[CASE STUDY] How We Sold a $1,818,182.80 Affiliate Business in 46 Days
What would an extra $1.8 million in your war chest do for your business?
How could you possibly get that kind of influx of capital to your business? Well, that is exactly what one of our customers experienced after selling their affiliate business. This asset exit proves that building a business around the affiliate marketing monetization can become extremely valuable.
After all, this business was sold for 56 times its monthly net profit with a full cash offer from the buyer. That is a huge deal.
Built in 2016, this business was able to see a 7-figure exit within just two years of its creation.
This transaction is also a great example of the kind of multiples you can get if you’re operating a business in a fast-growing niche, and it’s rising dramatically along with that niche’s growth trend.
So what exactly went down?
How was this business sold?
To answer these questions, we created this affiliate marketing case study. Let’s dive in.
Preparing and Listing the Business
The business itself was just three simple content sites, with one of the sites being a non-English translation of the main site. The seller decided to wrap these sites into a package deal since the sites were all operating in the same niche.
The sites themselves were very small, rather than being large, authority-style sites with hundreds of articles. While small, the content was good and solved a major pain point for people in this niche seeking out information.
The majority of the income came from homepage placements of the affiliate links, something that was routinely updated as the seller continuously tested for the best converting affiliate offers in the niche.
The workload was minimal with the seller typically retweeting relevant news articles within the niche, analyzing traffic and inbound links, and researching new affiliate offers to test. They also had to monitor current affiliate programs to make sure that the customer reviews were still positive. At the time of sale, the business promoted five main affiliate programs.
In addition to this, the seller answered various questions on Reddit and Quora while linking back to their site. The seller worked between 8 to 10 hours per week on the business.
The business also collected an email list which reached 2,500 email subscribers before being submitted for sale on our marketplace.
Ultimately, the owner decided to sell because they needed the capital to invest into a new project that would eat up the majority of their time going forward — one far more complex than a content affiliate site.
The main issue that came up while vetting this business was tracking their profit and loss statement (P&L) correctly. Since the site earns its revenue in multiple different currencies at once, our vetting team had to help the seller compile everything into a single P&L that would make sense to a prospective buyer.
A common thing we see with internet entrepreneurs is that their P&Ls are a bit messy. Most online entrepreneurs are not bookkeepers, and they often act as a one-man team just like this business. That is one of the big advantages of going with a broker: We can spot red flags like these and work with you on fixing them BEFORE you get toward the end of the sales cycle.
The last thing you want is a buyer doing all their due diligence and negotiations with you, only to back out due to some small error on your P&L.
Once we finished sorting out these issues, the business was listed on our marketplace and interest started building right away.
The Action Starts Pouring in With 37 Different Prospective Buyers
A business this size that is growing month by month so dramatically is bound to stir up a lot of interest with our audience.
The amount of depositors that put down a refundable deposit to start doing due diligence on the business certainly proved that statement. Before the deal had closed, this seller had 37 new depositors looking at the asset.
The race was on as buyers began to look into the business, seeing if it matched their criteria and making sure that they got their hands on the asset before anyone else. In addition to individual investors, we also had several institutional buyers start looking at the business.
The first offer came from a depositor that didn’t have the full cash amount. This depositor decided to make an offer to buy just one of the three sites. However, the seller refused the offer as they wanted to sell the entire package together. It makes sense to do this; after all, if you sell one of your sites and you have two other competing sites, it might turn buyers off from looking at purchasing the other two.
When possible, it is always best to sell all of your competing assets together instead of individually. It will make the business more attractive and give you an overall higher multiple.
In December, the seller experienced a large outlier month as he added thousands of dollars to his revenue. Cold feet started creeping in — maybe he didn’t want to sell the business after all. He had signed our 6-month exclusivity agreement (now 2 months), though, and after some counseling from our business analysts, he realized that it would be better to go through with selling the asset while it was in a hypergrowth phase.
One interesting point about his cold feet is that we already had an all-cash buyer in the wings wanting the business (more on this later).
Of course, we kept repricing the business as it earned more each month.
Other brokers often do not do this.
Instead, they will keep the exact same valuation of a business regardless how long it sits on their marketplace, and regardless whether it’s earning more or less month after month.
A Surprising 7-Figure Offer Enters the Arena
I mentioned above that the seller already had an all-cash offer come in at $1,618,183.
I also mentioned that the seller started getting cold feet as he had a huge outlier month in December. The seller was concerned that he would not reap the rewards of this extra profit because the buyer’s offer came in halfway through the month, meaning the site had not been re-priced accordingly by our vetting team yet.
