By Yaro Starak
Thomas Smale is a website broker, who founded Flipping Enterprises. He helps connects buyers and sellers of websites and has been involved in more than $5 million in deals last year alone.
Before starting out in brokering, Thomas bought and sold websites himself, which is how he first created an online income stream. He still buys and sells for his own site portfolio today.
In this interview you will hear how Thomas got his start flipping websites for spare cash, which then grew into a system for flipping that he taught via an information product.
After the quick background story, we then dive into pretty much everything you ever wanted to know about how to sell a website, including -
If you have any plans to sell your website or blog, or you are thinking website flipping is a possible online income strategy for you, this is an interview you cannot miss.
You may recall, if you’ve been following my podcast from back in, I think it was May of 2012, I interviewed a gentleman named Ian McConnell who sold his hobby model train business for $300,000. It was a popular interview, just a great story of a guy selling his hobby site. The person he used as a broker to sell his site was Thomas Smale, my guest for today. Thank you, Thomas, for joining me.
THOMAS: Hi Yaro, thanks very much for having me on.
YARO: So, Thomas, as you can no doubt tell, is in the U.K. and he is a broker who works for Flipping Enterprises and what we were talking about before we started the call is some of the numbers we’re allowed to say about how much volume you do. So, you said last year you did around about $5 million in brokered sales of websites.
YARO: You’re mentioning some of that was on Flippa, some of that was outside of Flippa.
THOMAS: Yes. The majority of our business now is outside of Flippa. There were around $5 million depending on how you look at the deals because sometimes in the industry you deal with co-brokers deals, so you work with other brokers and then you split the commissions so, the volume you do yourself is quite hard to determine.
Flippa, we did a lot in 2011. We were the top sellers over there with about 1.3 million in sales but more recently we’ve moved over to a little bit more [unclear] private buyers. We have less need for probably market places so it’s kind of a [unclear] organically.
YARO: Right. And that’s something I’d really like to talk about. So obviously the subject of this interview is very much on buying and selling websites, in particular with using a broker but Thomas has a lot of experience in selling so it’d be great to hear about not just Flippa as an option but, there’s other places too. I’d like to dive into all of that but can we begin, Thomas, by you explaining how you got into the world of brokering websites?
THOMAS: Yes okay. Back in University when I was about 21, 22, I was looking for some ways to make some extra cash and at the time I came across eBay and I thought, I didn’t know anything about technical things but, I always liked the idea of running my own business so, I think I bought my first website for a few dollars, got completely ripped off and screwed and I thought well, not being one to give up that easily, I thought well I’m going to look around, do a bit more research and at the time I found SiteLink, which is the old version of Flippa effectively.
I found you could buy sites from there so, I bought my first site, I can’t remember exactly whether it was for, $100 or around that number. I played around with it for a bit, realized that at the time there’s quite a good market for flipping sites. I was buying some more sites, doing a little bit of work on it and selling it for a few hundred profit, which at the time was not a lot of money but I mean it was beer money. It gave me the chance to be a bit more fun and actually free.
From there I did that for six months a year, but begun to be quite profitable then I released an eBook on flipping sites which did quite well and from there, all the time I’m still flipping my own sites. I fell into brokerage by accident. One of the people who bought the book said, “It’s a great cause but I just don’t have time. Would you be willing to sell the site for me?”
It’s never something I’d even consider before. I thought well, “Yes, I’ll do that.” So, I did it. At that time, I just listed it up on Flippa, sold the site for him. The deal went well and I thought well, being a student when you’re relying on cash flow, while flipping sites was great, a cash flow wasn’t necessarily that consistent whereas brokering meant I could get a steady paycheck consistently selling sites.
And then I kind of built up from there just by accident and through referrals so, I fell into it off the back of the course and then people just started approaching me.
YARO: Okay, before we dive into brokering I’m curious about even just the flipping you did in the early days did you have a strategy that you followed by someone else, like did you pick certain websites of a certain subject matter or a certain format? How did you work something out that allowed you to have at least beer money? I don’t know what that is, is that 500 bucks a month, 200 bucks a month?
THOMAS: A thousand a month or something like that. And I mean at the time I didn’t read any courses or anything like that. I’m not really one for buying courses. I do read a lot but it was mainly just through trial and error. I probably spent a year until I kind of perfected it. By the time I was buying it’s probably not so effective now but, I was buying service sites that would sell either a product or a service and then, I was finding easy ways to sell the product.
For example I’m going to buy a traffic reseller site, I think it was $50 in Site Point and I realized that if you go over to Digital Point Forums at the time you could resell that traffic. So, what I would do is I would go over to Digital Point.
So, $200 worth of traffic in a week and then I would sell the site for $500 or something like that. So, my strategy was find a niche site that I could make a bit of quick money with, prove the concept and then sell it.
YARO: So when you mean the traffic reselling website, you mean a site that someone would come to and give $50 and you would guarantee a certain amount of traffic?
THOMAS: Yes, it’s the kind of site when you’d pay I don’t know $10 and you’d get 5,000 hits.
YARO: Did that site come with the system for getting that traffic or–
THOMAS: Yes it did. That would be one of the important things should be getting like a system in place because like I said, I’m not technical so I needed a site which was up and running, which it was.
I’d already had the supplier in place so, all that I had to do was go and find somewhere to sell, which is this concept that still works today. All you need is if you can find a site with a supplier, whether it’s a service or drop shipping site, a product, if you can buy it cheaply and you know where to sell the products or service then you can do quite well and get quite good return.
YARO: Can you give some other examples? I think some people might be confused with that traffic idea but if you said you know I was reselling this bookkeeping services and I knew were to get new bookkeeping clients and ramp up the income and then flip the website that kind of makes sense. Is there any other examples?
THOMAS: Yes, I mean nowadays, if you have an SEO service for example, you might have been able to sell…For example, now you could buy a site that might have been reselling services from Fiverr, which I’m sure a lot of people are familiar with. There are people who might sell, I don’t know, 5,000 Facebook fans for $5 and you could set up, say, or buy a site that sells Facebook fans for $20 so, you’ve got a nice little markup there. So, any site where you’ve got a product or service with some decent margins and you can find places to sell it.
