Case Study: How a Family-Owned Affiliate Business Sold in 8 Days for $66,000

Sarah Nuttycombe Sarah Nuttycombe September 30, 2019

Case Study How a Family-Owned Affiliate Business Sold in 8 Days for $66,000

It is possible, believe it or not, to work with family.

“Not my family,” you might be thinking.

Sure, not every family can work together. But we’ve seen how it can be done—and how it can be successful.

This is the story of how one family was able to build an affiliate business and cash out together for $66,000 in 8 days.

If you (and maybe your family or partner) would like to know how to collect 30 months’ worth of your net profit upfront, then read on.

How the Business Earned Money

This business was an Amazon Associates, affiliate, and advertising site created in April 2007 in the health and wellness niche. An educational resource, it provided healthy living guides and extensive product recommendations. It monetized through complementary earning methods that built off of each other.

While its main source of revenue was Amazon Associates, that doesn’t mean the company didn’t have other affiliate networks. It established affiliate relationships with smaller, niche-focused sponsors who turned to the site for brand advocacy through sponsored posts as well as affiliate product offers. The site had a loyal reader base that other affiliate businesses could only aspire to have. This drove the success of the affiliate offers and the business’s growth.

For advertising, the business primarily used Mediavine. A common missed opportunity we see is that some affiliate sites never explore display advertising. There is a myth that display ads take away from a business’s overall affiliate revenue. Instead, display ads can be a powerful way to monetize all your informational content, and that is exactly what this seller was doing. Display ads can improve your website’s valuation when they’re used right because you are both adding another stream of revenue to your business and often pulling in more income overall through them.

This business’s final monetization stream was info products. The site offered a free e-book to customers upon signing up for their email list, which helped grow their audience. Their email list included 5,000 highly targeted subscribers to whom they could upsell.

Each revenue-generating method had a synergistic relationship with the next. The family did an excellent job of forming complementary strategies to maximize their earnings across the entire site.

The business was pumping out profit from multiple different monetization strategies all at once. When you have multiple revenue streams, they can impact your valuation in a very positive way. The sellers learned this for themselves when they used our valuation tool, which planted the seed for the site’s future sale through our marketplace.

Despite all of this, this business (like every business) had its own unique challenges. But before we get into that, let’s look at what made this affiliate site unique.

A Family Affair

Built entirely around one family’s ideals, this business was different from other affiliate businesses.

It started as a small project; a reflection of their passionate views on healthy, natural living. The business far exceeded their initial hopes or expectations, blossoming into a website with an engaged audience and a social media following of over 45,000. As it began to meaningfully resonate with its community, a true business began to form.

The family split ownership of the online business into equal shares across four of its members. When it came time to exit, they decided to give up their ownerships together. Each would walk away with a 25% cut.

It seemed like it would be a smooth deal with relatively few kinks to work out.

But this was from their perspective—not a potential buyer’s.

The Family-Run Model Runs Into Trouble

The great thing about the business for the seller was that they had an engaged audience waiting to hear from them.

The bad thing about the business for the seller was that they had an engaged audience waiting to hear from them.

This was a problem for a buyer. They were not the family.

The business was built around the identity of the family. Their voice was front and center to their readers, and their images were used on the site. If the site were to sell, some of this identity would have to be dismantled.

How do you transition to a new owner when a business is so wrapped up in the identity of its current owners?

This challenge was the first major hurdle that had to be cleared when the business arrived in our vetting department.

Our vetting team suggested introducing the future buyer to readers with photos and through email communication to ease into the transition and slowly work the family out of the site’s narrative. The business’s success hinged on its buyer’s willingness to open themselves to the site’s audience. It wasn’t a given that such a buyer could be found, but it was worth a shot for the seller.

This site is an example of why we warn businesses who would like to sell with us about the potential challenges of a personality-driven business. If the business’s success is intertwined with the persona of a specific person or group of people, it may have a much lower multiple as a result. This is because transitioning such a site may be too challenging, making buyers wary and the site much harder to sell.

