[Case Study] How We Sold an Info Product Business for $400,000 in Under 3 Months
Ever dreamed of writing a book?
Or maybe recording your workshop in the garage, and voilà, creating a course? For many people getting started online, creating an info product is an attractive place to begin.
Digital products are often seen as a familiar bridge between the way we used to consume knowledge and the new information age. Digital products also use the Internet to disperse software, graphics, and music, enjoying the ease of distribution.
One of the reasons that digital and info product businesses rose to popularity is that they are usually front-loaded; after you invest the time and money to build a product, you can sell infinite copies of it around the world.
This makes both buying AND selling this type of business an attractive proposition. A seller’s work levels out after the initial composition, and they might be ready to move on to something new. A buyer, on the other hand, is getting a business in which all the heavy lifting has already been carried out and is ready for the buyer’s fine-tuning.
We are pleased to share a win-win in today’s case study. This business attracted quite a bit of interest. Though a few offers were on the table, the Seller wanted to go with the Buyer who was the best fit to keep the company going and the information flowing.
Just like the majority of sites listed on the Empire Flippers Marketplace, this site sold under three months. Let’s dive into how that happened, what went down, and some valuable lessons you can learn whether you’re a buyer or a seller. Remember, if you’re wanting to sell your business, we’re just a click away to help you create a free exit plan.
Preparing & Vetting the Business
You might be wondering why someone making an average of $14,000 per month with a $2000 operating expense would want to sell their business in the first place.
This is a question that comes up again and again at Empire Flippers, and the answer is different for each person. For some folks, even running a hands-off business can eat up a lot of mental space. This is especially true for those who love working directly with people and miss the interactions that have now been outsourced.
In this case, the Seller was a professional within the fundraising field; an expert who had vital best practices and information to share with the world, and who had only become an internet marketer as a labor of love. After four years of running the site full time, the creation of the classes had been completed and he wasn’t creating anything new. He wanted to get back into the field and work directly as a consultant again, in hopes of having an even greater impact on the industry he had such a passion for.
This business was at an attractive point for selling because of the systems the Seller had in place to minimize the workload. The Seller had first optimized his efforts by hiring a VA to take over the majority of the labor. Working 20 hours a week, she posted classes and dealt with all customer service issues. Next, the Seller improved the system by creating templates for posting articles, newsletters, and class notices. By the time of sale, the business required only a few hours a week for the Seller to manage.
This business came with three primary assets:
- A well-known, branded website where all the information was hosted
- A 24K email list that was used regularly to monetize the site
- Intellectual property, including:
- 20+ online courses
- Several recorded webinars
- A handful of eBooks
- Hundreds of articles
The Seller had found success with a very simple model driven by organic traffic, of selling inexpensive courses to customers. This left the door open for many opportunities that the Seller talked about during the interview we did with him, such as raising prices, increasing onsite advertising, and expanding traffic sources.
Our vetting process can be rigorous, as we deny around 60% of the businesses that want to list with us. We run each business through dozens of checks to make sure they pass our quality standards. We look at things like traffic and history of earnings, and we also scan for potential issues.
After our team had poured through this business’s P&L and reviewed its traffic sources, we came up with a valuation of $460,000. Not bad for a few years’ worth of work, considering the Seller was bringing in an average of $10K/mo while he built this asset.
The Listing Goes Live
Okay, here’s the part you’ve been waiting for.
The site had now passed the vetting stage, the listing was up on the Marketplace, and depositors were taking closer looks to see if this business was truly a fit for them.
As soon as any listing goes live, depositors flock to have a look.
This is a good thing.
Potential buyers are seeing if the business lines up with their needs, and they are putting their money on the table to do so. That being said, each business is unique, and finding just the right buyer/seller combination is an intensive process. Though many depositors will investigate, you know you have someone who is truly interested when they schedule a call.
We offer the counsel of Business Advisors who work with both parties to help negotiate a deal beneficial to BOTH sides. They do this by offering advice to both the Seller AND the Buyer. To be clear, as a brokerage, our fiduciary responsibility is to the Seller. However, we find that doing business where everyone involved walks away happy with the outcome makes for better overall results.
