Valuation for SaaS product
My company has an online software as a service product that is subscription based (yearly) and when first launched, 3-years ago, has been more than doubling in revenue each year (in 2009, $2K, and in 2010, 5.9K). Expenses are low - really only hosting fees, which is about $600/year and advertising maybe another $500. This year I'm on track to make about 10K. Customer retention is pretty high, since the software stores the customer's data (I would estimate about 80% retention). Support is minimal and done part-time by me.
I'm interested in selling the product, which would include current customers. How would you value the product for sale? One might ask, why am I selling it? Well, I work full-time, and as my customer base grows, I may need to spend more time and effort catering to them. Are there licensing options where I wouldn't have support obligations but get royalty? What would you ask for the royalty?
1 Answer
Let's assume I am an investor. I couldn't even begin to guess how much to pay for your product because I don't know what it does. Furthermore, while you have had steady growth - it's easier to grow sales from 5k to 10k than from 5 mil to 10 mil.
Also, depending on the product/industry focus - a single change could wipe out the product. I would assume some serious potential problems. How much are you charging each customer? What levels are available? How many customers are you gaining each month? Have you experimented with pricing?
There is a lot of information that people would need to develop a proposal. Furthermore, I wouldn't want to pay you a royalty on a product this size without having you participate in a support mechanism. Its not uncommon for founders of products to be retained after a sale for 12-24 months in a support/consultant capacity because the particulars of every company are different.
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Chris, good points. Here are some additional details. I'm charging my customers for 3 plans $400, $600 and $800 per year. I'm acquiring ~2 customers/month, with 8 out of 10 picking the $400 plan. I really don't market the business except for SEM, since I work full-time, so these are "minimum" numbers. The product is VERY niche, and clients span multiple industries, worldwide (schools, hospitality, city authorities, transportation, etc..) Any additional thoughts? How would one first go about valuation? I've heard 3Xs current revenues. – Phil 13 years ago
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One more comment, the application essentially does records management... – Phil 13 years ago
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Honest answer... Let's pretend its you buying my company. Does it not smell a little fishy? Wouldn't you say, well if he isn't trying very hard and he's making 2 sales a week... why hasn't he tried harder? Why hasn't he busted his ass to pick up 1000 customers paying $400 a month? 1,000 customer business would be easier to sell. Unless I laid eyes on the product - I would not buy it for 3x earnings. There are too many web products to be had. I think you might do well posting it on https://flippa.com/ and seeing what their readers say. Or contact me privately. – Chris Kluis 13 years ago