I found that the webmaster sites were anything related to webmasters, Internet marketers was a good place to start just because you’ve got an Internet market. There are lots of big forums out there, lots of blogs, those people willing to promote products. That seems to be the best way to start but, I mean they can apply in lots of different niches.
YARO: Can you give us two more examples from back in the day that you actually did?
THOMAS: So another one I did, this was a little bit different. I found a guy who was selling Facebook apps, which back in the day were quite popular. What I did is I set up a small store selling these Facebook apps so, I bought the rights to a number of apps. I think he had five, listed them all on my store and then I would just sell individual licenses to the apps so, I effectively created my own app store.
YARO: So, you have to get good at being both a supplier and drumming up demand for it but you bought the sites that already had I guess, the product or the service ready to sell.
THOMAS: Yes, so I effectively found a reliable supplier. He would supply it at a good level and then found like different places to sell, whether it be forums or Flippa or wherever.
YARO: So you might have gone to Site Point back then and you saw a Facebook app site that sold certain apps and you also had a guy you knew who was a creator of apps and reselling rights to them so, you bought the rights off him, put them into that site you bought off Site Point as created a little store and then went to a bunch of forums and say, “Hey, I’ve got these apps for sale, do you want to go buy them?” So is that roughly–
THOMAS: Yes precisely. It wasn’t a particularly good system at the time. It worked but it wasn’t particularly organized. It was more young kid hustling kind of do whatever we could to earn cash. It was [unclear] multiple opportunities as they came rather than a very strict system.
YARO: So from that you learned no doubt some great skills on negotiating deals in terms of buying and selling websites because it sounds like you were doing it quick, right? Like you’d only have a site for three or four months. Would that be about right?
THOMAS: Yes, I used to do most of the time is I got a credit card and I had to get it interest-free, I had to pay it off within a month. What I would do is I’d challenge myself at the beginning of the month to max out the credit card and then pay off by the end, which seemed to be quite a good way to go.
YARO: That’s scary.
THOMAS: Yes, it was a little bit scary but it gave me that incentive I needed to actually get out there and hustle. Yes, so maybe a month, occasionally three months, depending on the size. I mean nowadays if I’m doing sites I’ll be buying in the maybe five-, six-figure range and it might take six months to a year, whereas on the lower end you might be able to turn it around in a week or two weeks.
YARO: So how many sites do you think you’d bought and sold back then?
THOMAS: I was probably buying three or four a month and then selling maybe five or six. It really depends. It would vary a lot. One month I might have just worked from one site that might have been a couple of thousand. Another month I might have bought some of it may be as many as five sales. I might have sold 10 sites for $300. I might have bought them and sold them each separately for a profit. So, it probably would have been 50 to 100 over the course of the year or relatively more.
YARO: Right, so you really cut your teeth so to speak, got your skills up by doing lots of little deals and learning to build lots of different types of websites, by the sounds of things, which is–
THOMAS: Yes it was very much just building up that skill set from nothing so getting used to dealing with lots of different sites, lots of different people, lots of different technologies, lots of different products, lots of different niches, which is very much a transferrable skill when it comes to brokering. So yes, it was very important at that time for me to get all that wide range of deal experience even if it was small it was still effectively the same process.
YARO: Right. It’s why you’re a broker now. I’d say that you built up your skill base. So, when it came to creating this eBook, you said you obviously felt like you had had enough experience by that stage that there was stuff to go into an eBook. You had content, some sort of knowledge to share. Could you give us a highlight reel of what that eBook was about?
THOMAS: Yes. I mean at the time where I’d buy most of my sites, I started on Site Point and then I found that Digital Point has a site for sale section and that was the best place I’ve found for picking up bargain sites. So, I used to find cheap service sites so like I said you might a fire sale where someone’s selling 10 sites for $300 just because they can’t be bothered or didn’t have the time or the inclination to sell them separately. So, you might be able to buy 10 sites for $30 and then go and sell them for $60.
It doesn’t sound like much if it takes you 20 minutes to relist each site, you’re still making $300 profit. See at the time, it was all about buying cheaply and then reselling it for profit on Flippa, which was a bit more viable back then. I think Flippa wasn’t quite as popular. Digital Point is a bit of a mind field when it comes to buying. It’s not the easiest place in the world.
So, yes that was the general overview. Buy cheap and be opportunist. Look for good deals, look for opportunities that maybe other people aren’t jumping on and then resell in a marketplace that’s not necessarily used to that.
It’s all about being a bit unique as well. I think I was the first person to ever sell a Facebook app on Flippa, for example, whereas if you just jump on the boat and copy whatever everyone else is doing then, it’s a little bit harder to get ahead.
YARO: It does sound like you’re good at finding I guess weaknesses in the system almost, or areas that really weren’t that crowded so you knew that Flippa or Site Point, whatever at the time, people knew about these sorts of sites but they didn’t get as much money but if you jumped on to a marketplace that wasn’t as exposed to them what you had appeared more unique so you could get more money for it.
THOMAS: Yes, exactly so it was effectively an arbitrage model except you were finding a less exposed or an opportunity that other people wouldn’t see. So for example, the 10 sites for $300, other people might look at that as a lot of hassle. I would look at that as a good opportunity to resell it for a profit.
YARO: That’s certainly a viable model today. In fact, one of the ways you might flip that around I think today and I’m sure you’ll talk about this when we start to talk about brokering it would be find sites to buy that are not on any of the marketplaces and then take them to other places. So find sites that maybe people aren’t even thinking about selling, come to them with an offer, you know how to improve the site and then take it to a type of buyer who specializes in that sort of site or something so they’re willing to pay more money.
THOMAS: Yes, aabsolutely. That works really well. I mean, I now experience flipping on the slightly higher end where people instead of buying on a really low-end marketplace and then selling on somewhere like Flippa, they might buy privately or buy on Flippa and then sell through me as a broker. So the model does work on a higher end. It’s just slightly different but the principles are still the same. You’re going good at spotting opportunities and closing deals is the main thing.
YARO: What’s the biggest deal you’ve done since then because obviously you did a hundred-dollar website back in the start and now you’re doing like–
THOMAS: Yes we’ve got a $2 million deal that’s in the process of going through at the moment. We’ve done quite a few in the 600, 700 range at the backend of last year. Our range really varies though. We do anything from 10,000 up to 2 million.