Enter Player Number One
The first offer began with a call between potential Buyer #1, the Seller, and the Business Advisor.
This first call went well, and everyone involved thought we might have a deal on the line, but Buyer #1 had a separate deal that required his attention, and he said he was going to need to hold off for a few weeks. While this delay felt for the Seller like being put in limbo, it also meant the deal could be purchased out from under the Buyer, so new offers from other buyers could be accepted.
Yet, unfortunately, during this time, no serious offers came through. A few weeks later, Buyer #1 came back with a low offer:
- $350,000 sale price
- $150,000 up front (half at the close, half after the training and transition period)
- A 30% earn-out, paid monthly towards the balance
The Business Advisor felt that there was room for negotiation here, and he and the Seller hopped on a call to discuss it. Our Business Advisors are highly trained with experience negotiating to get a good price, and they help to move the needle from a buyer’s initial offer to something that will work for everyone.
Though the Seller was not thrilled with this as a starting point, he saw the potential gains, and with the counsel of the Business Advisor, counter-offered with:
- $420,000 sale price
- $320,000 up front
- $100,000 earn-out
- Paid at 50% of monthly, which would put it at just under 18 months
There were a few big differences in the counter offer.
First of all, it should be noted that earn-out or not, the overall sale price is the amount of money you will wind up with when all is said and done. This Seller was trying to keep as much as he could on the table. Second, as the old saying goes, a bird in the hand is worth two in the bush. The money you get up front is the money you are getting all in one go, and that liquidity is valuable in its own right. Lastly, the size and terms of the earn-out affect how tied the Seller will be to the business.
Long earn-outs can be daunting.
Often, the reason for selling a business is to move on entirely. Yet, an earn-out binds the Seller to the business because the payments are often tied to the continued success of the business.
This can be beneficial to the Buyer because it shows that the Seller truly believes in the future of the business. The Seller is also motivated to contribute to the health of the business to make sure that the earn-out is paid in full. Earn-outs can also be beneficial to the Seller because they provide financing to a Buyer who may not have access to funds for a full cash offer.
Yet, in this case, potential Buyer #1 was not pleased with the Seller’s counter-offer. He felt that this offer was too far from his and decided to bow out.
The Seller saw the potential missed opportunity, and after discussing it again with the Business Advisor, arranged a follow-up call with Buyer #1. During this call, the Buyer decided to meet the Seller halfway with a second counter-offer:
- $370,000 sale price
- $250,000 up front
- $120,000 paid from 30% of the net profits each month over 24 months
- With Empire Flippers holding the domain as collateral
While this isn’t what the Seller had initially hoped for when he listed the site, the offer was reasonable, and he was motivated to sell and be free to move on to his future projects.
Enter Player Number Two
Meanwhile, as the counter-offers flew back and forth, a new depositor had been scoping out the business and was asking great questions. Though Buyer #1 was making serious offers, the business was still open to other depositors because Buyer #1 had not yet wired any money.
It’s good to remember that nothing is done until the money is in the bank.
From the very beginning, potential Buyer #2 caught the Seller’s eye because of this simple buying question: Is the Seller open to a long-term transition where he lends his name to the site for a year or more?
When you’ve put your blood, sweat, and tears into a passion project like the Seller had, you develop an emotional connection to the business, which has more value than just the sale price. To be clear, the Seller had reduced his participation in the business to little more than the “About” page, but he was honored to be asked to fully participate in the transition and to even make his involvement a part of the purchase agreement.
When the Seller followed up further on his research and found that potential Buyer #2 already worked in the fundraising space, he enthusiastically offered to introduce him to the various leaders in the online Fundraising Education space to make sure they knew him, as well as to include this full-year handoff and extra work at no additional cost to him.
That is… if he came in at the asking price.
With high hopes on both sides, a call between potential Buyer #2, the Seller, and the Business Advisor was set up.
The Plot Thickens
During this time, potential Buyer #1 was still arranging for the purchase but had not put any money down. He even came back just as the call between the Seller and Buyer #2 was arranged, requesting that the initial payment be split in two, with the second half coming in 60 days later.
