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  1. #1
    Join Date
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    Buying Hosting Company

    We are considering purchasing an existing company but how much would you pay for the company if 90% of their customer base is paid yearly? The remaining 10% is paid monthly.

    Three, six or 9 month revenue?

    We would need to support their customer base probably for several months before we even get paid by their base.

  2. #2
    Join Date
    Feb 2005
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    Rochester, MN
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    Quote Originally Posted by kevinml View Post
    We are considering purchasing an existing company but how much would you pay for the company if 90% of their customer base is paid yearly? The remaining 10% is paid monthly.

    Three, six or 9 month revenue?

    We would need to support their customer base probably for several months before we even get paid by their base.
    I would assume not all of them pay at the same time so you should still get paid evenly throughout the year. Going rate is anywhere from 1-3 years total revenue for hosting firms in my experience plus additional if purchasing clients that also require development on a regular basis.

    Obviously if this is a large purchase you should contact a lawyer to cover yourself.
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  3. #3
    Join Date
    May 2005
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    Alabama
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    90% pay yearly...It would be a while before you saw any money so I would base it my offer off the monthly clients.

  4. #4
    Join Date
    Dec 2007
    Posts
    609
    i'd say between 3 and 6 months, depending on the company and their plans etc.

  5. #5
    Quote Originally Posted by VPSGuys View Post
    90% pay yearly...It would be a while before you saw any money so I would base it my offer off the monthly clients.
    It will be difficult for you from beginning only, so you should have some budget to start.

  6. #6
    Join Date
    Jun 2003
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    It depends how long the company as been going for, and the average churn rate of customers.

    If it is a new company, with no track record, the value of customers paying yearly is severely diminished since the existing owner has already used the money and then you need to continue supporting that customer until their next renewal. Furthermore, you have no historical idea of renewal rates and this makes the value of each customer even harder to gauge - they may renew next year, they may not; but there's not way to tell with a new company.

    On the other hand, a well established company taking yearly payments may have a historical average renewal rate, which you can use to make judgements of the value of that company - thus the yearly customer can have a much more accurate (probably higher) value placed on them.
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  7. #7
    Join Date
    Feb 2002
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    Quote Originally Posted by kevinml View Post
    how much would you pay for the company if 90% of their customer base is paid yearly?
    Not much. Those yearly customers are a liability until they actually renew. You have to continue hosting them for the remainder of the contract, with no guarantee that they'll renew.
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  8. #8
    Join Date
    Oct 2002
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    It depends how long the company as been going for, and the average churn rate of customers.
    Yeah, I doubt that for example midphase was bought by UK2 at a 50% discount because of the yearly payments.

  9. #9
    Join Date
    Nov 2007
    Location
    New Jersey
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    63
    We normally refer to them as deferred revenues, and generally speaking, they are considered a liability and not an asset. The major questions you have to look at are the following:

    1. How long have the customers been with them? (the longer they have been with them, the more valuable they are)
    2. Does the contract require you to notify them if you take over their service? (no notice = more valuable)
    3. Do they all pay at the beginning of the year or sporadically? (this is just cash flow purposes and how much is a deferred revenue)
    4. Any other assets or liabilities?
    5. How long have they been in business?

    Usually you are looking at between a 3-5 year ROI, and ROI is dependent on net revs not gross.
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  10. #10
    Join Date
    Dec 2001
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    Quote Originally Posted by ldcdc View Post
    Yeah, I doubt that for example midphase was bought by UK2 at a 50% discount because of the yearly payments.
    Indeed Dan. People immediately think "Oh annual billing, worth 4 times less".

    It's all about BRAND. If the host is established, well-known, has a loyal client base then it's worth more even with 100% annual billing than your average AwesomeCpanelHostingSince2008.com with 500 clients on 2 servers billed monthly.

    If all the host's clients renewed on the same day and that day for 10 months away then yea, sure - run away. But if you have $200k in annual recurring income it's like that you'll still be receiving $20k/mo.

    See, people fail to realise that annual billing does recur monthly. It's just not the same client that renews monthly.
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