Our vetting team aims to post businesses that offer ideal scenarios to both sellers AND buyers on our marketplace. We make sure your business looks like a winning choice by making the transition to a new buyer easy and putting the buyer in a place where they feel that they can effectively run—and even improve upon—the business they’re buying.

A further challenge came as a result of how the family paid themselves bonuses—bonuses that sometimes ate away a significant chunk of their net profit. The months with negative profits on the site’s profit and loss (P&L) statement raised a red flag with the vetting team.

We worked with the family to resolve this issue. Since the losses were the results of bonuses being paid out to family members, they were considered discretionary earnings and counted as add-backs. The numbers on the company’s statement were then reconfigured to reveal the business’s true running costs for the next buyer.

But before the business could go live on the marketplace, another problem arose: the seller was approached by a supplement company about an endorsement deal for their products on the site. It seemed like a great offer—$3,600 paid out over the year in exchange for a monthly blog post and social media blast about the products. The issue was the supplement company had a strict non-compete clause with similar companies in their space. The seller was conflicted about making that decision for the buyer without their knowledge and asked our vetting team for advice.

On the one hand, it was a good deal; it offered guaranteed future income, which is a positive for a potential buyer. On the other hand, it would be difficult for the supplement company to enforce the non-compete clause through the new buyer if they hadn’t signed it, which could lead to a legal headache down the road that the buyer didn’t ask for.

Once we gave our two cents, no final decision was mentioned in conversations with our vetting team, which pointed to its high probability of not going through. This was understandable, as the business was on the cusp of going live on the marketplace and all attention was turned towards its launch.

Action Pours In

The business drew immediate attention when it went live on the marketplace. By the end of the first day, 15 deposits had been made. The race to begin performing due diligence on the business kicked off.

One potential buyer gained a strong lead in the race. The next morning after the business went live, he booked a buyer–seller conference call to take place a few days later. These are calls in which the potential buyer meets the seller and both sides are coached by our industry-leading business analysts, who guide them through the negotiations process.

The race had just begun though. Another buyer was vying to catch up and asked the following insightful questions about the business after digging into its P&L statement:

What drove the decline in Amazon Affiliate revenue?

The seller explained that some of the decline could be attributed to changes in the Amazon affiliate commission structure. That being said, the effects of seasonality were also at play. The business experienced a regular slump at the beginning of year until activity began to pick back up in late spring. From there, it would continue climbing to reach the busiest time of the year over winter the holiday season.

What are your email conversion metrics? What is the average open rate and the average click-through rate (CTR)?

The seller’s answers were short and sweet:
Average open rate = 24.62% per email campaign.
Average CTR = 7.3% per email campaign.

Have you tried implementing lower ad density? If so, what was the resulting impact on revenue?

The seller had an interesting response to this. While they had tried implementing lower ad density, which resulted in less revenue, an update from Mediavine was changing the game. Its new in-content ad placements had only been active on the site for a few days, and revenue had already increased.

A couple of deep questions rounded out the list.

Is the business profitable? Can it be scaled?

“Yes” was the short answer. The business boasted longstanding profitability and could be scaled alongside contributing writers, ghostwriters, info products, and how-to or product demo videos (a medium through which the sellers were already seeing great traction).

By the time these answers had poured in, 20 depositors were looking at the business. What mattered most in the race though was which buyer had the money ready to purchase the business.

So who was leading the way? The first interested buyer who had scheduled the first buyer–seller call made his move.

The Right Offer Closes the Deal

It had been only 8 days since the business was listed, and one buyer was ready to make the business his own with a unique offer in hand.

Remember, we still had to address the issue of removing the family from their personality-driven business.

This buyer was willing to rise to the challenge.

Here’s what his offer looked like:

Sale price: $61,000

Upfront: $55,000

Paid consultation: $6,000 (through a $1,000-per-month consulting contract including up to 20 hours per month of consultation with one of the family members for a 6-month period)

The buyer was looking to meet the seller in the middle with his offer. The consultation contract would allow the family to stay on with the business and maintain contact with their readers as they were slowly eased out over time. They would also have a say in how the business was run and in selecting content that fit the audience’s needs.