This was part of where our business analysts came into play: They negotiated with both the buyer and the seller to allow the business to be re-priced, reflecting these new earnings. Typically, we would advise strongly against asking for more money from a buyer that has already offered an all-cash upfront deal.
All-cash upfront deals are the ideal exit for a seller, and it can be exceedingly rare to get them when you get above the $600k valuation price. There is almost always an earnout where the seller will still have some kind of skin in the game to make sure the business keeps doing well.
Earnouts tied to milestones or other business situations are prolific in 6- and 7-figure deal structuring.
Luckily for the seller, the buyer agreed to continue to go through the deal and acquire the business, rather than being put off by the seller asking for even more money. Unfortunately, the seller now also had to deal with a $200,000 earnout to be paid out over a few months. Still, the seller got more money for the ask (which is a rare thing to happen in these late stages of negotiations), plus the $1,618,183 had already been wired through to Empire Flippers, showing the seller that the buyer was serious in acquiring this asset.
But before the offer was accepted, there were a few questions that the buyer had for the seller:
- Where are the sites currently hosted?
- Any scripts running in the background?
- Anything beyond WordPress being used to run the site, such as custom code?
All of the answers were straightforward.
If you’re looking at acquiring a business, and you want to know what kind of plug-ins and software are being used by a website, make sure to write down WP Theme Detector as part of your due diligence repertoire. WP Theme Detector is a way to independently explore what kind of WordPress themes and plug-ins are being used — a valuable tool for any website buyer.
Outside of these questions, the buyer also made an appointment to run through all of the seller’s affiliate program backends. Normally, you can just create a “view access” option for people to see your affiliate account earnings. However, due to the nature of these programs, the seller had to be physically present while the buyer went through everything and verified the earnings.
After this was completed, the offer was agreed to and the seller sold the three-site package for $1,818,182.80 (adjusted to reflect December’s earnings).
While the deal was struck and done, we still had to migrate the business over to the new owner.
Migrating a 7-Figure Content Site From the Seller to the Buyer
Migrating a content business is a pretty simple process, even for large content sites. While these sites sold for 7 figures, it was quite small overall in terms of pages and articles hosted across the sites.
Once the money was wired through to Empire Flippers, we began the migration process without any hiccups. We held onto the domains during the entire process as we set the sites up on the buyer’s hosting servers. Toward the end of the process, we noticed that the buyer had made some content changes to the various articles.
This is a big no-no for us.
Every transaction has to remain exactly the same until the buyer has finished their verification period (typically lasting two weeks after the sale). We’ve seen sites fluctuate rapidly when a buyer makes changes to a business during the verification period (both good and bad), which can lead to the buyer thinking the seller was not reporting their numbers accurately if things DID go south.
To protect the seller, we enforce a strict no-change policy.
Of course, if the buyer wants to forego the verification period so they can start making changes on the sites right away, that is totally fine — as long as they know they are foregoing that period.
Once we told the buyer, they quickly agreed to change everything back to the way it was instead of foregoing the verification period — which included using the same hosting company and plan as what the seller had been using.
After the verification period was up, the buyer approved Empire Flippers to send out the wire to the seller, turning the seller from an affiliate site creator to a millionaire from a single profitable exit.
You might be wondering how you can sell your affiliate site, but you also might wonder why someone would buy an affiliate business in the first place.
Let’s explain why these businesses can be so attractive.
Buyers Are Hungry for Affiliate Businesses
Affiliate businesses are often hands-off, and they take minimal time to run once they’re up and running. This makes affiliate businesses very attractive to portfolio buyers who want to have several sites on their profile, but don’t exactly have the time to run several businesses at once.
Also, there is usually a lot of room to grow with a good affiliate site.
For example, if your affiliate site is promoting physical products, there is nothing stopping you from building out that product yourself. Then you can upload that product to Fulfillment by Amazon and switch out those affiliate links on the site to be affiliate links pointing to your Amazon product.
This is a great strategy since it lets you double dip by collecting both affiliate revenue and the margin you get for selling your product on Amazon. Plus, it helps you game the Amazon algorithm and move your product up to the top organic positions in search.
These are just some of the reasons why buyers love affiliate businesses. If you’re still relatively new to the affiliate business model, make sure you check out our explainer article that covers the model in-depth.
Collect Your War Chest
As you can see by this case study, these businesses can be extremely profitable, with this one earning well over $30,000 net profit per month. And they can be huge exits for a solopreneur looking to cash out by selling their business.
Are you ready for a profitable exit? Click here to begin selling your business.
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Photo credit: Bruce Mars