We Closed $117M in Deals, Here’s What Drives Multiples in Business

Most online business owners focus on top-line revenue, but buyers look at a completely different metric when calculating your exit multiple. After analyzing 112 closed transactions totaling over $117 Million in the last 12 months, Quiet Light Advisor Brad breaks down the real metrics that dictate what buyers will pay for an online business—and the deal-killers that make a company completely unsellable. —

CHAPTERS —

00:00 What Buyers Actually Pay For

00:51 The Growth Multiplier (How Growth Lowers Buyer Multiples)

02:45 Deal Breakers: Platform Risk & Algorithm Shifts

04:12 Concentration Risk & Single-SKU Traps

05:40 What Builds Real Business Defensibility?

07:15 Vanity Metrics: Exact Match Domains & Business Age

08:50 Clean Books & Opening the Buyer Pool with SBA Pre-Qualification

10:15 The Priority Stack for a 7-Figure Exit

TRANSCRIPT

Everyone wants to know how to get a higher multiple, and there’s a ton of advice out there. Build your moat, protect your IP, get a premium domain name. That advice isn’t wrong, exactly. But after we’ve closed over 117 million in deals in the last 12 months, I can tell you most founders are focused on the wrong things. Some of what you think creates value barely moves the needle. >> [music] >> And there’s one factor that matters more than almost anything else, and it’s probably not what you’d guess. Stick around to the end because I’m going to share one of the simple steps that expands your buyer pool overnight, and most sellers never think to do it. I’m going to walk through what we’ve seen across 112 closed transactions in the last year. Real deals, real numbers, not theory, patterns. 

00:51 The Growth Multiplier (How Growth Lowers Buyer Multiples)

By the end of this, you’ll know exactly where to focus your energy if you’re thinking about selling in the next 12 to 24 months. And you’ll stop wasting time on things that don’t actually impact what a buyer will pay. I have found in all these years that growth is the most important factor for any business that we have for sale. A couple of years ago, we got into this debate internally about having a thesis for when you sell a business. What this means is we don’t just list businesses for sale, but we actually try to dig in and figure out what is the thesis that would appeal to buyers to buy this business. One of the thesis that we developed during that time was the stable [music] business thesis. I launched a listing that had a great stable business [music] thesis. Well written, it was I I just thought it was perfect. It was absolute crickets. You know I learned from that? I learned that our buyers, they want growth. Growth is the lever that is most compelling to a buyer coming in. This last year, I sold a business that’s focused around Magic: The Gathering, the card game. Pretty big sale. This is a This is a pretty big business, a few million dollars. >> [music] >> And in that listing, we end up selling that listing for 15% more than what we had originally asked for it. Now, why did we get 15% more? Well, the growth story was very compelling. He was having record month after record month all the way through closing. And so, the buyer saw that as, “Wait a second. If I’m paying X multiple for this today, let’s just I’ll just throw out a number. Let’s say that he was paying a [music] 3.25 multiple for it today. Well, he’s thinking, ‘Well, if these trends continue, after 1 year, I really have only paid like a 2.75 for this business.'” So, growth really sells. 

02:45 Deal Breakers: Platform Risk & Algorithm Shifts

On the other hand, if we have a business where the growth stalls out. I’ve recently had one where I launched it. We were going at a pretty aggressive multiple. We launched it, we put it out there. Everything looked great. Then it went under LOI and the deal did not close. The buyer actually walked away from the deal. So, what do we do? We go look back at the numbers. Well, while we were under LOI, the business flattened out. And actually, by the time we relisted, one of the new monthly trends was below the same month of the previous year. Now, we’ve started a decline. You know what happens in those situations? The multiple drops like a rock. We go from listing a business maybe for a 3.5 multiple to a 2.9 multiple. Because now we’ve gone from a growth narrative to a declining narrative. And so, the growth multiplier becomes a very important part of selling businesses. If someone said to me, “Brad, what’s the most important thing for me to do as I prepare to sell my business?” I say to them, “You need to grow it. And we need to sell it while there’s still growth left in the tank. I say it all the time. Let’s have some growth left in the tank. So, that when a buyer comes in, they have built-in growth that they can capitalize on. There’s nothing worse for us than a seller who tries to milk every ounce of growth out of a business and then wants to sell it when they’re tired and exhausted and have no growth ideas left. 

