Where to Find SaaS Companies For Sale
Is it possible to become a 7-figure SaaS business owner without actually building one from scratch?
To answer this question, I’d like you to meet Bob, an internet entrepreneur.
For the last decade, he has tried everything under the sun to make money online. You name it, and Bob has tried it – SEO, network marketing, even e-commerce.
All failed miserably.
He was about to call it quits until he got into the SaaS business. Now he’s getting a healthy 7-figure revenue from his SaaS platform, and he’s looking into expanding in the coming years.
The best part is that Bob didn’t even build his SaaS business from scratch!
He has no coding experience, and he didn’t know a lot of programmers yet he was able to get into the SaaS game and earn a comfortable living out of it.
His secret, buying the right SaaS business instead of building it.
Bob and hundreds of other entrepreneurs are proof that buying a SaaS business is a great strategy. That’s because growing an existing SaaS business is way easier than starting one from scratch. You already have a proven, viable service with an established customer base. Plus, the return on investment is instant.
However, buying the right SaaS company is far from easy or safe. There are many more dubious companies out there than there are successful ones. Learning to find the latter is crucial for your success.
To help you out, we asked our successful entrepreneur Bob to walk us through how and where he finds the best software-as-a-service businesses for sale with the right SaaS valuations.
Get into The Right Mindset When Buying a SaaS Business
Before you buy a SaaS business, you must be in it for the right reasons.
When it comes down to it, there are only ever two good reasons to buy a business – Profit and Growth.
You must be in the mindset of achieving both if you want to succeed in buying SaaS businesses.
A SaaS company is often valued higher than many other types of online businesses. To find out why that is and how to value a SaaS business we’ve written a handy guide. It goes in-depth on the metrics you should be looking out for.
Here are two questions you can ask yourself to help you get into a better frame of mind when buying SaaS businesses:
Will it help me make money?
The number one reason to buy a business is to make money.
Yet, a lot of people seem to be forgetting this one rule.
It doesn’t matter how innovative a company is, or how it’s going to revolutionize the world. If it’s not going to make you money, don’t buy it!
This advice is the best piece of information you’ll ever get when it comes to buying SaaS businesses (or any business, in general).
Now, it doesn’t need to make you money directly. If it does, then that’s good. If not, then you can also consider other ways it can help you make money. Is it a tool you can offer to your existing customers to make them happier, or more loyal (and thus make you more profits)?
So long as the SaaS business is going to help your bottom line in any way, it’s a good buy.
Can you grow it?
A SaaS company’s ability to make money, while essential, is just one part of the equation.
The other end is that you need to consider if you can grow the business. It doesn’t matter if the numbers are phenomenal; if you can’t sustain it, the SaaS business won’t work in the long run.
Do you have the expertise and experience to run and grow the SaaS platform? If not, would you be able to hire people to do it for you? Would the margins of the SaaS business be enough to let you do this?
Cloud software is growing in popularity so getting involved now is as great a time as any.
How to Successfully Evaluate a SaaS Business
Looking for the best SaaS businesses for sale is difficult unless you know what to look for in considering your purchase.
Bob says the key is to look at the Saas company as a business, not just as a tool. That means diving into the financials, looking at the traffic, and crunching the numbers.
Remember the mindset of buying a SaaS business – it needs to make you money!
To increase your chances of success, Bob suggests considering the following factors when looking out for SaaS companies to buy:
The selling price should be your starting point when evaluating a SaaS business. That’s because it forms a useful baseline on which to judge a platform’s worth.
The price of a SaaS business is usually calculated by taking the monthly revenue and multiplying by a multiple based on key features included with the business.
Based on having data backed by experience with buying and selling similar businesses in the past, we can offer you the best valuation for your SaaS business.
If you already have an idea of the business’s income and other factors, then you’ll know exactly what other similar SaaS businesses have sold for. It puts you in a better position to haggle, negotiate, or move on (if it’s a bad deal overall).
B2B vs. B2C
SaaS platforms can either be for individuals (B2C) or organizations (B2B). While both B2B and B2C are fantastic, each has its pros and cons to consider.
B2B SaaS companies usually serve a much smaller number of customers. Thus, you can get away with a lower number of customer service staff.
However, the trade-off is that B2B customers need more attention and service than an individual. Since the number of customers is smaller, losing just one can hurt your bottom line, so you need to be extra careful with retention.
Most B2B customers, especially businesses, also have a longer sales cycle. It involves a long time and many decision-makers before a transaction proceeds (if at all). B2B companies, therefore, benefit from having a dedicated sales force to move the sale forward.
B2C SaaS companies serve a more significant number of customers. Having a large number of customers to service is both good and bad.
The good news is that losing a handful of customers isn’t much of an issue with B2C. The more extensive customer base can also help you market the service faster and cheaper through word-of-mouth and social media.
