I know we're all seen this kind of thread around, asking just how much a hosting company is worth. But what really is the standard?

The first hosting company I sold went for over 12 months revenue, a year ago. It was a host I bought from some kids that was heavily oversold, but still didn't require much support. Has the standard changed any since then?

Example:

A host with $23,500 annual revenue, $14,500 annual expenses getting 5+ signups a month, roughly 3 tickets a day... what would that really be worth?
Does the value change if they have less expenses? Or only a few more daily tickets?

Is it really numbers and figures that make up the value of a company?

Everyone's incite and feedback is welcomed.

Note: I'm not selling a company, rather just researching if our "selling standards" are correct or changing.

I usually aim for 10 to 12 months profit, not gross. And I push that up or down if they are heavily oversold or not. When I sold I aimed for a year's profit on those same standards.

Industry/financial markets rule of thumb for value is 83% of yearly income if the company is fully operational. Adjusted up/down based on asset values and accounts payable. We're talking the business alone, not real estate holdings, the owners leased BMW, etc. I'm in the middle of dealing with buying one now and everything they say about lawyers is true :-) The best computer in three racks of gear is a twin proc P3 866 w/1gb mem and 2x36gb and gets worse from there :-(

And they still had loyal customers!

-Roger

A host with $23,500 annual revenue, $14,500 annual expenses getting 5+ signups a month, roughly 3 tickets a day... what would that really be worth?
Would you seriously buy that? Couldn't you start something from scratch and do better than that in a few months?

<snippedThe best computer in three racks of gear is a twin proc P3 866 w/1gb mem and 2x36gb and gets worse from there :-(

And they still had loyal customers!

-Roger

Don't cut those p3's short. Dual p3 866 with 1gb and dual SCSI (assuming SCSI because of the 36gb) is not a bad machine at all. My father doesn't pull his race car with a Semi because a simple pickup truck will do the job just fine.

It's worth as much as someone is willing to pay, everyone will calulate how much to pay differently as everyone has different ways of seeing how they can re-coup their investment.

Would you seriously buy that? Couldn't you start something from scratch and do better than that in a few months?

Starting a new company from the ground up isn't as easy was it was a year or so back. Too many kiddie host trying to make a quick buck. If they are loyal customers, it might be worth it.

The point of this thread is weather or not our standards have changed. Have they changed because of all the kiddie host? And why does an ecommerce/online business sell for less than a brick and mortor business?

What are standard factors that play key roles in your decision when buying a business or clientele?

What are standard factors that play key roles in your decision when buying a business or clientele? 1. Brand. 2. RPU (this is driven by your acquisition model). 3.Referral base- (% of overall base referring). 4. Historic (at least 3 years) churn and referral contribution rates. Your example, falls into kiddy host category; as DP pointed out, after post acquisition /integration churn (typically 20 -30%) and with 5 signups a month to replace them, it isn't even worth consideration. Intangible assets and valuation would be recognizable with a real company with executive management, a self -sustaining customer base , datacenters and market share. No, kiddy hosts and resellers have not changed the market; they just make the valuations for real companies, which when all is said and done are a variable of a revenue multiplier (between as low as .5 and as high as 1.8) all the easier to divine.

Industry/financial markets rule of thumb for value is 83% of yearly income if the company is fully operational. Adjusted up/down based on asset values and accounts payable. We're talking the business alone, not real estate holdings, the owners leased BMW, etc. I'm in the middle of dealing with buying one now and everything they say about lawyers is true :-) The best computer in three racks of gear is a twin proc P3 866 w/1gb mem and 2x36gb and gets worse from there :-(

And they still had loyal customers!

-Roger

83%? What source provided that number? Customer base, reputation, in income are all important factors. I just closed a deal with a very large company. I found using common since was more cost effective than using the lawyer. My counsel did review the final paperwork just to make sure everything was in order. When I received my bill from the attorney, I looked at what he did and what I did and asked the firm to modify (discount my costs) - they agreed! :-) Do not look at just the yearly revenue... Are they stagnat, how much investment (time and money) to un-stagnat what is there growth or decline and so on.

Starting a new company from the ground up isn't as easy was it was a year or so back.
I'd agree with that. Things have changed a lot since the 2001 days, when I started HTTPme. The customer is definently getting a LOT more bang for their hosting buck these days. :erm:

It's worth as much as someone is willing to pay, everyone will calulate how much to pay differently as everyone has different ways of seeing how they can re-coup their investment.


Yep that is from the buyer point of view but a seller has a always a price in his mind before going to sell it in market place later he check only who is offering him higher price or search a comfort zone for negotiation. :)

Based on previous purchases of ours, we look at the quality of the offering, the price range of plans and the amount and churn of customers. For a good business we'd consider paying up to 12 months net profits.

From a financial point of view, the net profit is the thing we are interested in. For hosting a company with $23.5k income and $14.5k expenses (unless you are one of the few that are including wages here) doesn't seem that profitable and I would think there are a lot of customers here that average out at low cost per plan.

That business shows a net profit of $9k for $23.5k income which isn't great for this industry. Out of that $9k (approx £5000) we'd be having to pay wages and business costs to support those clients.

Every business would be different and an assessment would be based on the business being bought, together with the purchasers own business and costs. In many cases you may be able to take a business like our $9k profit example and increase profits if you have access to lower costs for things like servers and domains etc. You will also be able to absorb some support costs as you will already have staff dealing with that for your own business.