04:12 Concentration Risk & Single SKU Traps

This very quickly becomes an unsellable business. A buyer is buying on a multiple based on your current cash flow. We all know that, but that’s not what’s driving them to buy. What’s driving them internally to buy is not the opportunity to stay at a steady state. It’s the opportunity to do better. So, when they buy, that growth becomes a very important factor for what they’re paying for the business. They want to buy it at a 3.25 multiple, but ultimately, they want that 3.25 multiple to end up being cheaper than what they thought on paper. They want it to be a two times multiple because it grew so much that they were able to get that multiple down by the execution of following through with what you had. So, the growth becomes a very important part of selling the business. It’s one of the sort of things that’s in the details that’s hard to kind of put your finger on, but is very important to buyers that are coming through. Okay, let’s talk about risk and defensibility. This is a huge factor because risk and defensibility can become a reason why your business cannot sell at all, okay? So, let me give you an example. When people buy Amazon FBA businesses, what is the risk? It’s platform. What’s that mean? Amazon owns your store. 

05:40 What Builds Real Business Defensibility? 

Even though you have the storefront and the listings, if someone at Amazon decides that that business is no longer viable and they decide to turn the store off, what recourse do you have? You don’t have a right to own that Amazon store. And so, you’re in a situation where it’s like, oh, if Jeff Bezos is over there pushing buttons on me, I might lose my store. Now, I’m here to tell you that in reality, we don’t see Amazon act like that. We see stories of people talking like that. And what I have seen is that Amazon actually does not hold a grudge. So, if you comply with their standards, if you’re selling a product that fits with their standards, they generally are going to let you operate, but it’s still part of the risk and defensibility, okay? So, keep that in mind. So, let’s talk about ads for a second. Maybe you run a business on Meta ads. If you have a business that we go sell, and it’s got 12 months of fantastic history on Meta. But as we go to sell it, Meta makes an algorithm change. That algorithm change all of a sudden dries up those ads. They’re not working as well. That’s a risk. How defensive is this business? If I rely solely on Meta, and a simple algorithm change changes the dynamics of the sales that come in for me, have I really made this business defensible? No, I haven’t. Another one is Google algorithm updates. If you run a content site, I actually have a seller right now who is doing some of the most forward-thinking content production I’ve ever seen, okay? This seller has a business that 2 and 1/2 years ago was getting 100% of its traffic from Google organic traffic. Google wipes out like 60 or 70% of the traffic. 

07:15 Vanity Metrics: Exact Match Domains & Business Age

You know what my seller did? They went out and figured out Pinterest, Facebook monetization. That’s a new topic. So, they had a Facebook group, like a page, and that group had enough people to it that Facebook said, “Hey, we’ll give you monetization on it.” That’s a new thing in the last couple of years. I’ve started to have businesses that have this Facebook monetization. So, if you fast forward 2 years to today, now they have a business that has a third of the earnings coming from Google, a third of the earnings coming from Pinterest, a third of the earnings coming from Facebook monetization. That’s a wonderful thing to have. We have a more well-diversified business and actually, the market hasn’t even caught up to it yet. The market, when they look at it, they’re like, “Brad, I don’t really know what this is. I don’t even know what Facebook monetization is.” So, we’re having to wait for the market to understand these new revenue channels that are coming in and for them to process through them. But, when they do, that person has a more defensible business than they had 2 years ago when it was all Google. Okay, so we got to be thinking about all the risks and how to make our business as defensible as possible because if a buyer can point to something that’s just like, “Hey, I think this business might disappear overnight.” how sellable is it? Is a buyer going to really want to take it on if they think they might wake up the next morning and the business is just gone, it’s gone up in smoke? So, it’s one of those things that you’ve got to think through. [music] You’ve got to really process through the risk and defensibility of these businesses. Let’s talk about concentration risk. I recently had a deal that went under LOI with a 10-day closing. 

