If you’re the owner of a WordPress website hosting company and you’re starting to think about selling, there are a number of ways you can increase the selling price of your company. Having bought multiple hosts in addition to running my own hosting company, I’ve seen it all and can tell you what I look for in a hosting company and also things I look out for.
If you’re considering selling your hosting business, you can learn more about working directly with a buyer here:
Where to sell a WordPress hosting business (we’re buying).
Depending on how soon you’d like to sell your business, some of these suggestions may be more or less relevant. Some take a great deal of time to implement and may be best for businesses that are at least a couple years out. Others can be implemented now.
Most of these recommendations apply, in particular, to small businesses with between 20–300 hosted websites with a single owner that’s looking to maximize his or her return when the time comes to sell. Many would apply to larger hosts as well, though some may become less relevant.
Most of my suggestions fall into one of the following broad categories:
- Increasing recurring revenue
- Simplifying management requirements
- Updating books and reporting
Of these categories, 1) generally requires the most effort and time, with 2) being slightly less, and 3) being the least. Knowing this can help you choose the best options for your business, but keep in mind that the higher-effort activities also have the highest potential for increased return.
Clarity
In general, your goal should be to make your value as clear as possible, while eliminating any points of confusion or unknowns. You want potential buyers to immediately understand and believe the value of your company while removing any possible objections or unknown variables that could lead to a lower valuation.
Buyers will be looking for concrete numbers and information. Avoid speculative information and fuzzy numbers. Don’t include “potential opportunities” in any of your financial figures and only report verifiable facts.
A buyer wants to know the exact numbers your business brings to the table and likely won’t be interested in hearing what you think it could be.
A note on different types of buyers and who to target
There are a variety of buyers out there, and they are all different. The type you should target largely depends on the size of your business and how exactly you have it set up.
If you are a small business with generic hosting services, you will likely want to target the type of buyer that will absorb your operations into their own. This might be the type of company that has multiple previous acquisitions with the goal of growing their existing client base. My company, PageCrafter, falls under this category of buyer.
If you have more clients and a self-sufficient operation or highly proprietary product offerings, you may want to target the type of buyer that is looking to take over your company as-is and become the new full-time owner without absorbing anything into their existing business. In this case, you more than likely already have a strong brand and unique value proposition.
With that said, let’s look at some of the ways you can improve your sale price, organized by category.
Ways to increase recurring revenue
The single most important metric for determining the sale price of a website hosting company is annual recurring revenue. You might think that it would be profit, but it’s not. This is due to a number of factors, but the most important is that the new buyer may or may not continue with your existing infrastructure and organization, so your expenses may vary wildly from what their expenses will be.
If you want to increase your asking price, the number one thing you can do is increase your recurring revenue.
The other key to this is recurring revenue. Total revenue is often ignored completely when calculating the value of a website hosting company. So if you also provide website design services, those extra design projects aren’t going to contribute to your value at all, unfortunately.
Consider that most of these will take some time, and that, in general, growing your business in any way can take a lot of work. These initiatives are best for owners who aren’t hoping to sell immediately.
Get more clients
This one is perhaps easier said than done, but long-term, if you want to greatly increase the value of your company, you’ll need more clients. Strategies for this vary wildly and are outside the scope of this article, but while almost all the other recommendations here might increase your valuation by single or double-digit percentages, this one truly has no limit.
Upsells and add-on services
Marketing recurring services to your existing clients is low-hanging fruit that you should absolutely take advantage of. Perhaps you can sell them on higher-performance servers with more resources, maintenance plans, security services, upgraded SSLs, etc.
For example, offering structured maintenance plans can turn one-time work into predictable recurring revenue:
WordPress maintenance packages.
This may feel like cheating, but as long as the new buyer can continue charging for these upgraded services, they will be very pleased and willing to pay you more for each client.
Convert one-time services to recurring services
This could look different depending on your product offerings. For my company, it might make sense to sell clients on recurring monthly fees for a bucket of hours used for content changes. Since recurring revenue is the most important metric for valuation, these services will now actually contribute to your payday.
Other examples could be proactive hack-fix subscriptions or security subscriptions (vs. charging hourly to fix issues that come up), and much more.
Raising prices (but be careful)
If you haven’t raised any of your prices for quite some time, it might be a good idea to review your pricing and see if you can increase it and still remain competitive and valuable to your clients.
This is obviously an easy way to quickly increase your annual recurring revenue.
It can also make you more appealing to a buyer. If they see that your pricing is quite low, they may be worried that they can’t be profitable without jacking up your pricing after the acquisition and risk losing many of your clients. Reasonable pricing with room for profit will give potential buyers more wiggle room and will make your company look more appealing.