YARO: That must have been a growth experience in that. I’d like to sort of continue the story because it’s a bit of a change from going from a hustler for small websites, buying them for 300 bucks and breaking them into parts and sell them for maybe a grand to suddenly being in charge of a $200,000 website deal. That’s a whole different kettle of fish.
Take us forward. You released the eBook then a person came to you and said, “Listen I want to hire you as a broker.” Now you’ve never been a broker before. Did you have to learn how to do it or did you again just trial-and-error your way through it?
THOMAS: Yes, I mean at the time, I think the biggest site I’d sold myself, I don’t remember the exact number but it was definitely under five figures and this guy had a site that I believe I sold it for 18,000 in the end.
It wasn’t a massive site but it was bigger than anything that I’ve done before. I was quite honest to them. I charged them a percentage. I listed on Flippa, walked them through the whole process. That was like quite a small jump. I could use the same processes and then from there I got a couple of more low five-figure deals.
I guess my big break came back in March 2011 where someone approached me with a site that I ended up selling on Flippa for 300,000. That was the first six-figure deal I ever did, which again I kind of fell into by accident. It was a referral. I wasn’t going out that proactively seeking large deals. Once that big deal had gone through I thought hang on a second, this should and could be my full-time business rather than buying and selling sites for a couple of hundred dollars and flipping them for $1000. It made far more sense to sell the same for $300,000 and take percentage.
YARO: Right. How much does a broker normally keep?
THOMAS: Depending on the size, it would be anywhere from 10 to 15 percent.
YARO: So, if you do a $300,000 sale you’re going to make 30 grand.
THOMAS: Yes, that was 30,000 in commission I think minus the Flippa fees at that time, but I mean still when you’re relatively new to the industry that’s a quite a lot of money.
YARO: Well I think it’s still quite a lot of money for a lot of people who are listening to this call.
THOMAS: That gave me the opportunity to go from like two of us working out of our bedrooms to like a formal company, having staff, having an office, which is where I am today so I was very conscious to invest that back into infrastructure rather than a flashy new car or something like that.
YARO: So was there switch there because it sounds like you were kind of playing it by ear and deals are just coming to you because you had connections and one person was referring you to the next but then, you realize you’ve got enough money that this can be a full-time business. It sounds like is it a partner you had originally there or was that just an employee?
THOMAS: I had an original business partner who I don’t actually work with anymore but at the time we were working together. I mean when I did that first deal I don’t think we had a website. So, it got to a stage where when the first couple of smaller deals went through the 18,000 that was okay but that wasn’t quite enough to get it all down on paper, get an office, get some staff so I did that first big deal, got it closed out and then, kind of went from there.
YARO: So, you must have started being a little proactive and trying to get clients because you’re hiring people. You need to see a deal flow coming through, new websites always coming and approaching you, right?
THOMAS: Yes, what I would do is I outsource the sites we already own to my staff and I would still buy some sites for cash flow for them to manage and then I would go out there mainly through referrals. I used to get quite a lot of business through forums, blogs.
To be honest, it grows quite quickly if you do a good job and you’re honest with people then, it does build up quite quickly. But, once we had a website in place, and really it wasn’t a particularly good website. It was more of a placeholder that people could at least sign up to the buyer list, they could see our listings. Flippa started interfering me a bit on that blog, so you get some exposure.
As a broker you really don’t need to do that many deals to be profitable. It’s not like you have to sell three or four sites a week. You can do a couple of five-, six-figure sites a month then you’re doing quite well.
YARO: Right. Of course you’re here on another interview and someone could be listening who has a website they don’t want anymore and they’ll get in touch with you after listening to this call. So it is great, it’s a growing industry, isn’t it? It’s a place to be as a broker. I think you know it’s a great market.
Let’s look at this now. Obviously you’re well and truly running Flipping Enterprises is the actual name of your company?
THOMAS: That’s right.
YARO: That’s FlippingEnterprises.com for the website. I’ve had a look through. You’ve got some websites who you are listing for sale. You’ve got a form you can fill out if you want to approach you to potentially hire you as a broker to sell your own website. Can we look at some pros and cons about why someone would want to use a broker as opposed to doing it themselves.
THOMAS: Yes, so I had a little think about this. Hiring a broker, the first thing I’d say and the reason that I think the business has grown through referrals and interviews is it’s not like buying a product off the shelf for $50. It’s very much a relationship you have for your broker. You need to trust your broker. It really depends on the person but then, if you go into some of the reasons you might hire a broker, this won’t necessarily apply to everyone but, if you’ve got a site, firstly, I would say that you need a site that’s big enough to justify hiring a broker. I think I mentioned earlier the smallest we do is $10,000. I know some other brokers who might not do anything below $50,000 or $100,000.
YARO: Let me just stop you there, Thomas. Let’s say $10,000 is your minimum, how do you determine whether like if I have a site right now how do I determine whether I can get $10,000 for it and potentially approach you to sell it?
THOMAS: As a very rough rule of thumb, I mean valuation is a whole different story but, I generally say, if you’ve got a site making at least $500 a month in profit then, it’s worth at least approaching me and I could only say no or at least pointing you in the right direction. So, I’d say yes, $500 a month would be the low end.
YARO: And that’s the profit, not revenue.
THOMAS: Yes, profit.
YARO: Okay keep going.
THOMAS: So, from there I mean one of the reasons people might hire a broker is you’ve obviously got a lot of transaction experience and I’ve got a lot of experience, like I said I started from nothing so I was starting with small sites that were selling for a couple of dollars and a hundred dollars and $20,000, $300,000, a couple of million so, you’ve got a real range of transaction experience.
And, unless you’re brokering or doing this for a living, most people aren’t going to sell more than a couple of sites a year. So, that’s one thing you get straightaway. You can tap into an experience, of course a number of niches, different verticals, different platforms. And then, they’ll see brokers have buyers on their books. They’ve got buyers they’ve worked with before and there’s a couple of advantages that string off that.
You’ve then got the trust factor. So, this works on from the sell site and the buy site. So a buyer is generally more likely to trust the deal going through a broker especially if you’ve got a good reputation just because for me to take on a deal, I’m putting my reputation on the line and people know that brokers aren’t going to throw away their reputation over a deal.
