This article is part of our Valuation by Business Model series, in which we provide you with information on what makes your particular business model unique when it comes to valuation. For more in-depth reading on valuation, see our post How to Value a Website or Internet Business. To get a valuation from our expert team, click here.
Affiliate Site Market Update
Blogs and content websites are popular among online business owners, and for good reason. They’re relatively easy business models to get started and, when done properly, can be very profitable. Well-performing affiliate sites are in high demand, and in 2021 we saw robust multiples for these types of businesses – a trend that we’re seeing continue in 2022.
You can read more about trends, insights and best practices for 2022 in our content business white paper.
Since most content businesses rely quite heavily on SEO to drive traffic, Google’s algorithm can largely dictate a content site’s revenue. We have found that the sites that have been least affected by these updates are those that update their content regularly and add and remove content in order to remain relevant.
How to Determine Site Worth
The affiliate model is one of the best ways to monetize a content site. With affiliate marketing, the business owner partners with an outside company and features links to the company’s products on their content site. When visitors navigate to the company’s website and make a purchase, the content site owner gets compensated. Many key drivers contribute to determining an affiliate business’ value. Here is an overview of the main valuation drivers used:
Affiliate businesses are content sites first and foremost. In order to get visitors to click on the affiliate links in your articles, you need to have engaging content and a strategy that attracts them there in the first place. When it comes to content best practices, you will likely see positive results if your affiliate site contains many indexed pages with long-form content that addresses your audience’s needs. The frequency of posting is also important. Regular new high-quality content is key.
Your affiliate business’ SEO and link-building profile contribute to your site’s overall worth and, therefore, its valuation. After you have nailed down your content schedule and made sure that your pages contain high-quality content, you will want to make modifications to your site to improve your SEO. After all, increased traffic is critical to the success of affiliate sites and will lead you to optimize your site’s earnings. You will find more on that later in this article.
Age of the Site
An affiliate business with a longer track record demonstrates to a buyer that it has proven sustainability and is also easier to predict in terms of future profit. Older sites typically house more articles, rank for a greater number of organic keywords and have stronger SEO and link-building profiles.
What separates strictly content sites from affiliates sites are their partners. The size and nature of your partnerships contribute to site worth. Affiliate sites with large and established partners are seen as attractive since there is a lower risk of failure. Having more than one partner is also seen as a positive as diversification reduces risk as well.
Potential buyers of affiliate businesses are not seeking full-time jobs. Part of the appeal of running an internet business is the potentially passive nature of the income it brings in. Businesses that require relatively little time are more attractive than those that require a lot of work.
In order to arrive at an accurate valuation of an affiliate business, you need to look at the business’s financial picture, consider other attributes that contribute to its valuation and then determine the appropriate multiple. For most affiliate businesses, the Seller’s Discretionary Earnings (SDE) method is used to determine earnings or “net revenue.” In the internet business world, investors have increasingly gravitated towards the multiple-based methodology because of its simplicity and robustness in the face of scant financial or comparable data.
The multiple-led method stipulates the buyer should arrive at a valuation by multiplying the seller’s discretionary cashflow (SDC) by a multiple that is appropriate for the business. Naturally, the “appropriate” multiple is where all parties seek to formulate their own opinion and hopefully (read: eventually) arrive at a consensus before consummating the deal.
While the general valuation drivers are a key consideration, it’s important to note that every business is unique and there are several factors that impact the multiple along that range.
Depending on the strength of the above drivers will determine where an affiliate business’ multiple falls within the expected range of 3.0x-6.0x:
We’ve advised in the sale of affiliate businesses across various niches and income levels, so we’ve learned quite a bit about the factors that contribute most significantly to a high valuation. Here’s what we’ve come to understand:
The nature of the affiliate program will likely have an impact on the valuation. Any business that has been built to promote a single affiliate product is at risk of losing revenue because there is a chance that the product will change, go away or simply lose appeal with customers. This has been demonstrated well by Amazon in recent years. Being too reliant on a single revenue source is always risky. Conversely, if an affiliate business is promoting multiple offers and the revenues are well diversified, the business will likely receive a higher valuation.
