How Much Can I Sell My SaaS Product Currently Earning Me $2,000/month?


8

I have a web service targeted at web designers that currently earns about $2,000 per month in revenue. It is a SaaS business and my customers have been with me for years and we are growing (albeit slowly) and adding new customers with little to no marketing efforts.

My expenses are about $120/month for hosting fees and the support is minimal, 1-2 hours per week if that. It's a mature, rock-solid product that needs somebody to take it to the next level and market it. I have built this software up over the last 4 years and am ready to pursue other things. It is a good business for somebody to purchase and grow it.

My question is: How do I price my product for sale and how much is this worth? I have heard taking your monthly revenue and multiply by 36 months (3 years) which puts me in the ball park of 72k.

Saas Revenue Selling Business Sell

asked Feb 18 '12 at 15:20
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Anonymous
43 points

7 Answers


10

You say that it's a good business for someone to purchase and grow, yet, you have not substantially grown it yourself. This will be a huge alarm bell to any potential purchaser. After all, if it's "that easy" to grow it, you would have done so already.

If you really want to sell it and get a good price for it, I would recommend that you start marketing it (either via your own, or someone else's efforts) and when you can show month on month growth, you'll be in a far better place to negotiate a good sale.

answered Feb 18 '12 at 23:30
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Nick Stevens
4,436 points
  • +1 Good point on the growth aspect. The ultimate price of this will depend on it's growth potential not it's free cash flow. If it's just free cash flow, then it would probably be 1x revenue but it really depends on the market. – Jarie Bolander 8 years ago

5

Not sure I agree with @nick 100%... maybe, but not entirely. Oftentimes programmers or folks with amazing technical skills create a product and don't really know how to market it. In fact, it's impressive that you have any profit at all. Many startup struggle to get their first dollar, but it would help to know more before making a judgement.

In any case, these answers should not be distracted so much by your revenue having this little knowledge about your business. That strikes me as misdirected. In your case, based on your post, it's far more important:

1) how many customers you have. You imply that you easily acquire customers, in the plural, and so I can only assume that you have more than 1.

2) What is your rate of acquiring new customers vs. churn? So how often do you gain vs. lose customers over a given period of time. People want to know that it's not just friends and family using your product out of goodwill. They also want to see that the number has increased over time and not peaked. As long as you acquire customers faster than losing them, your good.

3) It might take "little to no marketing efforts", but it always costs something to acquire and maintain a customer. What is the avg. cost of acquisition? and what does a customer cost to maintain on a monthly basis?

4) What is your revenue model? Do you have free users as well? What is the cost of maintaining them? Does the cost differ from that of paying users? If you have 5 paying customers that drive $2k a month in profit 5) How do you typically acquire the customers you mention? Word of mouth? Referrals? A phone call? Virally? Search marketing? This is important because a potential acquirer may have the means, knowledge, and people to do any one of these things better than you. For example, I might look at your model and see that you have no idea how to work a progression funnel or run multivariate tests to increase conversion rates. Much of which can be automated inexpensively.

6) what is the niche/market/vertical/target customers? This will tell us something about total potential opportunity, and it might also hit to ways of attracting potential acquirers who know that market (or prospects in that market) much better than you.

It's impossible to say without knowing more, but acquirers often look for upside in deals like this where the founder had the skills to get an idea off the ground, but have no idea how to scale it. So humility is important here. The $2k/mo. alone is inconsequential and does not make an opportunity like this attractive.

What looks good is when a business is scalable and has any traction at all in the marketplace. Besides, not every "acquirer" is a big company or a VC firm, sometimes other entrepreneurs look for ideas like this as side projects for the same reasons that people flip houses.

So my recommendation is that you find a business partner who can scale up the business as another commenter suggested, or start working on a business plan that addresses the questions above as a starting point. No one will seek you out with that kind of revenue, so you need to have a compelling story to tell, and you need to have something that looks like a diamond in the rough.

answered Mar 16 '12 at 18:48
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Jonschlinkert
372 points

3

A very popular site to sell existing websites is https://flippa.com/ if you look at their Just Sold section and sort by price you'll see websites which sold for over a million dollars. Your best bet is to find similar websites see what they sold for. If non exist find websites generating similar revenue, see what proof was given such as verified Analytics logs, Financials etc for past few months. It's your web site you can list it for what you want 2x, 3x, whatever. But if you're site is making $1,880 after expenses you should consider spending another hundred bucks for someone to manage the support. I'm sure your server fees are on auto pay so why sell when you can pay someone to manage the site and you sit and collect another grand + each month?

answered Feb 19 '12 at 12:48
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Anagio
293 points

2

A more realistic multiplier for yearly revenue is x1, but that is IF you find a buyer who is interested in buying your business. While profit margins matter, revenue matters more at least on the big scale, see this article http://www.princetoncapitalllc.com/Selling-a-Business-for-Sale-Articles/Revenue-vs-ebitda.php It's possible to get a multiplier of x2 or x3 from VCs based on future revenue potential of a quickly growing business (in good size market), but your business is too small for any VCs to be interested. I agree with Nick Stevens that showing a steady growth over time will be your best argument for pricing your business as that's the only proof of potential.

Some additional considerations:
1. Is your product/idea easy to replicate? If it is, it's possible to relax too much and start loosing all future customers to competition and fight against flat or declining revenue. This is especially true for web sites with high sensitivity to search engine rankings (neglect on SEO that results in a rank drop will take months to repair).
2. Are you in a niche market? If yes, how far can you grow your customer base before you max out and/or have to expand your product to interest more customers?
3. Is your product easy to own/maintain for someone without your skills and experience?

Others have suggested to just hire someone for the minimal work there is and collect cash, but if you want to sell because you need capital for some other venture closer to your heart consider selling part of a business. Since prospective partner will be taking on less risk with you around you might get better price per share than if you would selling 100% of it and if things go well the partner might consider buying you out eventually.

Good Luck!

answered Feb 20 '12 at 12:08
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Webbie
2,835 points

2

I suggest you do not sell it. Instead, find a partner and/or employ freelancers and be in a passive role if timd is your constraint.

answered Feb 18 '12 at 19:45
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Curious
21 points

0

Three times revenue is very high for the current climate. Maybe one times would be more realistic. It depends on the precise nature of the business, competition, scope for expansion, etc.

answered Feb 19 '12 at 01:47
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Steve Jones
3,239 points

-2

Your number sounds about right. I guess all depends if you can convince potential buyers that by putting some effort on it they can considerably grow the business

answered Feb 18 '12 at 22:51
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Jordi Cabot
243 points
  • 3x revenue seems way too high in the current environment, although it is hard to know without details – Steve Jones 8 years ago

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