And then, you’ve got safety as another element. I mean, you can learn about a lot of other ways to protect yourself using contracts and escrow.com but if you find that if you’ve never done it before, there are a lot of red flags that you could read about but, I might pick up instantly but, if you’ve never done it before you might not pick up on it straightaway. So, there might, be I don’t know, certain scams or certain things that people do to reverse engineer an information that I might pick up that you might not.
Another thing that is really important that people don’t think about especially on the higher end is the emotional attachment that entrepreneurs have to their businesses. It’s difficult being a broker because I spend a lot of my time saying no to people. I very much manage expectations so, a lot of people go try sell their business themselves but they’ll over value it, or they won’t let go, they won’t negotiate on certain points and end up losing a deal just because they’re emotionally attached. So, part of my job is to get the seller to have a realistic expectation.
I guess one of the last points on the list is time. Obviously, if you use a broker I’m going to get a prospectus prepared for every business that might be 20 pages and that takes time and that I’ve got a process in place to do that. If you’ve never done one before it might take you significantly longer and then, I’ve obviously got a process to get the business to market, to negotiate, to close a contract, to get escrow done so you’ve got all of that.
The advantages are very much subjective. It really depends on what you’re doing. I’ve got clients who have sold plenty of sites themselves and they might say, “Hey Thomas, I’ve got this site. It’s worth about 20,000 but I just don’t have time. Can you sell it for me?” So, that works.
One of the reasons why you wouldn’t hire a broker, if you think you’re going to sell sites regularly, then one of the things about hiring a broker is you’ll see, won’t learn the process yourself. You’ll get an indication but, if you hired me you wouldn’t see everything I’m doing so you’d miss out on a little bit of experience from there. It’s also a good skill to have if you know how to sell your own business then, you can repeat that over and over.
YARO: A lot of people would be sort of thinking there’s two sides. So you have to pay a broker 10 to 15 percent of your margin to hire someone to do it, which you’re paying for a service as I think the prospectus and the connections and negotiation skills and all that is highly valued.
The assumption here is that you then have two specific outcomes. You can get a higher price than I could and you can much more likely close the deal because you can go to more places, more buyers and have a better buying package so it’s just more likely that you’ll make the sale than I will. That’s really the main reason to use a broker, right?
THOMAS: That’s another way I’d pitch it, similar to hiring a good accountant. You’re going to save more money than you’re going to spend on the accountant and the same with hiring a good broker. You would expect them to get 10 to 15 percent in terms of a sale. It’s not that big so, you might have a site that you could sell for $200,000 which is also a lot of money but I might sell it for you for $250,000 and then if you pay me 10 percent, you are still $25,000 more you might have been. So yes, the main thing there is the value of it, I guess.
YARO: Okay now, I don’t want you to give away all your secrets, Thomas, but I will encourage you to do so. What do you do to help a site sell for more than the average person could get? Is there some way of packaging the site or a certain type of buyer you go for or you’re just a better negotiator? How does it get a higher price?
THOMAS: Well a lot of it is down to reputation. Like I said, people like using a broker for the safety side and the trust side and if a buyer and a seller trusts the process more then, they’re more likely to pay more.
The second thing is like I said, just the time and having a good process in place. If you buy a site through us or sell a site through us we prepare a prospectus, so that averages about 20 pages long about the business and I think from a buyer perspective, if you’ve got a 20-page prospectus it’s a lot better than a scam-y looking sales copy that someone’s written on Flippa and a couple of screenshots.
Having that form of process in place and having a reputation. But, obviously for the average person, that’s not necessarily saying you can replicate. But, I think the main thing is just being honest, trustworthy, having a reputation and like kind of sticking to your word, being transparent is so important.
Negotiating is important but, I mean something like I say to clients all the time and this is saying that a lot of people don’t think about is that brokering when selling your business isn’t necessarily about getting the highest price. It’s about getting the best deal. So, you might find, let’s say you had site that was valued at $50,000 and you might have one buyer who’s offered $50,000 and one who’s offered $45,000 and the buyer who’s offered $50,000 has never bought a business before. They don’t have it all in cash so they want to finance some elements of it.
Then, the $45,000 buyer has done a lot of deals before. They know the industry. They’re basically going to take the site off you and you’ll never going to hear from them again. So, in that respect, it can also be quite subjective so, that’s where I would advise clients where to take the best deals. So it’s not necessarily about negotiating the highest price. It’s about negotiating the deal that works.
YARO: I’ve sold a few sites and one particular sale comes to mind that I had a buyer that just sucked a lot of my time post-purchase. I’m thinking even with using a broker, you just got crossing your T’s and dotting your I’s done really well so, everything is tight. The contracts are better. You got systems and documentations in place and a person to communicate with who is like a negotiator.
It sounds to me they way you answered that question that there are no ninja techniques for getting a higher price or doing a better deal. It’s just being more professional about the whole process because that’s what you guys do month after month where I might be selling one site my entire life or maybe, once every two or three years or something like that. So, it just makes a lot of sense.
THOMAS: There’s definitely no special secrets. It’s not an easy process. It’s probably not quite as easy as it sounds. You got to have the experience but, I mean a lot of it is just about being honest with people, being transparent and just working out a deal that works for both parties.
I think a lot of people, we’re now going back to the not having the emotional attachment. One of the reasons is the type of brokers you’ve got are relatively in part a party, who wants to get a deal that’s going to work for both sides. So, for my site, I would like to see buyers who get a good deal and then, come back and I like to get sellers who get a good deal and then, come back.
So, it’s important for me for both sides to win. And then, it works best to work around, like you said. The worst thing you want especially if you’re a busy entrepreneur or you’re selling because you’re retiring or whatever, the last thing you want is a buyer who is going to be calling you at two in the morning for the next six months.
It’s very important to get all done honestly and if you do it honestly and properly and you haven’t lied about anything, you haven’t over sold it then, you’re just not going to have any hassle after the sale. It makes it a lot easier.
YARO: I’ve got two subjects I like to cover still with you. If we can get going more practical in the details, now you mentioned earlier, valuations is a bit of subjective tool. Could you tell me what you looked at in terms of the variables and even use in an example, I know you can’t mention names but, if the size of a site and traffic it had, how much money he was making and even if you can say what industry it was in and how you came to determine the value, just something to make this really tangible because it’s the biggest question, I think for everyone is, how much is my website worth?