But this wasn’t the perfect deal in the seller’s eyes. A counteroffer was made by the family of entrepreneurs: they reduced the consultancy period and defined the terms on how slowly they would exit the business. One of the family members also agreed to act as a contributor, keeping a bio and photo on the site until the end of the year.

Here’s how the counteroffer broke down:

Sale Price: $66,000
Upfront: $64,000
Paid consultation: $2000 for a maximum of 20 hours of consultation over a 45-day period as well as three blog posts on the natural living topic of their choosing (to be paid at the end of the 45-day period)

The counteroffer was fair, and the buyer accepted. The seller then waived the 24-hour bidding period in which other depositors could have made a higher offer, agreeing to the terms and walking away with the deal they designed.

Why Migration Is So Critical to Affiliate Businesses

The deal was struck—but the deal wasn’t over. Now came the most crucial part of the entire transaction for the seller and buyer: the migration. If the asset couldn’t be successfully handed over to its new owner, then everything leading up to this point had been meaningless. As luck would have it, we’re one of the only brokers with an entire team dedicated to this crucial aspect of selling businesses.

Imagine trying to move over seven separate affiliate accounts alone, navigating the processing times of each network, trying to transfer several individual affiliate contracts to a new buyer, and changing over hundreds of affiliate links. You can see how these tasks could easily add up to a ton of extra work when both parties would rather be focusing on growing their new businesses or projects.

This was a major concern for the seller. They wrote in to our migrations team to ask whether or not the buyer would be making their own Amazon affiliate accounts and changing the links over.

Our team reassured them that the buyer would be making their own account, as affiliate accounts cannot be transferred to new business owners. The tedious task of moving the affiliate links over would be handled by our migration team. This step was a necessary part of monitoring the website’s revenue with the buyer to ensure that it would deliver as expected.

We’re using our best guess here, but there was likely a sigh of relief from the seller upon reading this.

Once the migration and inspection period were wrapped up, we just had one last question for the seller: “How would you like your money transferred?”

Why Buyers Loved This Business

This business was a solid find for the buyer for several reasons.

It had a strong brand identity in a growing niche. The seller laid out clear ways of upselling niche-specific offers and products that had already been proven to work. In the works was an e-book that was unpublished but could be leveraged by the new buyer to deepen the business’s relationship with its audience. Growth opportunities were clear-cut.

Predefined pathways for growth are excellent incentives for buyers; they make it hard for them to say no by ensuring they are aware that profit increases are within easy reach.

The business featured a strong combination of monetization methods. Amazon Associates, affiliate, and advertising were blended into complementary earning methods that helped maximize the site’s earning potential. Bespoke info products offered by the site provided another unique earning stream. Factoring in these different streams, the business had developed a deep moat, making it difficult to copy and ultimately more valuable.

The chosen monetizations were also ideal for prospective buyers.

One of the major monetizations of the business, the affiliate model, is well-loved by buyers and sellers alike. Affiliate businesses have a low barrier to entry, making the pathway an ideal route for Newbie Norm buyers looking to jump into digital assets. Such businesses can often be more lucrative than Amazon affiliates when the nuances of the business model are understood. In the case of this business, the family was able to form unique, niche-driven affiliate relationships that led to a better payout.

As long as those relationships and agreements can transfer to a new buyer, they sweeten the deal and provide buyers more incentive to send you money for what you’ve built.

Are you inspired by this story?

Want to see what it would be like to sell your business? Give us a call. We offer free exit planning to make sure you get the best possible value for your business.

Or maybe you want to buy an empire of your own? We’re happy to help you find the perfect business suited to your skillset and goals. All you need to do is schedule a free criteria discovery call.

Author

Sarah Nuttycombe

Content Specialist

Sarah Nuttycombe

Sarah joined the Marketing team as a content specialist in August 2019. Before joining Empire Flippers she spent five years as an editor and producer for documentary films, working on shoots around the US, Europe, Australia, and Asia. Over the years she has bounced between her native Richmond, VA and 30+ countries for work and personal travel. Sarah is passionate about the digital nomad lifestyle so you’ll likely never find her in one place for too long.

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