In addition to product concentration, it is also important to consider the overall growth patterns of the business. For example:
- Is the business growing or shrinking?
- How evergreen are the products being promoted?
- How large and established is the affiliate partner (i.e., Amazon is a large incumbent player in e-commerce, so it has a lower perceived risk of failure)?
- How long has the business been a part of the affiliate program?
- Can the terms of agreement be transferred over to a new owner? Will the new owner have to negotiate on their own?
The more sustainable and reliable the affiliate program is, the higher the valuation multiple is likely to be.
As with any business, the niche plays a big part in the attractiveness of the opportunity for a buyer. You’ll want to examine product trends, seasonality and the overall staying power of your affiliate products.
Generally, evergreen niches will be valued higher than trending niches, even if the latter seems more appealing upfront. For example, everyday products like diapers will always be in demand. Therefore, an investor will assign a premium valuation to an evergreen product that will remain profitable and where there may even be room for additional long-term growth.
On the other hand, if the program is selling a trending product like fashionable facemasks, an investor would be right to question the sustainability of the business. It could be that fashionable facemasks are here to stay, but this is hard to predict given the age of the niche and the demographic of the target customer (trends tend to burn brighter and faster with younger audiences).
Seasonality and Promotions
Seasonal businesses can be very profitable and even considered evergreen if they’re something customers will demand year over year. However, seasonality definitely plays a part in how you need to present your financials for valuation.
Why don’t we use electric fireplaces as an example? You are likely to see higher sales in the fall and winter, and numbers will naturally be lower in the spring and summer.
If this business generates $5,000 per month between October through March but just $500 per month for the remainder of the year, it wouldn’t make sense to base a valuation on the financials from your high-income months. Instead, you would present your average monthly income for the year, which in this case would be $2,750.
The same is true for Christmas or Black Friday, which tend to be lucrative times of year for affiliate sites. This means there may be considerable spikes in commissions and revenue that should be averaged into year-round revenue.
Depending on the affiliate program, there may be commission tiers that are tied to the volume of sales through the affiliate account. While not volume-driven, the most well-known affiliate program is the Amazon Associates Program. The commission rates range based on category (this used to be on sale volumes, which Amazon changed over time).
Below you can see the different category-based commission tiers that Amazon uses for its affiliate program:
To see a full list of Amazon’s commission rates, visit their Fees Schedule here.
There are many examples of variable commission tiers across affiliate partners, and it is not uncommon for business owners to agree on custom rates with larger partners. This can provide above-average concentration and transfer risk to a new owner.
Please refer to our article on Amazon FBA Policies to see the latest changes to Amazon Affiliate Program & FBA Policy.
SEO and Link-Building
Affiliate sites usually target keywords with high buyer intent (i.e., “best espresso machines” or “top 10 espresso machines,” which heavily indicate that a user is looking to buy an espresso machine).
Because of this, some affiliate sites rely on SEO tactics that fall afoul of Google’s policies, and Google regularly updates its algorithms to ensure these sites are short-lived.
If the link profile is heavily anchored around one or two high buyer intent terms, it could pose a risk.
The image below shows what a natural backlink profile looks like in terms of anchor text. Notice that the anchor text is the name of the website—this is a good indicator of the site gaining natural backlinks and not trying to manipulate Google rankings.
Affiliate sites that are built on private blog networks or purchased backlinks are worth less than those with natural link profiles. Sites that use PBNs or purchased links to generate search engine rankings also generally will have less history than their natural counterparts at the same income level. A combination of short history and high penalty risk can have a large effect on the valuation of an affiliate website.