The bad news is that managing a more extensive customer base is much more challenging. You’ll need to handle lots of complaints and negative reviews.
Pricewise, B2C SaaS companies are usually priced lower, so buying is much easier for customers. However, because of the lower price, you need to be selling a lot more to hit revenue goals.
The amount of profit left over after factoring operational costs determines your margin. For example, take a look at a SaaS business with a profit margin of 60%. It means that for every $1 in revenue, you need to spend $0.4 in operations to keep $0.6 in profit.
Margins are a way to see how profitable a company is. With SaaS businesses, however, it might not be giving you a clear picture.
This lack of clarity may be because most SaaS businesses are lean operations with many functions handled by the founder. If he or she is a programmer or coder, unless you know how to develop software yourself, you’ll need to hire someone for that. It’s the same for other aspects like sales and marketing.
Hiring, of course, adds cost and lowers your margin. Suddenly, you might find that the 60% margin isn’t as good after all.
So, the key is looking at your margins with other costs you need to spend to make the SaaS business viable.
Potential for Growth
If you’re looking at a SaaS business’s potential, you need to look beyond the present. You must determine how well it can perform in the future and see if this meets your expectations.
There are, admittedly, a lot of factors to consider here. However, two metrics can help guide you. These are Monthly Recurring Revenue (MRR) and Growth Rate.
MRR tells you how much the business is earning monthly from its subscription revenue, plus add-ons. It’s an essential metric that tells you how well the SaaS business is doing overall on a macro scale.
Growth Rate, on the other hand, tells you how much the revenue is growing on a month-per-month basis. You’ll know if the business is gaining and retaining customers instead of losing them over time.
With these two metrics, you can make a reasonable prediction on how much you’ll make or lose once you’ve bought the SaaS business. It will also give you an idea of how fast your ROI (Return on Investment) can be.
Why is the Founder Selling?
Knowing why a founder is selling their SaaS business is vital for getting a glimpse at their motivations. You would want them to be selling it for all the right reasons – and not because it’s a sinking ship.
Believe it or not, most owners sell their SaaS businesses because they’re tired of it. That’s a common and often legit reason in the SaaS world, so don’t dismiss it if you ever hear it from a founder.
There are also other ways you can see how well a SaaS business is performing
One standard metric to check is traffic. A SaaS website with higher traffic doesn’t need as much marketing cost, so this is an important consideration. To check for web traffic, use services like Alexa and SEMRush.
Terms of the Deal
Every SaaS business deal is different. A lot of negotiation and discussion are involved, especially with smaller SaaS platforms. To succeed as a buyer, you need to be in alignment with the seller or owner.
To achieve alignment, you need to ask a lot of questions. What are the requirements you need to make on your end? How long will you get paid? How will the transition be?
By the way, this is where knowing why the founder is selling comes into play. By understanding his or her motivations, you can offer a more attractive deal.
And keep everything in writing during the initial discussions. A written agreement ensures everything is stated clearly, should disputes arise later.
Now, if negotiating and signing an agreement with someone else feels daunting, that’s because it is. It’s one of the hardest and riskiest parts of making a private sale of a SaaS business.
That’s why, in this case, consider getting a broker to handle everything for you.
Why Using a Broker is Better Than Performing a Private Sale?
A broker service, such as what we offer, helps to facilitate the sale of a SaaS business between both the buyer and seller. We add a safety net to ensure the deal goes as smoothly as possible.
And that’s just the tip of the benefits of using a broker. Here are some other advantages:
- We will vet the SaaS business for you. It’s the single most significant advantage of going with a broker such as us. Doing the legwork of checking if the company is legit, so there is less risk on your end.
- You can tap into our experience and data. We know what works and what doesn’t, what’s hot and not in the SaaS business world. We can also give you solid advice on which businesses might be a perfect fit for you.
- Helping ensure a deal goes smoothly and offering legal assistance should things go south.
- We offer to Migrate the SaaS platform from the old to the new owner.
- Usually, have access to SaaS sellers you won’t ever find on your own.
Unfortunately, like SaaS businesses, not every broker is legit.
Some are just plain negligent, while others use shady business practices to either overcharge or scam you of your money. Either way, you need to do your homework when choosing a broker to partner with for the transaction.
If you see any of these red flags, best to avoid the broker:
- Not vetting a SaaS business or relying solely on screenshots (which can be fake) to fact check. It puts too much risk on you as a buyer.
- They are showing the full details of a SaaS business listing to just about anyone. Having a buyer qualification process is beneficial even to you as a buyer. It shows that the broker is actively checking only serious buyers.