THOMAS: Yes, I mean, it’s definitely the most common question I get asked and just looking at industry blog forms in general, it’s probably one of the most common questions out there.
Every broker has a different way of doing it and I don’t think there’s a right way of doing it. The old cliché is a business is who art forth someone’s willing to pay.
If you extrapolate that cliché, a lot of the way I value businesses now is based on the deals I’ve done so, [unclear] a lot of dates when multiple sites sell for and different variables and then, over time, I built up whether it be in my head or in a kind of document, different variables either increase or decrease a multiple.
I was discussing this with someone the other day actually and I said to them, what I do, assuming the site is established, the valuation model as go for sites below 20,000 probably doesn’t work quite as well just because you tend to get sites to go for, they might make $30 a month for and they’ll sell for a multiple of five years. Ignore sub-20K for the purpose of valuation.
What I’ll do is I’ll start a multiple of two years in net income or 24 months, whichever way you want to look at that. So, when I say net income, I’m talking after-cost, not necessarily after paying yourself but, after you’ve bought, if you’ve got stock, people stock after paying you, you serve your cause after paying your adwords, after paying your virtual assistants, after paying your SEO.
So, I take a base of two times in net income and that would be a very broad average for the industry and then, some variables that might increase that. So, a site that’s very hands-off and has a lot of history and when I say a lot of history, I’m talking about three years of stable preferably growing trading history. A business that is hands off, people in the industry likes to talk about passive businesses which don’t really exist. It’s kind of a bit of a myth.
Recently, I did a deal that sold for $700,000 and that site was making $350,000 a year. It sold for almost exactly two times in net income. One of the good things about that business is the owner didn’t really do any work in that. He had a full-time member of stuff who basically did that thing. She ran it. All he did was paid the adwords cost, check the sales, so he was very much hands off.
That was a business that could go around the two times multiple. That’s going back to the whole, “which deal do you accept?” So, it’s going without taking a cash over at $700,000 from a very experienced buyer. And, while I would look at that business because it’s quite hands off, had some history then, it might go above two times, it was established. That was a better offer and the guy wanted to move on.
And then, things that lower the multiple, there’s a lot in here.
YARO: Just to stop you before you go to that list, Thomas, I am curious because that sounds, that example, if 350 net so that’s 350 after taking out expenses or before taking out expenses to be clear?
THOMAS: Yes, after expenses.
YARO: Okay, so it’s three hundred grand in the bank at the end of the year or total for a year. And, he’s taking an offer up two times so, he could make that money just running the business, letting it run for two years, theoretically anyway assuming things continued as they were.
It sounds like almost like that’s an under-valuation because if you look at some of these .COM startups and things like that, if it’s a business making $350,000 a year in profit, it’s like getting it at ten times multiple often when people are raising venture capitalism or something like that. So, that would go for $3 million as opposed to $700,000. Of course, that’s for investing, not necessarily buying it but, it seems like a big difference there.
THOMAS: Yes, I’d say one of the things there I mean if you look at the kind things a VC would invest in, they would invest in a business that has potentially explosive growth and has the ability to scale massively.
This particular business had quite a few years of training on that level so, it was relatively likely that in the next year it would do the same number again. There was room for growth but, that was very much an unknown variable. Another thing was this guy is where he becomes very subjective so, a good deal for one person isn’t necessarily a good deal for someone else. This guy had another business elsewhere and he was looking to raise cash for it.
In the current economy, you’ll see [unclear] walking to a bank and borrow $700,000. So, a cash offer of $700,000 allowed him to invest elsewhere. And, if you got, his other business might be making four times as much profit in growing, could have been tripling in size every year. So, in that situation, it becomes a good deal but, if you’ve got a large portfolio of passive businesses then, it might not be the best deal you want.
So, you can’t always look at a deal in terms of the absolute [unclear]. You’ve really got to look at it context.
YARO: I can see that because it sounds to me like you got the buyer a great deal because he can just let it sit there and have that employer run it assuming nothing breaks down and they don’t quit on him or anything like that and he can make his money back in two years. He’ll be making three hundred grand a year after that so, that’s pretty good turnaround. And, for the seller, like you said, it’s a situational kind of condition. He wanted to get cash. He got cash in hand for another business right then and there. So, he didn’t have to wait, didn’t have to negotiate. It’s just situational.
THOMAS: Yes, it’s a win-win deal.
YARO: Yes, okay so you were saying there are lots of things that can be detrimental that reduces the value of a site and you were listing things out.
THOMAS: Yes, so this is where, especially as you get smaller businesses, I would say, for businesses that have less history, so anything with less than a year of history is highly unlikely to sell for a two times multiple.
So, anything below, the more you drop below two years, the lower the multiple goes. There isn’t really a mathematical formula but, you might say that if the site is a year old it, you go for a year of income.
One of the other things that would negatively affect valuation is traffic sources. In the last year, Google evolved. They had done a lot of shake ups, a lot of updates. So, you see a lot of sites that were previously doing really well, got hit by updates. So, if you’ve got a site that relies entirely on Google traffic especially if it’s a one particular keyword then, buyers will see that as quite a high risk so, the multiple would reduce.
Another thing is legal and trademark issues. You quite often get the means that have trademark issues. While most of the time trademark coders might ignore it and you can get away with it or, that’s still saying that increases risk so, multiples of that might be significantly lower than two times.
Businesses with a revenue source that’s seasonal, that’s saying that definitely reduces multiples. So, we’re looking at an e-commerce business at the moment that does literally 80% of sales in December.
While that could be quite consistent, it’s also very difficult for someone to spend a two times yearly multiple and don’t have to wait for December to make back most of their income.
So, a site that’s inconsistent, a site that’s dropping in income, that’s definitely saying that you’re going to lose your multiple a bit there. So, if you did, I don’t know, 100,000 in 2011, and then, you did 50,000 in 2012, and then, January 2013 is looking slow, then multiple will always that’s really a way to start getting rock bottom.
Yes, traffic source is one revenue source. So, if you’ve got a single product that might not necessarily have a very long life cycle. For example, if you look in the Internet marketing niche, you might have to put up in the life cycle and that might be literally a month. It might do really well to a hundred thousand in gross sales from JVs and affiliates and then, it would die down to almost nothing.
