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I currently have a web site that generates $100K in revenue per year with very little expense - hence most of that revenue is pure profit.

When I'm ready to sell the business, do you think it would be better to have more revenue while still keeping the same amount in profit? For example, should I get the revenue up to $300K per year while still making $100K in profit?

Will that make my business more valuable?

Reason I ask is because I'm pretty sure I can add a lot more revenue through break-even advertising. Basically, I'll spend $200k in advertising to make $200k in revenue.

Will companies pay a lot more solely based on revenue?

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4 Answers

up vote 2 down vote

In most case, we will calculate the value of a company based on its assets and profits.

If you generate 90K profit per year (and is increasing each year), and you have 30K of assets, you are sure that you will get at least 400K without much negotiation.

If your website has big potential, you may increase its price a bit.

Increasing the global revenue will certainly help, but the impact is less important than the profits.

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and growth! don't forget growth! – Joel Spolsky♦ Dec 4 '10 at 3:29
Yes Joel, growth is actually a factor in the formula. That's why I specified "increasing", I assumed it was stable. If you double profits each year, that's another story! – user3997 Dec 4 '10 at 9:04
I searched, but I wasn't able to find that formula. I was involved in 2 buyout in the past, but nothing close to what is described in the question, so we used different calculation methods. – user3997 Dec 4 '10 at 9:31
up vote 1 down vote

I have never bought or sold a company, but I would urge common sense. Why would someone spend $200K to make $200K? If you can make $90K profit with $100K of revenues, it sounds like you have done something right. Try to do more of that!

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Facebook spent millions and lost money, but offers to buy were still made. – JeffO Dec 4 '10 at 12:43
up vote 0 down vote

Some owners may not want to work directly in the company.

  • Work full time, spend 10K and make/keep 90K
  • Do no work, Spend 210K and make 300K keep 90K.
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up vote 0 down vote

Costs can always be cut, and scaling up will always help this. If I am an investor and know expertise can be added to a team I'd much rather invest in a low-margin & high-revenue company than that making great margin.

Higher marketing spend will also (generally) capture a larger marketshare or at least mindshare and as such is poised as better future potential.

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