High-quality, long-form content is the most effective way to rank for relevant search terms and for turning readers into buyers, both of which are very important to the success of an affiliate website. The more indexed pages a site has, the more likely a site is to receive a good stream of traffic. But traffic alone won’t determine the quality of the content. The audience will also need to be engaged with the posts or product reviews.
One of the best ways to determine the quality of the content is to see if people are engaged with posts or product reviews.
Affiliate sites with hundreds of long-form articles are more likely to rank, and as such, this creates a defensive moat that is highly prized by investors. While other websites may come along and disrupt the search engine rankings for short periods of time (through inorganic links), Google is continuously investing time and resource into rewarding content that is in line with its vision, and these well-built sites will prevail in the long term—a factor that is key for investors and reflected through higher multiples.
You’ll want to assess the quality of your site’s content by your own subjective measures, but you may also hire an editor or freelance SEO consultant for a second opinion. If you’ve been outsourcing your content creation, you should consider using a tool such as Copyscape to confirm that there aren’t any duplicate content issues.
It is also worth considering how you are currently producing content for your site and how easy it will be to transfer this process to a new owner. If you are working with a copywriter or agency, then the reliability of this service will factor into the site’s value. If it seems unlikely that a new owner will be able to keep the content flowing long-term or will have to pay for copy at a higher rate, this could present a problem.
Check out this entrepreneur’s best advice for succeeding in the content and affiliate space.
Many people looking to purchase an online business will be well aware of the power of email lists. This is no different for affiliate businesses. When much emphasis is put on driving organic and referral traffic to affiliate sites. The use of a good email list can be just as effective. It is worth remembering that just having a long email list isn’t enough to improve the valuation of your affiliate business, you also need to be actively emailing that list and driving conversions. Being able to show off the effectiveness of your email strategy to investors and a roadmap of how to implement and improve it in the future would be a major asset.
Organic Traffic Health
For most affiliate sites, organic traffic is the main source of customers. This means that the more sustainable and consistent the organic traffic is, the better the affiliate site valuation.
Tools like Google Webmaster Tools, SEMrush and Ahrefs are invaluable in assessing keyword strength and can help shape the opportunities and upside to investors by demonstrating areas of relative strength, as well as areas of improvement to gain additional upside.
An important factor considered in valuations is the diversity of keyword rankings. Similar to platform risk, this reduces the reliance on any one key term, which, if lost, would be detrimental to the earnings potential of the affiliate site.
The image below shows how SEMrush displays the keyword diversification of a website. It looks at the percentage of total traffic that is driven from that specific keyword:
The image above shows that the highest-ranking keyword brings in 1.72% of the traffic. This is desirable in terms of diversification. If a single keyword accounts for more than 50% of the traffic, the website may be at risk long term, and the valuation will suffer.
Diversified traffic sources demonstrate that an affiliate website has desirable content which is well-received by end-users (and industry peers) and often linked to. This leads to higher valuations.
The next way to look at the organic health of your site is to view the diversification of organic traffic by the page. This is found by going to the “Pages” section in SEMrush.
Within the “Pages” section, you can view the pages that account for the most traffic to the site. Once again, the more diverse the traffic amongst the pages, the better.
Take a look at your top pages and see how much Organic Traffic each is getting. Is one page receiving more than 50% of your organic traffic? If so, this can be a warning sign. Relying on a handful of keywords or one page to drive the bulk of the traffic is not tactically smart. If, for some reason, those keywords or pages were removed, the site’s value would rapidly decline.
It is also worth noting social media when discussing traffic sources. Although driving traffic from social media channels can be difficult to sustain and more expensive than organic search, it can be a valuable way to increase the number of visitors navigating to your site. In order to continuously drive traffic to your site from social media, you will have to post regularly on platforms such as Facebook, Pinterest or Instagram, but if you do so and your audience is engaged, this can translate to strong results.
