tech-company, founderHow do you go about evaluating a sale price for an online subscription based SAAS business?
I’m not looking to sell right now, as my on-line company is only making about $600/month, but as it grows, I want to have an exit strategy in a few years. And a good plan to maximize that final sale price.
Disregarding any property (patents, servers etc.) the price is usually based on the annual sales times a factor that is industry dependent. Factors that will influence this price are, but not limited to: growth potential, quality of the team that works for you. You are, as stated in the question, still alone. So you do not really have a business yet, but would be selling yourself and your product.
This essentially boils down to a business valuation problem, which is dependent on a lot of different factors. Take a look at the Wikipedia page, it lists a lot of methods that can be used.
For an exit, you will need something to sell other than the product itself (employees, support staff). This package is worth way more than just the product. You have built a business if you can go on vacation for a couple of months and the company will still run fine.
First off, keep in mind that selling a business isn’t much different from selling a product:
In theory, the price is the highest figure you come up with, that you’ll get away with without laughing out loud stating it.
More practically for a good sales, the price is actually closer to the highest figure you can come up with, that will not make the prospect show you the door laughing out loud.
And in practice for most people (particular CEOs, which as any good sales knows are amongst the worst companions to have on your side when pitching a prospect), the price is whatever the person in front of you will be willing to pay for it.
Secondly, also keep in mind that selling a business actually means selling a business: if it depends on you being around in a way or another, it means you’re still at a stage where you’re selling yourself with a large markup. (As a proxy, try to take a month or two off. If the business can survive without you, then congrats – you’ve built an actual business. If it couldn’t, well… you still need to delegate more work.)
With all that said… you can and will find plenty of quick and dirty, occasionally colorful, and not necessary accurate proxies of what your business is worth. Just take some time to research valuation methods. (That’s the search term you’re looking for, btw.) Be wary, when you read them, that these proxies are not identical when discussing startups, corporate branches, LBOs, and what have you.
None of these methods will explain the mind-bogglingly high valuations that, say, a YouTube or an Uber might get. Which means there’s really no magic recipe to determine the price of your business.
This brings us back to basic and boring but oh so practical sales techniques: what counts in the end is how you plan for your exit strategy, in the sense that you want to articulate the value you can bring to a potential buyer.
Uber, as an example, is raising funds at obscene valuation levels. They have very little to do with being the main driver-for-hire app or with its current revenue or profitability. It probably does have to do with their being in a position, at some point in the future, to storm the logistics market and turn it upside down overnight when they do.
That, in essence, is the kind of angle you should be shooting for. Just as if it were a product you’re selling to a client, you want to position and pitch your company in such a way that a prospective buyer will not only bash your door down waving a checkbook at you, but also worry about whether they can afford buying it. The way to do so is to highlight value and potential future value – a good return for the buck, if you will. That is how you’ll maximize your business’ sales price. (And the price of what it sells.)
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