08:50 Clean Books & Opening the Buyer Pool with SBA Pre-Qualification

That’s a really short timeline. And then, on the Monday following the LOI that we signed like on a Friday or something, he came back and said, “Brad, 50% of the revenue comes from one SKU. This is a huge problem for me.” I was a little annoyed because that’s a question that should have been asked and kind of processed through before we put it under LOI. But, concentration in a single SKU can be problematic. Depends on the buyer, depends on the situation, but if 50% of your revenue comes from one ASIN on Amazon or something like that, you could have buyers that come along and say, “Hey, that’s just too much for me.” Also, defensibility. When you think about defensibility, like can someone come along and replicate what you’re doing and it change right away. It affects your ability to compete. You have nothing proprietary. You have no trademark. You have no patents. [music] You have no real IP. If this is true, then maybe your business is not very defensible. If someone can just spin it up, then you might not have the best situation. One of the things that’s really great about Amazon right now is Amazon over the last three or four years has started really valuing who has been out there doing something the longest and doing well. I sold a lawn leveling rake business last year. This is not a super common product, but it has good volume on Amazon. The seller is operating basically a single SKU business. 

10:15 The Priority Stack for a 7-Figure Exit

They had a couple of their smaller SKUs. So, why was that not a problem? Well, it was not a problem because this person was so dominant, nearly five-star reviews for their product, and there was no one else even within any close distance to them on reputation and reviews. So, they maintained Amazon’s Choice ranking, no matter what they did with price, no matter what they did with their multiple. So, as they went through it, you know, they would have, “I’m going to sell the rake for $79 in the winter. I’m going to sell it for $179 in the summer.” That’s a wild price change. With a wild price change like that, it’s like, “Oh, okay. Well, so what should we do? Should we leave the price?” If they had real competition, they’d be worried about losing that Amazon Choice badge, but they weren’t worried about it because they had a moat built around their reputation to where even at different price points, they maintained the number one position. So, you want to think about defensibility. How easily can someone replicate exactly what it is that you’re doing? [music] Okay, so what builds real defensibility? Well, obviously, if you can get things like a utility patent, a design patent, those are things that help with defensibility. If you can have 2,000 nearly five-star reviews on Amazon or if you can have a great reputation on Google with your Shopify store, you know, these are all things that really help with defensibility. So, having those things present are things that help you be in a position where other people can’t just come in overnight and take away your business. So, as you think about exiting at some point or buying a business, all the different things that you could be thinking about while watching this, you want to consider these factors. Put yourself in the buyer’s shoes. They’re going to be looking, do you have like a single point of failure? You know, they’re going to be trying to poke holes and find out, how could I accidentally lose all this money if I go buy this business? So, you need to identify what the business looks like as a buyer. And then from there, you can make the adjustments and say, “Okay, what do I need to do to make sure that there’s not a lot of risk with this business, make sure that the business is defensible, and kind of solve for those things?” Because the problem with the risk and defensibility category is it’s a deal killer. If a business is not growing, we can still sell it. It just doesn’t sell for as high of a multiple in a lot of cases. If a business has a lot of risk of going away or [music] has a risk of a catastrophic failure, this makes sometimes for a business that can’t be sold at all. Let’s talk about some of the vanity metrics that don’t matter as much as you think they do. This is a common topic for me. Sometimes I’ll do evaluation for someone and I’ll be like, “Hey, I think your business is worth four times earnings.” And then they’re like, “Oh, that’s great. So, four times earnings, but then what about all my intellectual property?” And I’m like, “No, that I was including that >> [music] >> in the four times.” And they’re like, “Oh, no, no, no. My My IP’s worth 10 times alone.” That’s a very common thing for sellers to think. In reality, it’s not true. 

