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  1. #1
    Join Date
    Feb 2008
    Location
    Huntington Beach, Ca
    Posts
    60

    Question about clients through aquisition

    What is some advice for purchasing clients from another company/person?
    Whats the best way of knowing they are legit?
    What are some difficulties in transferring clients to your server/reseller account/VPS/dedicated?
    Cant you transfer clients without them even really knowing? Copy files then point their name servers if applicable?
    Do you generally lose customers with purchasing them from someone else? Why?

    Sorry for all the questions. I am just looking for a better understanding and I have located that much thorough info on the topic.

    Thank you in advance for your help,

    Jack

  2. #2
    Hello,

    I'll try to answer some of your questions. We have purchased about 15 companies in the past few years, so I have some experience.


    Quote Originally Posted by JackSkelton View Post
    What is some advice for purchasing clients from another company/person?
    1. Use a service like escrow.com and be VERY specific about the transaction details.

    2. If the purchase price is more then $10k, then you should involve a lawyer to review your contracts.

    3. Never, for any reason, send money to someone overseas who you have not met in person unless you are 100% ready lose that money. (I'm not saying that every foreign business owner is bad or untrustworthy. I am saying that it is MUCH easier for an arrangement with one party living in a foreign land to disappear with your money then it is for someone who is in an jurisdiction where your contract is valid and enforceable.)

    Quote Originally Posted by JackSkelton View Post
    Whats the best way of knowing they are legit?
    1. Call and talk to them. If it's a lot of money to exchange hands, then fly and meet with them in person. The $1k you spend to go personally visit the seller is nothing compared to losing all your money if they run away with it...

    2. Use a good escrow service. A legitimate seller will have no problem with this.

    Quote Originally Posted by JackSkelton View Post
    What are some difficulties in transferring clients to your server/reseller account/VPS/dedicated?
    There are too many possible problems to list here. If you are asking this question, then you should hire someone you trust to take care of the technical aspects of the transfer for you.

    Quote Originally Posted by JackSkelton View Post
    Cant you transfer clients without them even really knowing? Copy files then point their name servers if applicable?
    Same reply as above. However, I do NOT advice transfering customers without their knowledge. Doing so is a sure way to immediately lose their trust in you (their new host), and they will go away to some other provider.

    Quote Originally Posted by JackSkelton View Post
    Do you generally lose customers with purchasing them from someone else? Why?
    When we purchase a set of customers from a company, we expect to lose about 10%. Normally, this is not a direct result of the sale itself, but is just normal "customer attrition" where we might purchase a yearly customer who does not renew since they no longer need a website, etc...

    I hope that helps.
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  3. #3
    Join Date
    Feb 2001
    Location
    West Michigan, USA
    Posts
    9,675
    mrzippy answered your questions very well. I'm going to add my 2 cents in on the last question.

    We've done many acquisitions over the years and I've learned that the following scenarios will cause you to lose a higher than average number of customers:

    1. Paypal Subscriptions or no CC information on file. If the customer has to be bothered to submit payment information to the new host, they are more likely to take that as an opportunity to second guess their situation and find a completely new host.

    2. A bad situation. If you're buying clients from a bad host, that's had recent uptime or support issues, a lot of customers will jump ship as soon as they hear of the sale. Its perceived (right or wrong) as a desperate act of the host to get out of a horrible situation that may not be repairable by the new host.

    3. A lot of changes. If you have big plans for the company you've just bought - WAIT. Don't make the mistake of thinking that by offering tons of new features, a new support and billing system and a brand new shiny website is going to impress the customers. People, for the most part, get nervous when things change. Give it a few months for everyone to get comfortable (yourself included) and then introduce your changes one by one and not all at once.

    I'm sure there are some more things I could share, but I've been out of bed for a grand total of about 20 minutes. My brain isn't quite awake yet.

    --Tina
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  4. #4
    Join Date
    Sep 2007
    Location
    Saint John, NB, Canada
    Posts
    91
    I have some questions regarding buying other companies/clients as well:

    1) If they pay by a Paypal and you want them on your server under your Paypal gateway do the clients have to re-enter they're information again? I know you can add they're information into your billing system and server pretty easily though. Especially, if the payment method is by mail-in-payments.