- Having zombie listings (SaaS businesses that have already sold or are inactive, but the broker still displays on their website)
- No migration support
- Outright lying in their marketing
Find a Reliable Website to Buy a SaaS Business
Looking for some reliable brokers to help you find your next SaaS purchase? Here are some you can look into, as well as their pros and cons.
Flippa is probably one of the biggest and well-known marketplaces on the Internet. It started as a place where you can buy and sell websites and domain names. The platform has since expanded into apps and even e-commerce stores.
The pro with Flippa is that it’s very popular. It means you have access to a large number of buyers. It’s also quite flexible with the price range, meaning anyone can buy or sell at any price they choose.
Being the most significant marketplace, however, does have its cons. The most significant disadvantage is that there are a lot of scammers, bogus buyers, and other unsavory users. That’s because Flippa isn’t too strict on the people that sell on their platform. There’s a big chance you’ll waste your time (or worse, your money!) when trying to buy a SaaS business on Flippa. Just check out some of the reviews they have here to see what we mean.
Now, don’t get us wrong. There are still some gems on the platform, and a lot of people have had good experiences with Flippa. However, you need to wade through an incredible number of crappy offerings before you find them. Honestly, it’s too much risk to handle, especially on your first purchase.
On the other end of the spectrum is FE International. Compared to Flippa, this agency vets every business listed on its platform. They’re very selective, selling only companies in the mid-five to seven-figure range business.
Because of FE International’s strict vetting process, you’re much more confident with the credibility of the seller. It eliminates any scams or bogus companies on sale.
The platform also guides you in every step, from finding the right SaaS business to drafting the contract.
However, a side effect of their vetting process makes FE International’s listing very selective. Unless you have a budget in the millions, you probably won’t find anything “affordable” on their site.
The platform also only offers one point of contact. You need to manually request the information of each potential SaaS business that you are interested in looking at further. While it’s meant to pre-qualify buyers, it does slow the sales process considerably.
They also don’t offer any migration services once you have acquired the SaaS business. This is a big deal, since transferring from the old to the new owner is typically an intensive process where things can go wrong. It requires getting an expert to handle the migration for you, which costs you extra.
Freemarket is a marketplace founded by the same guys who built Freelancer.com and the Warrior Forum, so you know some credibility backs the site. While not as popular as Flippa, Freemarket does share some similarities.
Like Flippa, Freemarket is an open marketplace with a lot of websites and apps for sale at different price ranges. That means it can accommodate a variety of buyers as well, from beginners at tight budgets to those shopping for 6-7 figure businesses.
However, Freemarket has the same problems as Flippa. For one, it’s a loosely regulated platform. It means there are tons of scammers. There’s also not much support from Freemarket in place, so if you get scammed, you’re on your own.
Quiet Light Brokerage
Quiet Light Brokerage was established back in 2007, making it one of the oldest marketplaces in this list.
The great thing about this agency is that they do an extensive background check on all their listings. It’s reflected in the quality of the websites they have, which even includes some Inc 500 Internet companies.
However, you better have a large budget if you want to buy something from the agency. Most of their deals are in the 7-figure range, which is certainly beyond the reach of your typical entrepreneur. You also need to manually request for information, slowing down the buying and selling process.
Empire Flipper is an Inc 500 company that boasts over $100 million in sales. We specialize in selling high-quality Internet businesses like SaaS products, e-commerce, dropshipping businesses, and content sites.
Our goal is to become the go-to marketplace built on trust and transparency between buyer and seller. We do this by going the extra mile with our services:
- We handle the migration from the old to the new owner. We take care of any admin and backend tasks and ensure the ownership is transferred successfully according to the deal.
- We have both the buyer and seller in mind. That’s why we have “business analysts” and a legal team to help smooth out the best negotiation possible. We don’t leave the table until everyone wins from the deal.
- Our team fully vets every listing and we don’t just rely on screenshots. We log into the seller’s business and verify if their traffic and earnings claims are legit.
- We have multiple ways to contact us, so we can quickly respond to any of your issues or questions. We’re also well known to have fantastic customer service among buyers and sellers.
- We have built a community of trusted sellers, some of whom have successfully sold multiple Internet businesses with us.
Growing a SaaS business is easier than starting one from scratch
Despite the hurdles and challenges, buying an established SaaS business is a fantastic alternative to building one. All you need is due diligence, the right mindset, and a willingness to explore opportunities.
Oh, and a reputable SaaS business broker won’t hurt, too.
If you want to make your business hunting a lot easier, or just need solid SaaS buying advice, do check us out! Browse through the SaaS businesses for sale on our marketplace or schedule a criteria call with one of our Business Analysts today.
Already have a SaaS business generating income and looking for the best way to optimize your current operations to make a profitable exit in the near future?
Call one of our analysts to set up an exit planning call, and take the next step to getting the best possible ROI from your exit.