Would you seriously buy that? Couldn't you start something from scratch and do better than that in a few months?

I would buy it. It's cheaper than starting a new business plus the fact that a company like this would have a substantial amount of clients means that you'll be getting money even if you can't make your host better than it is now. As long as you keep up the current standard you'll get paid. Alot less to worry about.

I would buy it. It's cheaper than starting a new business plus the fact that a company like this would have a substantial amount of clients means that you'll be getting money even if you can't make your host better than it is now. As long as you keep up the current standard you'll get paid. A lot less to worry about.
Definitely agree. This is the point of purchasing other companies if their business models and prices fit with your own.

Too many people think that it is easy to start a hosting company and make money. This is probably true for hobby hosts who are only looking for pocket money type incomes. They can buy a cheap server or reseller and charge low fees to promote volume signups. Since they aren't looking for the the same level of income that a full-time 25year old plus might need, to sustain a mortgage and family, then it works at the time.

For real long term business and wages you need to have a realistic business model and income stream. When I was 16 I was earning £100 a week, which was a lot for someone my age. Most people were on the UK YTS scheme and getting paid £35 a week for a full-time (40 hour per week) job. My earnings and expectations now are much much higher and I have a family to support so a business built on needing £35 a week would have quickly gone bust as I needed more income.

We recently bought a company for approx 1 years net profit and, with the correct financing, returns an immediate profit to us rather than waiting 12 months to recoup our costs.

Buying that business, it's existing customers, and future custom via new signups, was way less expensive than any advertising and promotions we would do to gain the same level of new income.

For a new business with proper start-up capital then buying an existing established business is definitely cheaper than building up. If you finance the purchase you can bring in an immediate profit, whilst the new business pays for itself via the financing, which just becomes another cost over 3 or 5 years until it's paid. Always better to use the banks money to run a self financing purchase. If you agree the correct finance terms then you can always pay it off early if you have the spare capital in your business.

For a new business with proper start-up capital then buying an existing established business is definitely cheaper than building up. If you finance the purchase you can bring in an immediate profit, whilst the new business pays for itself via the financing, which just becomes another cost over 3 or 5 years until it's paid. Always better to use the banks money to run a self financing purchase. If you agree the correct finance terms then you can always pay it off early if you have the spare capital in your business.

Oh absolutely. Elimination of start-up costs means you can put in your initial investment budget where it really counts, expansion and advertisement. Depending on how much money and time you have to spend on starting-up you can invest upwards of $5,000 at a single time. Imagine what you can do with that money once you acquire a company which already has an image, and some sort of popularity or at least attention in the hosting industry.

. . . We recently bought a company for approx 1 years net profit . . .
That's cheap, imo.

When you say nett profit, do you mean pre-tax profit, or gross profit?

How did you calculate the nett profit? It would naturally be different once you you took ownership, as you'd more than likely operate that business under a different set of costs, albeit some would remain the same.
. . . If you finance the purchase you can bring in an immediate profit . . .
Agreed. Although banks would probably seek additional security over such financing. Probably real estate, as they're dubious about using the hosting business you're purchasing as security.

I would buy it...a company like this would have a substantial amount of clients...
"$23,500 annual revenue...and 5+ signups a month" I guess we have different definitions of substantial.

If those are $100 accounts, what is that? a couple hundred clients? That number hardly seems worth the effort it would take to do the transaction properly.

But what do I know. Maybe you have lawyers on the payroll, twiddling their thumbs waiting for things to do. Or an acquisitions department that has boilerplate methods for a small buy like that, and they can knock it off before lunch. If not, again, it seems like a lot of effort for a small reward.

So it brings us back to the orginal thought. Can we really put a "standard" on a value of a hosting company?

Profitable customers, no matter how profitable... are an important asset to a growing company. And yes, it's much cheaper to purchase customers that have been with a company for awhile, than it is to advertise for new customers that may only be around for a few months. Plus, you're buying a known brand, which will continue to bring in new customers. Treat a customer right, and they will continue to buy more services from you, and refer more business.

Personally, alot of my customers have more than one account. And with a solid customer base, I've always found it effective to run internal promotions for existing customers. It greatly encourages inter-growth.

The example that I used in my orginal post, was just an example. I've bought and sold several companies in the past, and know from experience that it's completely up to the buyer and seller as to what the company is worth. But I think that perhaps we undervalue a company's true worth. It's getting harder and harder to continue growth in this industry, and perhaps buying other companies could soon be a more effective means of growth.

Once again, my 2 cents... :peace:

So it brings us back to the orginal thought. Can we really put a "standard" on a value of a hosting company?
No. There's just too many varaibles to consider.
. . . And yes, it's much cheaper to purchase customers that have been with a company for awhile, than it is to advertise for new customers that may only be around for a few months.
It's cheaper not to spend anything on advertising at all. Word of mouth is a great driver of sales for a hosting company. Although, albeit a tad slow, but that depends on how fast you want growth to be.
Plus, you're buying a known brand, which will continue to bring in new customers.
That 'brand" would be limited, and only known in small circles. It's not a household brand or anything, so it's only known about in those smaller circles. WHT is one such circle, where a host can build brand awarness within.

83%? What source provided that number?

That's based on industry research we pulled out of Gartner. That said, I'm not agreeing with it, just stating the # we got when we were doing some research. The rest of the points you made are spot on.

-R