Earlier, we mentioned the importance of affiliate partners. However, these partners also come with risks. If an affiliate site only has one partner, the business can become highly exposed to their changes in policy or strategy. Affiliates can be thought of as outsourced marketing/advertising for e-commerce businesses and if the affiliate partner decides that the arrangement no longer suits them because they are not getting enough of a return from the partnership or are performing well enough on their own, they can cut rates. This happened last year when Amazon slashed rates by 50% or more.
Standard Valuation Factors
In this article, we mainly focused on highlighting the different valuation factors that are unique specifically for the affiliate business model. Below you can view a checklist that contains all of the valuation drivers that we consider when valuing an online business. You should use the valuation drivers below in addition to the ones that we highlighted throughout this article.
In summary, affiliate website valuations are highly contingent on the terms of the affiliate program and its longevity, the product category, the seasonality of the product, commission tiers, content quality, and the backlink profile. Affiliate websites that can score well in all of these areas will likely have above-average earnings, margins and longevity, which proves attractive to investors. Obtaining an accurate valuation can both ensure that you maximize your profit and are able to sell your business in a timely manner. If you are interested in having your business valued, please fill in our short form here.
Next Steps After Getting a Valuation of Your Affiliate Website
Once you have a sense of what your affiliate business is worth, it is time to consider if an exit is the right move. If you are looking to shift your focus to a new venture, are interested in a lump sum payment, or want to free up your time, selling your content business might be the right choice for you. There are several different avenues you can take. We’ve outlined four options below and highlighted the pros and cons of each to help you determine which would be the best fit for you.
How to Sell an Affiliate Business
If you’re looking to sell your affiliate business, you have four main options available to you:
- Marketplace – list the business for sale on a classified business-for-sale network like BizBuySell or BizQuest
- Auction – sell through an auction platform
- M&A advisor – hire a professional broker to sell the business on your behalf
- Direct – cold approach potential buyers and sell the business yourself
There are advantages and disadvantages to each of these approaches, which we cover briefly below.
Selling your affiliate business on a marketplace means preparing information on your business and posting a listing to generate interest from buyers that peruse the listings. A popular marketplace is BizBuySell.
- Low cost – a listing fee with added features is only a few hundred dollars.
- Large distribution – if you list on a large, reputable business-for-sale network, then it is likely your ad has the potential to be seen by a lot of visitors.
- Low demand – marketplaces serve a high volume of listings daily, and standing out from the crowd is often a problem. Most buyers perusing the listings look for listings with brokers (who use them as well) as they know the listings are likely pre-vetted.
- Process – you personally must take care of the process of vetting qualified buyers, sending out non-disclosure agreements, answering questions about the business, negotiating offers, running due diligence, preparing a contract for sale and facilitating the transfer of funds/assets. If you don’t have experience in a business sale process, you could run into issues. Going the marketplace route will also take your time and attention away from running your business.
A marketplace listing can work if you have a lot of experience selling businesses and you have the time to run a sale. Otherwise, it can be a long, high-effort way of finding a buyer. A marketplace sale, on average, takes about 6-9 months.
Selling your affiliate business on an auction platform is like a marketplace listing in that you’ll prepare similar information and run the process yourself. The difference with an auction scenario is that there will be a fixed period for the business to sell, which creates more competitive tension amongst buyers.
For online businesses, Flippa is the most common auction platform. In general, it is most suitable for businesses less than $5,000 in value and is most used for domain sales.
- Large distribution – if you list on a large network, then it’s likely your ad has the potential to be seen by thousands of visitors.
- Set timeframe – if you list for 7, 14 or 28 days, you have some certainty over the length of time to find a buyer, assuming a suitable one is found.
- Buyer qualification – many buyers on auction platforms are not seasoned business purchasers, and a lot are looking for their first purchase. This means many are looking for smaller business sales (<$5,000) and are inexperienced in the sale process, which can cause difficulties during due diligence and closing.
- Value – most buyers on auction platforms are looking for cheap business sales, and the typical multiple for sale is 0.5x – 1.5x. This is likely substantially lower than what you would want to get for your business.
