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SEO Best Practice: Conversion efficiency
The SEO Best Practice: Conversion Efficiency Guide is part of Econsultancy's renowned SEO Best Practice Guide and is has been created with the help and frontline insight of globally-esteemed SEO practitioners, in order to give you the edge in your natural search marketing activity.
Owner at Wynyard Consultants Ltd
01 March 2006 18:48pm
Hi - I am looking for help in putting together a proper business valuation for a small web design and SEO company I am considering purchasing.
Any thoughts on how to go about valuing such a business would be useful. My thoughts are that the main sources of value are;
1. Client list i.e. 'guaranteed' recurring revenue, possible value of future projects.
2. Goodwill and name recognition i.e. the ability to generate new sales through reputation, trust and a portfolio.
3. IP within the business e.g. marketable industry specific solutions, other specific knowledge developed and shared within the business and not residing solely with a single individual, effective marketing or business development processes etc.
As to how to allocate a 'fair' value to these in respect of a purchase I'm not sure!
Also any good sources of data on actual sale prices for this type of business would be very helpful.
Thanks
Iain
Online Director at Specialist Holidays Group - TUI Travel
09 March 2006 13:13pm
Hi there - interesting question.
I think you're unlikely to get a ready reckoner type answer for this... in my unfortunate experience, agencies come and go at the rate of knots.
Even today after 12 years in the industry I still see on one hand the big companies in a period of consolidation, and smaller interesting niche shops opening up every month or so.
A few additional criteria I can add to your list would be:
-
Repeat business - you mention client list, but it's not too difficult to get big name clients if you're doing one off small projects. Repeat business over a longer period of time (say >2 years) means a more sustainable income. In my experience this is much more difficult in the agency game, even for the larger companies. Promises of future work mean nothing until a contract is signed and you have a purchase order in your hands!
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Client recommendation - ask their current clients how the agency's work is valued in terms of input and results.
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Quality of people & retention of people over time - you should be able to assess whether the people employed at the company are likely to add long term value to clients, whether their skills are unique and high quality or expendable. This should be shown in their work for clients as well as their attitude to the future. Also people coming and going a lot spells trouble!
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Project overruns - how well the company's people and process are tuned to protecting margin for the business while accommodating the changing whims of often fickle clients...
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Value proposition - ultimately the business needs to stand out in a crowded market which I think is probably quite hard to do these days.
Hope this helps somewhat.Regards
David