Get Top $ for Your Web Hosting Business

You've decided to sell your web hosting division or service, but how should you handle the sale? You've heard that ISPs are getting between $175 to $500 per subscriber, but how much should you ask?

by Christopher M. Knight [July 19, 1999]

Let's look at the top 7 items that will influence your selling price:

1. Your total annual website hosting revenue

This is the big one. In most cases, the selling price will be based on some multiple of your annualized sales. However, this doesn't mean only the direct revenue from hosting operations. Be sure to factor in the ancillary revenues that you receive because of your website hosting sales. You must look at all of the revenue that your website hosting division or business brings in and seek a firm that can effectively leverage your total value—which brings us to . . .

2. Your average ticket price

Example: If you told me that you sell all of your webhosting accounts for $29.95 per month, and I asked you what your average ticket price was per month, and you told me $29.95, your answer would be wrong.

The correct answer is the averaged total from all of the revenue your website hosting business brings in. This may include search engine registration service, website design, domain registration, additional account usage (extra bandwidth, email accounts, list servers, catalog style ordering modules, secure commerce items, etc). It may also include additional billable labor charges for programming/coding/etc. Average the total of these revenue streams by dividing it by your total number of invoices in a given period.

All hosting-generated revenue/ Total number of invoices

An ISP with a larger average ticket size will fetch a higher multiple or valuation than one that might not be up-selling or cross-selling additional items. Customers with a history or pattern of buying additional items are worth more than webhosting subscribers who do it all themselves, using you strictly for hosting.

3. Your web-hosting server system as it relates to your potential buyers systems

The more similar your website hosting system is to that of your potential buyers, the less the conversion will cost your new buyer, the more clients will convert to the new host, and the higher value you will be able to fetch. The time to make sure your webservers are as industry-standard as possible is today, not when you're on the brink of selling. If your clients get a nasty surprise about service levels or website development procedures, your valuation will suffer.

The name of the game here is to make it painless for your clients to be converted to their new host.
Less pain = higher conversion which should = higher valuation.

4. Current growth and attrition rates (You are tracking these rates, right?)

Your growth rate is a profit flywheel that will keep spinning even after you have sold your business. It will also be a determining factor in how many times annual sales you will be able to fetch, because your future customers will be coming to the host you sell to—on the heels of your marketing investments--and should be valued. Many buyers don't much want to talk about this, but they will nonetheless maneuver and position themselves as best they can to continue to profit from your marketing/sales momentum. (Wouldn't you?)

Your attrition rate—the number of folks leaving you on a monthly basis— will most likely convince your new potential buyers either that you don't know how to run your business or that you are a first class host—based on your ability to retain and keep clients. Happy clients are worth more, complain less, and buy more from you.

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