The Seller was not happy with this of course, but it was the most serious offer he had received up until that point. He had to consider it, and for all he knew, it was as good as he was going to get if potential Buyer #2 wasn’t truly interested.
This led to a little bit of juggling.
Potential Buyer #1 had delayed several times, so it went almost unnoticed when the Seller delayed just long enough to see if potential Buyer #2 was truly in the game. The Seller patiently balanced the potential outcomes as he waited for Buyer #1 to sign the purchase agreement (which wouldn’t be final until the Seller signed), and for Buyer #2 to make a serious offer.
This wasn’t a terrible plan… until Buyer #1 did sign the documents. Now the pressure was on to decide between the two buyers because no money would be sent until the Seller also signed the agreement.
The Offer Worth Waiting For
Two days later, the Seller and potential Buyer #2 were able to hop on the phone, and after a bit of negotiation, a final deal was made:
- $400,000 purchase price
- $300,000 up front
- The remaining $100,000 paid as an earn-out
- 68% of the net profit per month until the total amount was paid
They also arranged for the closing to take place in 30 days, for the transition period to be one year, and for the Seller to not be able to go back to Buyer #1 to start a bidding war. A “handshake” took place on this phone call, and all parties were excited.
Just like that, within a few days and with the help of Empire Flippers’ Business Advisor, the Seller was able to:
- Negotiate a simpler deal
- Close at a higher price
- Sell to a Buyer he believed in
So… What next?
All this would be for naught if at the end of the day you couldn’t migrate your business over. All the hard work and negotiations would have no value if you can’t get the business in hand.
Migrating a business with more than one monetization such as this can be quite tricky for the average joe. Fortunately, one of the best parts about working with Empire Flippers is that we have an entire team dedicated to making the migration process go as smoothly as possible.
An important note is that funds are only released AFTER the successful completion of the migration and an inspection period by the buyer. This is one of the most understated perks of working with Empire Flippers because very few of our competitors do this. We think of it as a version of the “lemon law”, which protects buyers from a purchase that fails to meet the agreed-upon standards.
In this case, although there were several metaphorical boxes to tick, the migration went smoothly; and within less than a week, all pertinent accounts were transferred over.
In an earn-out scenario such as this, things go just a little bit differently than on a full-cash sale. To protect both the Seller and Empire Flippers from not receiving the agreed upon funds, it is common practice for Empire Flippers to hold on to the domain name until the full purchase price has been paid. In our little case study, everything went smoothly. As agreed, the initial payment was made, the monthly payments based on profit were sent, and the domain was transferred over.
A Good Tip for Sellers
The best time to start becoming a BUYER of online businesses is when you SELL an online business. You will have a measure of liquidity that you can leave on file with us, giving yourself more leverage when it comes to deal structuring.
For example, after the Seller in this case study received their funds, they started looking at listings to scope out future business acquisitions. Even though this particular Seller was looking to get back into the consulting world, he now had years of experience running a website, and a fine eye for what works and what doesn’t when it comes to making money online.
Buyers are Hungry for Info and Digital Product Businesses
Buyers are very interested in purchasing digital and information product businesses.
It is worth noting that multiples are going up, and right now is the best time we’ve ever seen to sell one of these businesses.
Buyers love Digital Product businesses for a few reasons:
- They are easier to manage than traditional ecommerce
- They often rely purely on organic traffic, but they have the potential to expand to social and paid traffic
- These businesses have real established products rather than more nebulous things like a hundred articles on a content site that has no qualified assets
If you are a Digital Product owner and you’ve been growing your business for the last few years, now is a great time to make an exit.
This is not the first business we’ve sold in this monetization, and it certainly isn’t our last. We have Info and Digital Product businesses go live on our website regularly, and we have more in the pipeline, so please be sure to subscribe to our Listing Notification newsletter HERE.
Or maybe… you own a business like this, and you’re ready to make your big exit and follow in the steps of this seller?
The next step is to click HERE to submit your business to our vetting process and get your listing live so we can start marketing your business to our lists. These lists are filled with thousands of buyers, many looking for exactly what you have to offer.
We’ll meet you on the other side.