but it may not necessarily be the most efficient one. Usually, when we vet businesses, the second step of our valuation process, after the seller has provided us with the initial data in the web valuation calculator, we often see expenses that may not be necessary for the business to operate and that could be removed, instantly increasing the amount of profit the company generates without having to touch revenue.

To apply this, you will need to have an income and expense report ready or create one if you haven’t already (this is an important document we’ll talk about shortly), the more detailed it is, the easier it will be to highlight potential cost savings. Once you have it, review each of your expenses, starting with the largest, with the goal of identifying costs you could cut without affecting the company’s operations. Examples of this could be recurring software expenses for things that are not used, marketing spend on ads or partnerships that are not profitable, etc.

Another tactic is to try to negotiate costs with suppliers. This could be product or shipping costs if you have an online store or an Amazon FBA / FBM business. This may involve increasing the order quantity to get a volume discount or simply trying to negotiate with the supplier to see what can be done to reduce the price you pay per product.

For content websites, a similar tactic could be r educing the amount you pay per article if you currently outsource writing. In this case, you can often save costs by speaking with your writer or writers and seeing if they can reduce their price per word or per 1,000 words if you order a certain number of articles or word packages or can guarantee a certain amount of work per week or month.

Another way to quickly maximize profits for affiliate websites is to negotiate commission payouts. Now, this is technically a revenue tactic, since it increases the amount of money your business brings in, but because there are no additional costs associated with it, all the extra revenue generated goes directly to profit.

This is not always possible if your affiliate income comes from large companies such as those in the Amazon affiliate program (Amazon associates), but if you work with smaller companies or in the software sector, you can often request an increase in the commission amount you receive with a fairly good chance of success. Also, if you mainly receive a recurring or lifetime commission, it may be worth trying to switch to a CPA payment model where you are paid a larger upfront payment for each new customer you refer instead of an ongoing percentage. This can lead to a significant increase in revenue and profit, but it will require you or the new owner to continue referring new customers.

Diversify revenue streams

The next tactic we recommend for trying to increase your business’s sale price is to seek diversification of your revenue streams. This tactic serves two main purposes when selling your website or online business: one is to increase the amount of revenue and therefore profit the business generates, and the second is to reduce the perceived risk the business poses to potential buyers. Let’s look at each separately.

Adding additional revenue streams to the company can be a great way to bring in more income. Examples of this could be adding ads to a content website that monetizes through affiliate marketing in informational articles that generate site visits but are not monetized, or selling your products on marketplaces such as Amazon, Ebay, Etsy, etc., as well as directly on your website, or vice versa. This will help you achieve more sales, revenue, profit, and therefore a higher price when selling your business. Remember that every extra euro you add to your monthly profit will mean between €15 and €30 more when it comes time to sell your business. So even a small extra profit can add up quite a bit when selling the business.

As for risk, having more than one revenue stream makes for a much safer investment for potential buyers, since if something goes wrong in one of them, they won’t lose all the income, only part of it. For example, if a company has one customer that represents 100% of its revenue, what happens if that customer stops operating or decides to stop buying from them? Well, the business stops being a business. But what happens if another company with 100 customers, each representing 1% of revenue, loses one customer? Nothing much, since the business continues generating revenue and profit for the owner thanks to the other 99 customers.

Have everything ready for buyers

The previous tactics we’ve looked at really cover aspects that influence the valuation and overall price of your business, but now we want to highlight something that can be very important when selling it: having everything ready for buyers.

We have seen deals fall through or buyers walk away after showing significant initial interest because sellers were unable to provide important information or documents or simply took too long to do so. That is why it is very important to have everything prepared so that when an interested buyer comes knocking, you are in the best possible position to reach an agreement before they start looking elsewhere.

To make this clearer, here is a recap of a couple of main things you should have ready, most of which, as brokers at Moaflip, we request as part of the verification process:

• Income and expense report: this is the profit and loss statement broken down by category, month by month, for at least the last 12 months (assuming you have been in business that long). This is vital for valuing the business itself, as well as for buyers to see business trends and help them plan when they acquire it.

• Proof of income: every buyer will want to verify that the amount of revenue you claim the company generates is true. This can come in the form of screenshots and reports from the backend of your website or platform, marketplace where you sell, or the payment gateway you use to receive and collect customer payments.

• Google Analytics: this is relevant for website owners and has to do with traffic data and the number of visitors their site receives. Having Google Analytics set up and recording visits is probably the best and easiest solution to implement. If you already have this set up, make sure you monitor the metrics often because we have worked with sellers who have not done so and ended up receiving tens of thousands of bot visits to their website or had double counting of things like page views. Each of these leads to incorrect data, making it difficult for buyers to assess the business and in some cases quite suspicious that something has been done to make the business look more attractive than it really is.

• Operating manuals: these are documents you can prepare that explain your business operations. They are like instruction manuals that the new owner can follow so the business continues running in the same way as before or even to be able to hire virtual assistants.

Final thoughts

Selling your online business can be a very exciting experience, especially when it comes to seeing how much reward you will receive for all the work and sweat you have put into it. In this article, we have tried to outline some of the main aspects involved in valuing a website or digital business, how you can optimize them to increase your valuation, and some additional ideas to help you sell your company for maximum profit.

If you feel ready to sell your business or simply want a free valuation, take a look at our website valuation tool. It will only take a couple of minutes and will give you an idea of the kind of price we could sell your website or digital business for.