You need to be careful with this, though. If you raise prices too high, you could alienate many of your devoted clients and risk losing them. You also shouldn’t do this immediately before the sale. I would generally recommend you go through at least a full billing cycle for all of your clients before listing your business for sale. Otherwise, your increases in recurring revenue are only on paper, and the buyer might be inheriting a ticking time bomb that’s much less valuable than you made it appear. This could land you in hot water or even in court.
Ways to reduce management requirements
Buyers want to know that they won’t be purchasing a mess. If they believe they are going to be putting out fires all day or that the business will require constant attention and countless hours just to keep running, they won’t be willing to pay much.
An appealing prospect can realistically be described as “turnkey.” You should work on making your business run itself with minimal intervention, and this will maximize the value of the company.
Note that these things will all improve your company and increase its value no matter what; however, they will be especially appealing to a buyer that is looking for a business to acquire without making changes and simply taking over management.
Improving processes
If you’ve been in business a while, I’m sure you know the value of processes. Processes allow your business to run smoothly without making mistakes and are absolutely a requirement for scaling your company. Onboarding, troubleshooting, recurring billing, and marketing are all areas that should have solid processes in place.
If you don’t have a ticketing system in place or you are manually creating every invoice, these are red flags that will signal to potential buyers that your business will require a lot of work to bring up to speed.
Putting together a self-sufficient team
If you’ve reached a sufficient size, you obviously need to have a team. In addition to having the right processes in place, you need to have a team that is qualified and trained to implement those processes and run the operations with minimal input.
This is particularly true if you are targeting buyers that will want to acquire the business as-is and take over management with minimal changes to operations. They will want to see that your team is a well-oiled machine and that major changes to staffing or training are not required.
Automating routine tasks and services
Things like security updates, invoicing, and management of hosting environments should largely be automated. The extent to which this is true will vary depending on how your company is set up, but in general, if something can be done automatically, it should be.
Improving the service to prevent issues
In my experience in the website hosting world, the more you pay for hosting, the cheaper it is.
High-quality hosting should have very few issues. If you are constantly putting out fires and dealing with issues, perhaps the quality of what you are offering is not very good.
Eliminating time-consuming services
You may want to review which services you are offering and verify that they are all profitable. You may find that you have some add-on services that are impossible to keep up with and are actively losing money.
Consolidating services
Having many different types of hosting servers, besides being difficult to manage, is a bad look for a potential buyer. You should put as much effort as you can into making sure that the hosting environment for every site is as similar as possible.
Updating books and reporting
Finally, let’s address the accounting and reporting portion of your business. For the most part, these suggestions revolve around simply and accurately describing the business you already have, and as such do not require you to do much beyond gathering data.
Verifying that billing is up-to-date
A potential buyer will want to know exactly when everyone has last paid and who is overdue. If you don’t know, that’s likely a deal-breaker for most buyers.
Making sure there are no inactive clients/services
Anything that’s not being billed or paid for should be canceled and not included in any documentation for potential buyers.
Creating a spreadsheet that clearly shows all clients, services, and associated revenue
This will be the primary document you will show prospective buyers. At a glance, it will show them who your clients are, what services you are providing, and most importantly, what the associated recurring revenue is.
Making sure your accounting is up-to-date
Your accounting should be organized, accurate, and ready to present when requested.
Putting together process documents
Buyers will appreciate being able to understand your business without having to dig through everything themselves.
Putting together financial charts to show where your revenues are coming from
Buyers will be pleased to see charts that outline the various sources of revenue for your company. It might make most sense to break it down into pie charts for recurring and non-recurring, and then which specific services account for what percentage of that revenue.
This will help them to understand your business at a glance, while focusing on the big-picture financials that lead to a higher valuation.
A potential buyer wants to know that you have all of your ducks in a row. They want to know that your company is well-managed, easy-to-operate, organized, and most importantly: profitable.
You just need to show them, without any room for doubt, that you are making money and that there aren’t any unexpected headaches or costs associated with your business. The clearer you are with your information, the more confident buyers will be in their valuation and the more they will be willing to offer a higher amount.
Final thoughts
A potential buyer wants to know that your company is well-managed, easy-to-operate, organized, and most importantly: profitable.
You just need to show them, without any room for doubt, that you are making money and that there aren’t any unexpected headaches or costs associated with your business.
If you follow all of these recommendations, you can rest assured that not only will you achieve the highest possible sale price for your WordPress hosting company, but you’ll also be looking at an easy transition to the new owner.
If you’re considering selling your WordPress hosting business, you can learn more here:
We’re actively buying WordPress hosting companies.