    2) If you don't support cc processing, just through gateways ie: Paypal do those clients have to signup for a paypal account to handle transactions via paypal or cc#?

    3) Most of the time I see clients, website, servers etc coming with the deal. If someone just wants the clients would that be a turn off for them to be transferred to a new website and servers?
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  5. #5
    Hello,

    Quote Originally Posted by H0stD3m0n View Post
    1) If they pay by a Paypal and you want them on your server under your Paypal gateway do the clients have to re-enter they're information again?
    Yes, you can not "transfer" a paypal subscription from one paypal account to another. The customer must cancel the old subscription and then create a new signup under your paypal account.

    If you are buying a company, then you could possibly look into taking over their entire paypal account.. but technically I believe that is against paypal's terms of service and you could risk having the paypal account closed. But hopefully it will give you enough time to slowly migrate the customers away from the "old" account to your own account.

    Quote Originally Posted by H0stD3m0n View Post
    2) If you don't support cc processing, just through gateways ie: Paypal do those clients have to signup for a paypal account to handle transactions via paypal or cc#?
    Not sure I understand this question. If you are only accepting customer payments through paypal, then they do NOT need to signup for a new paypal account. They would simply choose to pay your paypal account instead of the old company's paypal account. (This change must be done manually by the customer.)

    Quote Originally Posted by H0stD3m0n View Post
    3) Most of the time I see clients, website, servers etc coming with the deal. If someone just wants the clients would that be a turn off for them to be transferred to a new website and servers?
    Most customers do not care about transferring servers or other "technical stuff" as long as you can provide them with 100% assurance that there will be no loss of service (downtime) for their website and email. It also helps to maybe give them a little "extra" as an incentive to "stay" with you while you transition them to your server. For example, you could say that your server is better then their existing server, and so you're moving them over to it, because it's faster and their website will be faster and work better.. and PLUS! you will give them an extra 100mb of disk space or a free month of hosting, or whatever...
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  6. #6
    Join Date
    Feb 2008
    Location
    Huntington Beach, Ca
    Posts
    60
    So perhaps i setup my whmcs billing system to process cc's manually. Can i personally set up the customer with a particular gateway for them? illegal heh? Just wondering because then its no work for them and you change the gateway easily without them having to lift a finger.

    These are just thoughts. Would that work? It wouldnt be efficient in my opinion to use a POS station although it would be versatile if you stuck with POS.

    Comments?

    Jack

  7. #7
    Join Date
    Dec 2007
    Location
    Indiana, USA
    Posts
    16,087
    I would think that you would have to get some sort of authorization from the customer before your company began charging your purchased customer's credit cards.
    Michael Denney - MDDHosting LLC
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  8. #8
    One piece of advice we regularly give buyers is to keep your first deal small (relative to your company) and of limited technical difficulty. This seems to give buyers the best shot at success. Once you've been through it once or twice, you can scale up in size and difficulty.
    Frank Stiff
    Cheval Capital, Inc.
    www.chevalcap.com

  9. #9
    Join Date
    Feb 2008
    Location
    Huntington Beach, Ca
    Posts
    60
    Thanks for the tip. Im generally pretty aggressive/ambitious. But ill keep that in mind with my decisions.

    Thanks,

    Jack

  10. #10
    its a difficult game. .
    can i add another Question here ?

    how much do u think is appropriate to pay for customer acquisitions in such a deal ?

    1 yrs revenue ? + remaining time frame liability ?

  11. #11
    I'm sorry to give what is probably an unhelpful answer but... How much are the customers you are looking to buy worth to you? All acquirors are different but it seems that a lot of them look at the cash profit they can expect to get from the acquired customers over the next several years (along with time and distraction of the process and migration) when setting the price they are willing to pay. We have seen customer bases that can be expected to throw off a lot of cash profit and others that probably won't. In each case the purchase price reflected that underlying reality.

    As far as the general market goes, it seems like the under $1 million/year straight shared hosting customer deals go for around 1x annual revenues (but there are exceptions.)
    Frank Stiff
    Cheval Capital, Inc.
    www.chevalcap.com

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