But then, you might have a site similar to the hobby training site that you mentioned earlier that Ian owned, that was a business where they had a recurring product. It’s an evergreen niche. The content never changes so that’s saying the bumps and multiple, I think, Ian got two and half times yearly for that.
YARO: What’s the biggest multiple you’ve got?
THOMAS: For a site that’s got enough size to be relevant, about three and a half and that was a forum. Forums tend to be popular and go for probably high multiples. Products that are recurring do really well. Anything where you’ve got people pay month after month, assuming the turn rates or the rate the people dropout isn’t too high and so they can go near the higher end.
So, the product is very important. If it’s an evergreen product like a hobby niche or something like gardening or garden sheds, the really boring niches tend to go for solid multiples. And then, the more erratic niches like Internet Marketing, Forex is another infamous one, you’re looking at a far lower multiple.
There are really lots and lots of variables that go in there but, I always start from the basic two times and then, add or subtract based on the variables that are in place.
You might have a business that’s got, it might be really passive, I might bump it up to two and a half times in my head but then, it might have an issue that’s quite seasonal so, I might bump it back down to two or you can have a business that’s really seasonal so, I might not get down to one and a half and then, it might have some potential trademark issues so, it might go down to one.
Again, I’m not particularly scientific with my valuations. A lot of it is just done on experience and past transactions but, I like to start with a base number that I would quote as a general valuation and then, go from there.
YARO: Okay, that’s a pretty good wrap up of valuation. So, if we are looking to sell a site and let’s not even talk about necessarily using a broker but, obviously, these are broker in techniques, how do you advise people nowadays to sell a site both with and without a broker like which sites do you recommend they go to?
I’d love to dig in to your prospectus a little bit too like what things you put in there. Just to clarify the question, would it be okay, I’ve decided to sell my site. I need to collect my data. I need to fill out prospectus, assuming you’re not using a broker and then, go and post a bunch of notices on a bunch of website and see if that works?
THOMAS: Yes. So, the first thing you need to do like what you pointed out is start getting your documentation together and this is, if anyone listening is planning to sell their business in the next six or twelve months, don’t think about it in the last minute. It’s a mistake that a lot of people make. They go and they sell always never thinking about selling so, they never bother tracking the income. If you’ve got a portfolio site, make sure you track the income and make sure it’s very transparent.
Same goes with traffic. Most people use Google Analytics. There’s a lot of conspiracy theories out there but, I still think it’s the better [unclear] outlet for traffic tracking.
I assume you’ve got a lot–
YARO: What do you have? What’s in the… Google analytics for traffic? You want…?
THOMAS: For verification, on your income verification so, if you’ve got a Clickbank product, you want to go in through a Clickbank account. If you got product sales by a merchant account, you want your merchant account statements. If you got product sales by Paypal, you got Paypal. If you’ve got a solid earn through Adsense then, you’ve got your Adsense income broken down by channels.
You want to get all your verifications together. I always say to people it’s a lot better to get more than you need so, there’s no such thing as too much detail when it comes to verification so, put as much as you can together.
Valuation, again that’s a difficult thing so, if you’re going for a broker, see the broker do the valuation for you. If you are selling it yourself, this is where it becomes quite difficult. So, you could use my valuation starting it two times. Two times is generally a good rule of thumb but, one thing you can do if you go into Flippa which is the biggest public marketplace out there for selling sites, and if you look at sites I’ve sold, I think they’ve got a tap code, “Just Sold,” or “Recently ended,” last time I checked. If you go in there, you can then filter. You then filter listings and find a listing that is as close as possible to your site and niche size income.
So, if you’ve got for example, you might have an e-commerce store that sells footballs. You would go into Flippa and you’d find, you would search football sites, and if you can’t find a site that sell footballs, find something close so, sporting goods. You can narrow it down by that, and then, you want to narrow it down by e-commerce. And then, once you’ve got a few deals with a bit of data, you can then, look at the multiples they’ve been selling for. So, you might find that there were two sites sold in that niche. One sold for two times and one sold for two and a half times the income.
You might then find that you can list it for two and a half. But, this is one thing that a lot of people advise and I think this is not very good advice that if you’re thinking about selling your business, that you can just list it at any price and see what people offer.
But, you’ll find that serious buyers will always be alienated if you just have really unrealistic pricing expectations. So, it’s not a good idea just to list something for ten times their income and hoping you get lucky because you’re just going to alienate people who really do normally. And, the people who actually will be interested are usually just time wasters or tire kickers or whatever you want to call them.
So, get your documentation together. Get a number that you think you can sell for based on what you’ve seen and also with what you’re comfortable with and if what you’re comfortable with is what is realistic is quite a long way apart then, you really need to reconsider. That kind of goes back to part of my job as a broker is a lot of my time is spent saying “no” to people, a lot of people say, “I want this amount,” and I’ll say well, it’s worth that. The difference would just be too much which is a no-go.
Get some realistic expectations. Prepare a prospectus which we can go into a little bit more detail later. So, an overview of the business traffic, income, what you do to run it, what you do to grow it, what it requires to maintain it, what you’re including in the sale is really important. Once you’ve done that, I would advise to most sites, if it’s worth less than $100,000, and assuming you don’t want to go to a broker, then Flippa is probably the best bet.
Flippa got a neat listing process actually that’s quite intuitive. You can go through the process. They’ve got a guide on there that I see, help them right and I think it walks you through the Flippa process and how to like prepare an auction properly. So, free downloads, have a look at that. It gives you best practices.
It’s important to be transparent but, not too transparent. The last thing you want to do is give all of your information away publicly. I like to qualify buyers before I give too much away. So, you might want to give them an overview of the income. Not necessarily want to email everyone about your bank statements.
It’s important to be transparent. Preparing the listing, Flippa got a lot of people who just write really strong sales copy. When I first started out, a lot of it would be how much can you hype up a $200 site. But, when you’re selling on the higher end, I’ve always found the sales copy becomes less effective. So, if you’re selling $100,000 dollar business, it’s highly unlikely that with some good sales copy, you’re going to sell it to an investor when they don’t really want to buy it in the first place.
Try out a listing. Be very clear say an overview of the business, what you do to run it, what you do to grow it, what you’re including in the sale, your income, and where the income comes from is what is important and if you’ve got a product, explain the suppliers. Of course, you don’t tell them the supplier but, say you might have a contract with a supplier and how that works.
