For Sale, $150K/yr. Asking Price?

January 18, 2007 9:13 AM

How to find a good web/mail host for 100+ websites all at once, and how to $value those fees?

One of my three jobs (see other thread on learning how to say "no" better) is consulting for a web-development firm. I do QA and some software design.

They've recently decided to get out of the web and mail hosting and support (maintenance) business (too cutthroat) so they can focus on technology instead, which has always been the bigger part of their work. My napkin-guessing says the hosting contracts are currently producing $100-200K per year. Not a lot, but too much to just throw away, too.

Though it's a bit out of my comfort zone, I've been asked my opinion on (1) how to nicely hand their 100 or so clients off to another firm, (2) how to find and choose such a firm for such an odd situation, and (3) what a fair rate would be for "selling" such clients.

They're very concerned about quality of service and maintaining good feelings so the clients do not feel dumped... which is probably why they've stayed in the business this long even though it's non-core for them. I know that some other people in-house are business-casing a "spinoff" of the hosting business to remove it from the overall firm, but that's another track.

I suspect the answer to (3) is "a year's worth of fees or so", but I know there are a lot of web folks here, so I'll take input/steering on that part, too. What would you pay to "inherit" a $100/month customer? Or a dozen? Or a hundred?

As for the first two parts, I barely know where to begin.

(If there are hosting people here who want to offer themselves, my e-mail is in my profile, and I won't mind. I'm gathering options.)

posted by rokusan to computers & internet (6 comments total)

How stable are your current hosting customers? If you've had the same customer base for a number of years with very little churn, then you might be able to get a premium when selling the business to someone else. A premium over what, I don't know, but it probably wouldn't be much more than the value of annual revenue (I'd guess).

Another alternative is to get a reseller arrangement with a managed hosting firm who can also take over first tier support for you, effectively outsourcing the whole operation, except perhaps billing. You'd be able to take advantage of the cuthroat pricing in the hosting industry, while retaining a recurring revenue source. Who knows, you might even end up making more money off the line of business given the economies of scale and thin margins in commodity e-mail and web hosting.
posted by Good Brain at 9:26 AM on January 18, 2007

Good add'l option, Brain, thanks.

I believe most of the customers are very stable, 5-10yr types. It's always been a boutique, not a mass-market service.
posted by rokusan at 9:29 AM on January 18, 2007

The value is typically a multiple of revenues, often around 5x, so if it makes 50k profit a year then 250k would be reasonable.
posted by zeoslap at 9:46 AM on January 18, 2007

The reseller option is a really good one. Westhost.com are worth looking at.
posted by unSane at 12:06 PM on January 18, 2007

When I was starting up a business and we examined the possibility of funding the metric we were told for the sale price of a service business was 2 to 3 times the annual revenue - notably lower than zeo's number.

As I said, this was second-hand info so I'm not selling it as necessarily more reasonable than zeoslap's. HOWEVER, if I was looking into buying a customer base like this I would not pay an amount where I was up-front handing over an amount such that it would be year 6 before I was break-even, much less profitable. Certainly I would be looking for assurance that the majority of folk would still be there at my break-even point.

I think only Brain's concept gives you a good potential to actually have these people continue to be earners. Else I think you're going to have to find a sales arrangement that's more like 1 to 1/2 the annual revenue payout or one that provides for continuing payouts for a set limited duration where they are retained.
posted by phearlez at 2:41 PM on January 18, 2007

The issue that jumps out at me is that this is a rare enough situation (on this scale) that you may not have a good way to predict what percentage of the customers are going to stick with the new firm once the switch happens -- no matter how well they're treated. I hope you & the new firm discuss providing premiums for the customers, maybe along the lines of a free month (nothing too big, since that could set off alarm bells in their minds as much as a switch with no premiums could...).
posted by allterrainbrain at 11:47 PM on January 22, 2007