- Process – as above, you are responsible for running the process end-to-end. This is likely going to take up quite a lot of your time.
- Fees – auction platforms such as Flippa charge a fixed listing fee and a success fee of 10% upon closing, so they are substantially more expensive than a marketplace and similar to an M&A advisor but rely on you to do everything.
An auction platform works well if you’re looking to sell a small business very quickly and for a cheap valuation.
M&A Advisory Firm
Selling your affiliate business with an M&A advisor is likely the best option to consider if you have a large business for sale ($20,000+), you don’t have a lot of experience selling a business and/or you want to maximize the sale value.
An M&A advisor will take care of the entire process end-to-end, from creating marketing materials to contacting buyers, negotiating offers, coordinating due diligence, drafting the contract for sale and facilitating the transfer of assets/funds through Escrow. They will also help advise on your valuation and the best deal terms for your legal protection and economic benefit.
- Large distribution – if you list with a well-established, reputable M&A advisor, you’ll gain access to their network of qualified and experienced business buyers, so you’ll be in front of a large, highly targeted investor audience. Their buyers will be able to execute and close a deal in a timely manner.
- Full process – a good M&A advisor will take care of the process end-to-end once you’ve provided enough information for the initial marketing materials. You won’t have to self-support negotiation, due diligence or contracts etc. This frees up time to continue running your business or doing your day-to-day tasks.
- Maximum value – an experienced M&A advisor will know how to value your business based on market insight and previous transactions. They will aim to court several offers and negotiate the highest one with the best overall terms.
- Upfront requirements – to work with an M&A advisor, you’ll need to be organized and have information on your business ready. Their buyers are highly motivated, organized and willing to execute for the right business but need the documentation ready to do so.
- Fees – an M&A advisor will typically charge up to 15% of the sale value of the business upon successful closing. That being said, if you hire the right advisor, in almost every case, the net proceeds to the seller (sale value minus broker fees) are higher than those from a marketplace, auction or direct sale.
An M&A advisor is a good option if you don’t have a great deal of experience valuing or selling an online business, don’t have the time to spare and want maximum proceeds from the sale of your business. A brokered sale usually takes between 4-8 weeks, depending on the size of the business (larger businesses can take longer). Check out our Selling a Business FAQs to learn more about the exit process and what to expect.
The final option is to directly approach potential buyers (cold email or call) and persuade them to buy the business. The most efficient way to do this is to target other business owners in the same or a complementary niche.
- No fees – if you find a buyer yourself and close successfully, it’s going to cost you a lot less than the other options. It’s likely you’ll only incur fees for legal advice.
- Finding the buyer – you’ll be required to do the research and outreach work necessary to find a buyer and may end up divulging sensitive information to competitors. Typically cold outreach has a low success rate – most business brokers avoid this route when selling a business.
- Process– similar to marketplace and auction, you are responsible for running the process end-to-end.
Direct works if you’ve been approached yourself (though you should still consider an M&A advisor to run a competitive process for value maximization) or if you don’t mind trying with a low chance of success. A direct sale can take 3-24 months, depending on whether you’ve had inbound interest or you’re starting from scratch.
How Does the Exit Process Work at FE International?
FE International will walk you through the exit process from start to finish. It does not matter if you have never divested of a business before or are a seasoned pro; we are here to help. Our process has been built with one thing in mind: minimizing your time commitment while maximizing the final sales price of your business.
Assessment and Valuation
We have discussed valuations at length earlier in this article. This stage is important since it is when we get to know more about you, your business and your goals for a sale. We will ask questions about your business to determine an accurate valuation and the best time to sell. Valuation is a complex topic and is not as simple as “annual profit x 3”. Our valuations are not based on theory, they are based on data from real sales we have completed over the past decade. We will let you know what your business is worth and how long we expect it will take to sell.
