This is a guest post from FE International, a professional website broker that provides M&A advisory services for mid-market -commerce, SaaS and content businesses. This post outlines the five factors that affect the value of an affiliate business from their advisory standpoint.
Affiliate marketing as a business model has now been established for over 20 years. It’s one of the primary ways industry leaders such as Amazon, eBay, and TripAdvisor, drive traffic to their sites. In return for funneling a customer to an e-commerce site, such as Amazon, the affiliate site is paid a commission on a resulting customer purchase. If you are one of several million affiliate site owners around the world, you may be earning a decent income–but how do you increase the sale value of your business?
Aside from the obvious benefits of growing your revenue, increasing the overall value of your affiliate business will help attract potential buyers. At FE International, we can help you take the steps necessary to make your business saleable, provide you with an accurate valuation, and connect you with the right buyers so you can successfully sell your business for its full value.
With over 500 completed deals totalling in the hundreds of millions value wise, we have developed a unique understanding of what buyers look for in affiliate businesses. Buyers are looking for low-risk, sustainable affiliate businesses with a reliable source of income. Below, we provide you with the necessary steps to help optimize your business and turn it into an appealing and valuable business for buyers.
Five Factors That Affect the Value of an Affiliate Business
When growing your business, it pays to consider the factors that make it sellable. With this in mind, we have put together the five main points buyers look for in an affiliate business:
1) Trackable Data
Track your data–from revenue and expenses, to SEO, to traffic. Measure and record any metric that you can. It is critical to be able to show concrete facts and figures to any potential buyer, ideally dating back to day one. Google Analytics and Clicky are useful tools to review and measure website traffic, click-through rates, and conversions.
For more in-depth analysis, SEMrush is a toolkit that offers detailed information on SEO, keyword performance, and backlinks. A site that scores highly on these elements will perform better in Google search rankings, which in turn leads to more traffic, and more sales. SEMrush also allows you to compare your site’s performance with that of your competitors, which can help clue you into which keywords you might need to focus on targeting.
Accurate financial accounting is a key ingredient in the success of any business. QuickBooks is an easy-to-use, professional and paperless accounting app for entrepreneurs and small businesses. It helps you smoothly process expenses, save receipts, and track the day-to-day finances of your business.
It’s critically important to record your expenses, since at minimum, it’s required for tax reporting reasons. But many young businesses tend to overlook the importance of tracking sources of revenue. Where do you get your customers and traffic from? Without this vital information, an accurate valuation of your business is impossible. This will greatly discourage potential buyers. Maybe you’re not planning on selling your business in the short-term, but you should always keep that door open by being as regimented as possible with documentation. Besides, as a bonus, taking these steps will very likely help make your business more successful.
2) Age
Potential buyers need to be able to measure the performance of a business over a period of time, so one year is (typically) considered the minimum entry point. This gives a potential buyer enough historical data to accurately evaluate whether a business is generating consistent revenue, has a high conversion rate, and a high volume of web traffic. Businesses that are three years or older begin to generate premium multiples.
The Wirecutter, an affiliate site founded in 2011, sold five years later to the New York Times for $30m.
Younger businesses can still be saleable, but you tend to be restricted to a smaller market of highly risk-tolerant investors. You simply don’t have a proven track record yet. A record of revenues over a longer period will play a key part in calculating the sustainability of your business and its projected growth.
These are not hard-and-fast rules, and there are certainly exceptions. The importance of age can be influenced by the niche or niches your business operates in. A relatively young niche, offering trendy products like hoverboards or fidget spinners, is not as reliable as an evergreen niche. We’ll discuss this more later on.
3) Limited Owner Involvement
For most buyers, the ideal business is one that requires little time to run (i.e. five to ten hours a week). This means that ideally, there is already a team in place to take care of the day-to-day work. The best way to bring your team up to this operational level is by taking the following steps:
- Outsource: Finding freelancers or specialists who can enhance your business can be a difficult undertaking, but sites like Upwork or Freelance provide access to hundreds of thousands of potential candidates from around the world. Outsourcing creates what is called a passivity premium which can increase the multiple.
- Mentoring and Training: To get the most out of your team, ensure they understand your expectations and your vision for the business. This may requires considerable time and effort in explaining the company values and tangible goals, especially in the beginning, but long-term it will insure the continued growth of your company in the right direction.