Same for traffic. Traffic is saying that a lot of people are misleading with so, it’s not necessarily they lie about how much traffic they’re getting because they’ll see with Google Analytics. You can verify that. You can go to the account. The people underestimate how much time they spend. So, some people might spend 20 hours a week doing SEO, or link building. That is why I mentioned it so, it’s very important that you’re honest.
To be honest, if you’re not, you might get away with it but, in the long run, it’s going to catch up with you. Most people, especially experienced buyers, they’re going to see right through it. If they can see you’re building lots of links on a daily basis, then it’s going to be quite obvious, you’re not spending 20 minutes a week like they claim.
That’s another thing, how much time do you spend on the business that I would say is probably the most lied about question even from a broker file of someone, people always lie about it.
My rule of thumb in the house, again it’s not particularly scientific but, whatever amount someone says they take running a business, double that and assume not for more accurate. So, if they say five hours a week, assume ten hours a week.
If you are going to list how much time you spend on the business, if you break down the task, it’s a little bit more believable. So, if you say I spend five hours a week, you might say, I spend two hours responding to clients. I spend an hour looking for new clients and then, I spend two hours doing the books.
And then, from there, if you are using Flippa, just go over the process. I always set a buy now number which is the valuation you’ve come up with and if this stage, you want to make it a little bit higher. So, if you think it’s worth two times net income from the research you’ve done, maybe put on for two and a half times. And, while you don’t necessarily expect to get that higher number, I always like to list a little bit higher just so I got a little bit of room to negotiate. The worst thing you want to do is be listing it for $40,000 with $40,000 being the lowest you want to take because then, you just got no room to negotiate.
The other thing that a lot of people forget about and a lot of people buy courses on selling sites and then, they wonder why they haven’t sold is communication is so important. You need to answer questions promptly, honestly. If people want to talk on the phone, get on the phone. If you’re not so comfortable on the phone then, maybe speak to them on Skype or an instant messaging program or whatever.
But, communicate and answer questions honestly, which is very important. A lot of people completely forget about that. Some of them might post a comment and they might respond four days later. That doesn’t look good. While you might be a really busy person, obviously, a lot of people are busy. It’s really important. You really show your interest in making the sale.
That would be a general overview of how I would sell. Obviously, there’s a lot more to it than or I’d be [unclear].
YARO: Thank you for that. That was wonderful detail. One thing you didn’t mention though was outside of Flippa, where else can we go to sell them sites?
THOMAS: There are other marketplaces out there. I would say, to be honest, if you’ve got like a site like I said, under 100,000 then, Flippa is your best bet. I don’t even bother listing elsewhere just because there’s not as much exposure.
People complain about Flippa. Flippa does have shortcomings. It is quite expensive. You pay for premium listings for $250 and then, you pay 5% success fee up to $2000. So, it can be quite expensive. That’s why people always tend to search out, “Oh, you can list on Warrior Forum or Digital Point,” which is true and it might be cheaper but, your exposure to buyers is a lot lower.
Similar to what you were saying earlier about hiring a broker, you’d expect to make more by hiring a broker is the same way if you skimmed and go list your site on say, Digital Point for example which is a good example of a site with lots of traffic and lots of buyers but, the prices really are rock bottom.
You might think I have to save $250 or $29 depending on what options you choose on Flippa listing and Digital Point. But, your $10,000 site might sell for $5000. So, while you might have spent less upfront, you’ve actually end up losing quite a lot of money on the backend.
So, Flippa really is the most viable option. Depending on the size of your business there are also, some business marketplaces which are probably more widely used by brokers and it’s really more useful for businesses that are in the 6 or 7 or in the 8-figure range and that would be in sites like bizbuysell.com, bizquest. They got options to sell your larger sites but, beyond that, there are lots of Flippa clients, Flippa competitors, wannabe competitors. While I personally would love to see some competition in the industry, being perfectly honest and realistic, Flippa really is the best place to sell.
It is quite expensive but, if you are not willing to invest upfront, then you can’t really have high hopes yourself.
YARO: It’s a bit like eBay. Ebay has cornered the market and Flippa has cornered the market for website flipping. One question I do have though, would it make sense to, or is this a stupid idea, to guest list on Flippa but, why not copy and paste the listings on every other site you can find to increase your exposure assuming it doesn’t cost too much?
THOMAS: That used to be one of old tricks because I used to do that and then, you would list in those different places but, I think I’m not 1000% sure but, I think Flippa requires exclusivity. So, if you list on Flippa, you’re not allowed to list it elsewhere.
What you can do though is if you are looking on a forum and someone says, “Oh, I want to buy…” Let’s say, you’re selling my made up example of a site that sell footballs. When someone says, “Oh, I want to buy a site related to sports, here’s my budget.” Then, you can always just send him a message and say, “Oh, here’s a blessing on Flippa you might like.”
So, while you can, you’re not supposed to copy and paste a listing elsewhere and on forums, I did it to a point that don’t allow you to link elsewhere. There’s no reason why you can’t direct people to your Flippa listing.
YARO: In appropriate places really. You can’t just go and create a new thread and say, “Hey, check out my Flippa listing.”
THOMAS: Yes, I mean, we’ll see what it do. Selling a business or a website, whatever you want to call it, is all about trust. The last thing you want to do is be seen spamming your listing everywhere and while you might be getting more exposure and more traffic by listing, it’s not necessarily, it’s one thing getting traffic to a listing and there’s another thing getting qualified buyers to a listing.
So, someone could list a site and have 1000 different buyers looking at it, or I could list a site and maybe have a hundred buyers but, those hundred buyers might all be regular investors who know what they’re doing.
Those thousand people might be people who read an eBook on site flipping and they’ve got $50 in the bank. So, they might look at the site but, they are never actually going to buy it.
It’s good to get extra exposure.. You want to get the right exposure.
YARO: Okay, let’s say I’ve got a website worth about 50 grand. It’s above your 20 grand target but, below sort of 100,000 qualification to list on Flippa. So, you’re recommending to use Flippa for that sort of site. My site is worth 50. Should I go to a broker or should I just go fill out the process in Flippa?