If you decide to work with us, we get a Representation Agreement signed which outlines our role, fee and exclusivity period. In most cases, we do not charge any upfront listing fees and only get paid when the deal is completed. Our fee covers:
- Valuation and pre-listing due diligence managed through a secure and audit-ready deal room;
- Preparing sales materials;
- A dedicated M&A advisor to communicate with and a whole M&A deal team dedicated to your sale;
- All advertising costs related to the sale/finding buyers;
- All negotiations directly with the buyer(s) and their representatives;
- In-house legal, including drafting the Letter of Intent (the formal offer from a vetted buyer), purchase agreements and other documents required to complete an acquisition;
- Escrow (Escrow.com or attorney escrow) facilitation;
- Handover documentation formation; and
- Management of post-sale contractual obligations.
Our sales materials are the very best in the industry. We prepare a detailed Prospectus for buyers that covers everything they need to know to make an informed offer on your business. This is usually 25-35 pages depending on the size and complexity of the business.
When preparing for the sale, we may ask for the following to be uploaded into the deal room:
- A detailed monthly profit and loss/income statement for at least the last 12 months;
- Detailed answers to a custom questionnaire about your business;
- Google Analytics access;
- Access to any third-party metrics platforms you may use; and
- Supporting documentation for business and financial claims
Our upfront preparation is incredibly detailed and ensures your business is best positioned for a successful sale.
Marketing Your Business for Sale
At this stage, our Onboarding and M&A teams work together to identify and speak to suitable buyers for your affiliate business. We have tens of thousands of vetted buyers looking for businesses to buy every day. On top of the buyers already in our database, we invest heavily into marketing your business (while retaining privacy) elsewhere.
Our advisors will deal directly with buyers on your behalf, answering questions, making calls and starting offer negotiations. At this stage, there may also be more questions for you to answer, facilitated by our M&A advisors to make the process as hands-off for you as possible.
Once we have discussed the business with all potential buyers, we will begin to narrow down to the most serious of prospects and work on getting offers from multiple parties. At this stage, you may be required to join conference calls with the buyer and your FE International lead advisor to discuss the sale.
We do all negotiation on your behalf and will advise on appropriate offer structures, but buyers often like to speak to the business owners directly to feel comfortable with the acquisition. Again, this is hosted through your dedicated advisor.
Once an offer (or multiple offers) is negotiated and the best buyer(s) selected, a formal Letter of Intent (LOI) will be prepared by our in-house legal team. This outlines the terms of the offer and sets the timeline for due diligence and closing.
Due diligence is an essential part of every business sale and ensures the buyer is comfortable with the business and claims made during the marketing and negotiations. It can sound like an arduous process, but its purpose is actually very simple, especially with an experienced M&A advisor on your side.
This process will vary depending on the buyer’s requirements (outlined in the LOI) and the complexity of the business but usually covers these six areas:
The due diligence process will be overseen by FE International through our secure deal room – we are always on hand to advise what is reasonable to expect in the process. Having verified much of the due diligence items ahead of listing, we have a 94.1% sale success rate.
Simultaneously, we will also start drafting the Asset Purchase Agreement (APA). To learn more about what buyers may look for, check out our article on advanced due diligence.
At this stage in the process, the buyer has been identified, the offer structure has been agreed upon, and due diligence has been completed. In most cases, FE International’s in-house legal team will draft the APA on your behalf, which forms the legal basis of the deal, but we also advise having your own attorney/lawyer review the agreement, too.
Once the contract and terms are agreed upon with the buyer and seller, the contract is signed by both parties (facilitated by FE International) the deal moves into escrow ahead of the transfer. We use either Escrow.com (more about their process here) or attorney escrow, depending on the size of the acquisition. Both options keep all parties safe and secure.
Throughout the transfer process, we will manage the process to ensure a seamless handover of assets. Once everything has been transferred (per the APA), funds will be released to you (this is when we get paid), and the acquisition is complete.