- Automate Your Processes: We mentioned QuickBooks as a great tool for automating your accounting processes. There’s a plethora of productivity apps to streamline the many other aspects of your business. Contentools is a platform that helps to manage, organize, and distribute your content. Confluence is a project management app that makes collaboration seamless, automates work flows, and maximizes the productivity of your business. Your overarching goal should be to make sure all your processes are as efficient and effective as possible, so that your business runs like clockwork.
4) Timing Is Everything
One rule of thumb is to wait at least one year before attempting to sell your affiliate business. Buyers will generally require one year of data at a minimum to assess the health and potential of a business. But it is also important to sell while your business shows potential for growth.
Selling your business while it’s on the upswing can be difficult to do for emotional reasons, but timing is everything when it comes to achieving the highest sale price for your business.
Are you still motivated to grow your company? Or are you rather anxious to sink your teeth into new challenges? If you find yourself leaning towards the latter, it may be time to consider a profitable exit. Most affiliate sites have room for additional growth with devoted management in place. But if you can no longer give 100%, it’s unlikely you be able to grow your business to its full potential.
Take emotion out of the equation. Think ahead to what you want to accomplish in the next few years, and then decide what is ultimately the best course for you and your business.
5) Niche
Buyers place a significant level of importance on the niche an affiliate site is in. There are countless niches within Amazon, with varying degrees of competition, popularity and revenue.
- Product trends: Buyers look for evergreen niches such as health-care or home furnishings. These are products consumers will always need, which helps ensure a secure, long-term revenue stream.
- Seasonality: Seasonality impacts those products whose sales fluctuate widely based on time of year. Ski-wear or Christmas decorations are two obvious examples. Some affiliate businesses are also highly dependent on specific high-impact e-commerce events like Amazon Prime Day, Black Friday and Christmas. If your niche is seasonal, the buyer will want to see annualized revenue. For example, if you are selling air conditioning units, you may make $20,000 per month in June-August but only $10,000 per month during the rest of the year. In such a case, your annualized monthly revenue would be calculated as $12,500.
- Competition: Buyers will be keen to assess the competition in your niche. Competition isn’t inherently a negative thing. It indicates a healthy demand for your product. But buyers may be discouraged by an oversaturated market since this makes it harder to rank for niche-specific keywords.
- How many niches?: It’s reassuring to buyers if you are promoting a diverse range of products across more than one niche. Buyers like to know that if demand for one or two SKUs drops, you have built-in alternative revenue streams to make up any loss.
- Commission: Amazon recently changed their commission structure from a tiered system, to a category model. This had a dramatic effect on many niches. Video games, for example, now only receive a 1% commission, no matter how many you sell.
Conclusion
At FE International, we have acted in an advisory capacity on the sale of dozens of successful affiliate businesses. These are the characteristics the ones which sell quickly and for a significant amount share:
- Break Out Of Your Bubble: Align yourself with other sites. Produce Youtube videos relating to relevant products to drive more traffic to your site. Fill your site with authoritative content and reviews. Be innovative in boosting traffic and building authority. These practices will ultimately boost your rankings, profits and the value of your business.
- Boost Conversion Rates: The hottest leads for sales conversion are the people already visiting your site. Hubspot is a good resource for learning marketing basics that will help you capitalize on the traffic you already have. Here, they share ten psychological techniques for converting visitors into buyers.
- One-Click to Amazon: Make it as easy as possible for the visitor to click-to-buy the desired product on Amazon. Create clear CTAs on your site with links to the specific product.
- Take Your Market Global: You’re most likely aware that Amazon has different sites for different countries. Why limit yourself to just one market? Target customers worldwide. Geni.us makes it easy to build a business without borders.
Here’s a checklist of questions we have created to help you determine the value of your affiliate business. Use this as a roadmap for building a successful, saleable business.
If you meet these requirements, your Amazon affiliate business will be marketable to potential buyers. In order to come up with a formal valuation and final stage plan for selling your business, you should always use industry-leading advisors.
95% of websites sell within 60 days of listing with FE International–the best stat in the industry. We have a database of 20,000+ vetted buyers ready to buy the business that’s right for them. We are here to guide you through the process and achieve the best possible outcome for you and your business.
Get in touch if you would like a confidential and professional valuation.