THOMAS: One thing I would say, especially when it comes to a broker, is unlike Flippa, there’s no upfront cost. Although, a broker is able to offer exclusivity but, it’s a least worth chatting with a few brokers and seeing what they say.
You might find say if I gamble with my business, we’ve got quite a few buyers on the books who buy directly and I know exactly what they are looking for. So, you might come to me with a certain site and I’ll be say for example, I’d sell it, you came to be the other day with a coupon blog. It was like free coupons products and I know I’ve got a buyer who directly buy his coupon sites and I said to them, I actually sell this stuff for the regular buyer and I called on my buyer and they’d sell quickly within a couple of days.
So brokers, I mean, obviously, you’ve got to be able to look through the bullsh*t or whatever you want to call it.
Some brokers obviously, to get you on the perks, they’re going to overvalue your business. And, that’s where I would really, if someone validates your business above a multiple of say two and a half times net then, I would ask them for some proof of verification of deals that they’ve done on that level.
There are two types of brokers out. There’s one that will take on lots and lots of listings by overvaluing, getting you to sign the contracts and then, they’ll have a hundred sites listed. And then, there are brokers who do far few listings but, they are a lot more realistic with their valuations.
But, you can speak through a broker if you have $50,000 site. The worst that’s going to happen is you’re going to speak to me and I’m going to say, “Sorry, I’m not interested,” or ” Sorry, I didn’t think it’s worth $30,000 or, “I think this might take a bit of time to sell.” And then, you’re well within your rights to go elsewhere.
But, one thing to know with a broker, if you do work with a broker, any decent broker will offer exclusivity and exclusivity, all that means is that, let’s say, you want to sell a site through me, you’d sign off the [unclear] and exclusivity period is like [unclear] market a business for and get paid if it sells. So, obviously it’s more broker’s perspective. We don’t get paid anything upfront so, we only get paid if the business sells. So, the last thing I want to do is spend a week writing a prospectus for business, sending out to my buyers, and then, one of my clients listing the site on Flippa saying, “Oh, I’ve got an offer. Thanks so much for,” if I sold it.
That’s why brokers have exclusivity.
There is a bit of commitment there. With a broker, there is nothing to lose cost-wise. You will see a new payment for sales. They can’t force you to sell. I would say, with a broker, it’s worth definitely at least speaking to one because they’re going to an honest valuation of what it’s worth, [unclear] industry because I only get paid If I sell a business. There’s no incentive for me lying about what it’s worth.
YARO: What if you take on a client and listed on Flippa but, it doesn’t sell, do you absorb the Flippa fee or does the client, should they expect to have some cost?
THOMAS: We don’t use Flippa very often. I can give you an exact percentage of those that never make it 10% of deals.
But, if we do, we pay for those ourselves. So, if it doesn’t sell then, I would pay for that myself. I would, personally, if you’re looking at maybe a slightly smaller broker who is starting out, they’ll probably ask you for cost. But, I would always say ‘no’ to that, I would never, at the end of the day, if you’re approaching a broker, you’re not paying someone to list on Flipper. I might use Flippa as one of my sales places but, that’s my marketing cost. You’re paying me to sell your business. You’re not paying me to list your business.
Yes, brokers would, that’s the other reason you want for exclusivity as a broker. It’s an upfront cost in listing a business, marketing it, contacting people, etc.
YARO: Okay. Thomas, I think it’s a great time for us to say how to get in touch with you if they do want to ask you for an opinion on their site and starting a conversation with you about potentially using you as a broker. So, where should they go?
THOMAS: I think you mentioned earlier, our main website flippingenterprises.com. If you go there, you can see we’ve got a buyer list so, you can sign up if you’re interested to have a look. We have a listings page, which has all current listings and a lot of sold listings in there. I would say with that, get on the list because we sell a lot of sites and everyone gets listed. Like I said, we have buyers who buy regularly so, quite often, I’ll be able to match buyers and sell it before it even gets listed.
And then, we’ve got a form on there which you can fill out which is quite detailed. So, details about the site and there’s completely no obligation to fill out all either me or one of my teams so, probably [unclear] we’ll get back to you two questions and give you a valuation. If you want to email me directly, my email is Thomas@flippingenterprises.com.
So, if you go to the site, there’s a section for buyers. There’s a section of our listings. There’s a form you can fill out if you want to sell a business. There’s also a support email on there so, if you don’t remember my email Thomas@flippingenterprises.com, then you can fill out a general question. I’m busy but, I’m usually quite happy to answer questions.
If you said, you listened to this podcast then, I’m more than happy to answer questions. We [unclear] as soon as possible.
YARO: Okay, awesome. It’s been a bit of an epic interview. We really gone over an hour. So, I think it’s a good time to wrap it up, Thomas. Thank you for being as detailed as you have been.
It’s obviously a subject we could talk about for probably three or four hours because there’s information in the prospectus, there’s information on valuation, there’s information on doing the negotiation, the transfer, we didn’t even touch about actually transferring the website from one person to the other and how that happens or transferring the money from one person to the other and how that happens. So, there’s lots of layers to this and which sites to sell on. Go to you I guess, to get some access to those questions if you have a site.
We should probably preface this and say, you don’t want people who have got a website that’s making 100 bucks a month coming to you for brokerage advice. It’s just not really worth your time. So, 10,000 was your sort of lower limit and to figure out whether your site’s worth that, roughly $500 a month in profit is needed to value a site at $10,000, correct?
THOMAS: Absolutely right.
YARO: Okay. Thomas, thank you for taking time to do this. Got a great business going there, a great service and I can tell you really know what you’re talking about. So, I appreciate you sharing your knowledge with everyone listening in today. Thank you!
THOMAS: Thank you so much. I appreciate your time and hopefully, some people find that helpful.
YARO: I’m sure they will. Good luck, Thomas with everything you’re doing in the future.
THOMAS: Thank you so much! You too, have a good one.
YARO: Thank you for listening in to the Entrepreneur’s Journey Podcast. You know where to go to find all the other episodes. Just head to my blog, entrepreneurs-journey.com or Google my name which is YARO and I’ll catch you on another interview very soon. Thanks for listening. Good-bye.
About Yaro Starak
Yaro Starak is the author of the Blog Profits Blueprint, a report you can download instantly to learn how to make $10,000 a month, from only blogging 2 hours per day. You can find Yaro on Facebook, Twitter and Google+.
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