So, let’s talk about some of those vanity metrics. Uh the domain name exact match that you paid $50,000 for. Is that domain actually worth $50,000? Maybe not. Maybe it was worth it to you. It may not be worth it to a new buyer. You know, if you’ve got like a four-letter domain name or you’ve got some domain that like has direct track type-in traffic, like whether you own a business on it or not, like those are factors where it’s like, “Oh, okay. Yeah, there’s some real value in the domain.” Outside of that, having like [music] an exact match search phrase or something like that, these do not hold as much value as you think and they’re already kind of included in the valuation that we’re giving. Like a buyer doesn’t expect you to have like a domain with a bunch of dashes in it or a domain that doesn’t make sense. They expect it to be a business that has a name that sounds good. You know, so we’re going to we’re going to have to have a decent domain no matter what. What are the other vanity metrics? What about age? I’ve actually noticed a trend that really aged businesses are starting to have some value. You know, let’s say that the business is 3 years old. A lot of sellers that talk to me act like 3 years old is a lifetime. It is not. A business that is 3 to 6, 7 years old, that is sort of like what a buyer expects. When we get to a business that’s a year old or 2 years old, now it’s hard to sell cuz it’s too young. People expect the 3 to 7-year thing, you know? But, I had a business this past year, 33 years old. We had hundreds and hundreds of NDAs signed for this business because people were excited about the longevity. I think if you get to that kind of longevity, you’re talking about something that is a feature, but in general, don’t be over here thinking that your 5-year-old business is really old. It’s not. That’s actually still considered a pretty young business. 

How about unique value proposition? Does that mean that you’re actually defensible or is it just that you think that you’re unique? A lot of times when people describe to me that they have a unique value proposition, I listen to it and I think no, actually that just sounds like every other business that I see for sale. Is it really unique? Is there anything that’s really not commoditized about your business? One of the things I’ve learned online is that there’s a lot of people selling a lot of similar things. It’s really hard to have a truly unique angle, and when you do, it probably does give you the higher multiple. Make sure the financials are clean. We’ve got to have several years of history that can be verified by a buyer in due diligence. Okay, so think of it in terms of like I like to use three years. Three years of financials is a good amount. They need to be clean. You need to not include other businesses in those financials. You need to not be too aggressive with your add backs. You want to have a situation where a buyer can see this is pretty clean. I can understand how this business makes money. 

And finally, SBA. Try to position yourself for an SBA pre-qualification. If you can get a business to look like it will go well for an SBA loan, we will have a tremendously better time opening up the buyer pool for buyers. Sometimes an SBA deal will have as many as 20 offers. So, just think about it. What if we could position this business in such a way that buyers were coming through and you were getting to choose from the cream of the crop? That’s a better situation than in a situation where we have one buyer and we have to say, “Hey, you just have to take it or leave it with this particular offer.” And then the areas where you need to spend less time. Spend less time on the vanity metrics, the unique selling proposition, the the domain name, SOPs. Like, it’s good to have those. I think it’s great as you head towards a sale to like have everything documented, but we don’t need perfect documentation to get to the listing. That is pretty far down the list. You need to focus on these other items first. Knock those out, and then if you get all the way down to like having every operating procedure really well documented, that’s great. But, it’s not the type of thing that moves the needle on the front end. Okay, so let’s talk about your priority stack here. Be planning for growth. A buyer wants to buy a business that has built-in growth. So, you’ve got to build out the road map and it’s got to go beyond the sale. We need to sell this business while it’s still growing, while the growth seems turnkey. That’s when we want to sell it. Risk. I don’t know what the risk could be. Is there a risk that I have too much product concentration? Is there a risk with my supplier? Is there a risk because of tariff concerns, a big topic over the last year. All those kinds of things are risks. You’ve got to try to mitigate those and figure out how to position the business in a way that it doesn’t have those risks. How about defensibility? If it’s not very defensible today, you need to be taking the steps to make it work and to get it going, you know, in a way that it’s not going to be able to disappear overnight. A buyer is going to sniff through that in a heartbeat and say, “Hey, I’m out. There’s too much risk. I don’t think I can continue with this one.” The goal isn’t a perfect business. It’s an attractive business that multiple buyers want to compete for. Growth, low risk, real defensibility, clean books. That’s the formula. If you want to know where your business actually stands, [music] what’s helping your valuation and what’s not moving the needle, that’s exactly what a conversation with a Quiet Light advisor can clarify. Link’s in the description. No pressure, just clarity on where you are.