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Case Study: How a Subscription Business Owner Made $310,401 in 53 Days

Branden Schmidt Updated on July 23, 2020

Case Study How a Subscription Business Owner Made $310,401 in 53 Days

Are you an eCommerce seller and looking for ways to optimize your business?

Chances are, if you have started any kind of research on the topic, you might feel a bit overwhelmed with all the information out there in regards to optimizing your eCommerce or Amazon FBA business model.

From services offering to optimize your businesses pay per click (PPC) ad campaigns to in depth product research and margin calculators, eCommerce sellers are always looking for new ways to increase their return on investment (ROI), even if that means spending a little extra on services that speed up this process for them.

This was the opportunity the seller of this subscription-based business model saw when they first built the asset back in August 2018. At the time, they noticed an increase in demand from eCommerce and FBA sellers looking to optimize the back end of their operations, while offering a service for leads on those looking to add new products with proven margins.

The business model was structured around a subscription service that would help eCommerce sellers optimize their product research and margins. The Heroku-based suite used by the seller to build the software as a service (SaaS) platform was included in the subscription benefits and provided a better user experience for their subscribers.

The subscription-type business model was also something this seller was interested in building as it offers the benefit of generating recurring revenue monthly or yearly compared to a one-time sale as with selling physical eCommerce products. Seeing an increase in demand for these types of subscription services over two years of business growth, the seller knew that now would be a great time to make a profitable exit considering their asset was producing an average monthly net profit of $12,173.

After filling out our valuation tool, which gave the seller a ballpark range of what their business was worth based on similar assets we have sold in the past (which you can see from our scoreboard), they were ready to begin the vetting process.

Our Vetting Process for Subscription Business Models

When it comes to our vetting process for any business model, we usually leave no stone unturned. We have a dedicated vetting team for this process alone to ensure the analytics and net profits the seller claims the business is generating are valid.

We check the analytics, the average monthly revenue, all business traffic sources, the backlink profile, and a number of other metrics during our vetting process.

One thing that stood out with this particular asset once our vetting team started digging deeper was that the seller of this subscription service was also the main developer for the included SaaS feature of this business model.

Now, this might be a red flag for some investors looking to make an acquisition on our marketplace, but it’s also a great opportunity for those looking to optimize this type of model who already have some programming knowledge under their digital tool belt.

For this particular business, the SaaS side of the model was only 2% of the total revenue, while the subscription service was generating the other 98% of the income. The seller, having a dedicated team of virtual assistants (VAs) now handling most if not all of the daily operations for the business, was only required to work 10 hours a week after almost two years of managing the asset.

The marketing strategy for this asset was also interesting to see while digging deeper into the traffic metrics. A majority of the traffic coming into the business was from direct and organic sources, while some paid advertising helped gain newsletter subscribers, who were then placed into an email campaign sequence once they downloaded a free guide for signing up.

Having a dedicated team in place to handle the daily operations of the business and producing a regular subscriber base with a lifetime value (LTV) of $500 per subscriber, the asset was ready to go live on our marketplace. The seller who had now been optimizing this asset coming up on two years was eager to make an exit as his primary focus was on another business within a different industry altogether.

With an email list now containing over 800 subscribers not being monetized, the seller was excited to see what buyers were willing to offer for this subscription business investment. The seller agreed to listing the asset on our marketplace with a multiple of 30x and a listing price of $365,177. Let’s find out just what happened once this listing went live on our marketplace.

Buyers are Hungry for Passive Subscription Businesses

When this asset went live on our marketplace in March 2020, seven potential buyers jumped at the opportunity to begin their own due diligence on this business. This stems back to something we have discussed in the past on how you can win the wire race.

This is not just something that often frustrates buyers when attempting to purchase a business before the next person has an opportunity to beat them to it, but it also shows why it is important to have credit on file with us for when you do find a highly desirable business listed on our marketplace.

On the second day, two more potential buyers unlocked this listing to start their own due diligence, and by the third day of going live on our marketplace, the asset was set to “pending sold,” which is the label we use for those who are interested in locking down any listing on our marketplace to perform exclusive due diligence by placing a hold deposit on any given listing.

Once the buyer had placed a hold on this asset to perform their exclusive due diligence, a few questions came up that this eager buyer was concerned about, such as the average spend on advertising changing frequently month-to-month and the process in which the sellers’ VAs were handling the subscription service of the business.

The seller had focused primarily on generating direct and organic traffic while also running highly targeted PPC ads. The fact that this business model was built to rely on very targeted advertising resulted in lower traffic to the site from this channel; however, it also meant there was less misplaced ad spend, higher revenue per visitor, and more customers getting exactly what they were looking for.

Once these details were hashed out and all other questions were answered, the buyer offered a full list price of $365,177 in less than two months from the listing going live on our marketplace.

After our commission was factored out, the seller walked away with a total of $310,401, which is not a bad ROI considering the seller had only managed this asset for about two years at the time of exit.

So what opportunity does the buyer have now with this subscription business?

The Buyers Opportunity to Scale This Subscription Business

The buyers who offered a full list price just 53 days from the time this listing went live on our marketplace were eager to scale the business to its full potential.

This subscription business, which at the time of acquisition was quite passive thanks to the dedicated teams of VAs who would continue on with the buyers, was ready for some needed improvements. A few of the low hanging fruits these buyers discovered to increase their ROI included an improved marketing strategy, optimized PPC ad campaigns, and an additional monetization to the business model.

The email list was sent a free guide once they signed up to the newsletter and one of the first features that would be optimized after the inspection period was completed according to the buyers.

For those who might not be aware, the inspection period is a 14-day window that begins once all major revenue-generating assets have been transferred to the new owner. During this time, the buyer may review the monthly net profits to verify that the revenue is above 50% of what the listing advertised.

After the inspection period was finished, the buyers were ready to begin optimizing the business model performing some of the improvements mentioned above, and both the buyers and the seller were satisfied with the transaction.

The seller, who offered to help the buyers if they needed any further assistance with the SaaS feature of the business walked away with a nice $310,401 increase to their bank account. The buyers walked away with a growing subscription business that has the potential to be scaled to a seven-figure asset from optimizing some of the key improvements mentioned.

With some effort, this type of monetization offers the best opportunity for those seeking to grow a digital property with location independence and recurring revenue from loyal subscribers.

Growing a subscription and SaaS business into an established subscription service eCommerce sellers can’t live without offers endless possibilities in terms of growth potential. Becoming a well-known solution to common eCommerce platforms also offers a better return from your customers’ LTV when compared to paying for traffic to a one-time sale for physical products.

If you have a subscription or SaaS business that is well optimized and produces a passive income stream, perhaps you might like to gain a big exit just like this seller experienced.

There is a large pool of buyers out there looking and eager to invest in a well-optimized subscription and SaaS business. If you want to experience a similar payday from your exit, you should discuss your options with one of our business advisors.

Or, if you would prefer to get the ball rolling now, you can submit your business with us today to get the whole process started.

Not quite ready to sell just yet? Not a problem, you can set up an exit planning call with us to ensure you get the most from your exit.

Or maybe … you want to purchase a well-ran digital asset like this one?

We can help you there too.

Schedule a buyer’s criteria call with one of our business analysts to be notified when a great opportunity like this comes back on our marketplace.

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