I have been working on a product for the last 3 years but am now moving away from it. The product has been shaped through heavy interaction with customers and it is working well for them. The product currently has zero marketing and all customers were referred by word of mouth. I do see promise for the idea but I am too time poor to execute it.
One of my customers is very interested in owning the product and taking it to market themselves but I have no idea how to price the transfer based on the value below:
I am an experienced software consultant who is very familiar with best practice across the Microsoft stack. The value that my customer will be getting is of a high standard and not a backyard job. The necessary measures have been put in place to allow for:
How do I put a monetary value on transferring ownership of the above?
My customer has offered me $25-30k with a possible stake in the business if I play a CTO-ish role but this kinda defeats the purpose of my exit.
Any direction would be greatly appreciated as I am not even sure if my initial approach is correct.
This can be a very difficult question to find an answer for and, unfortunately, most people in similar positions attach emotion to this number, making it unrealistic.
The best answer to price you venture would be, the highest price someone else is willing to pay for it. If no one will buy it, then it is worth $0. In your position, where you have a potential buyer, then the best price would be the the higher of these two: the price you're willing to sell, the price the buyer is willing to pay.
Ok, that aside, let me try and price your venture just so I can throw in a number.
I heavily disagree on there being a 'normal going rate for a startup'. If there were, it would be $0 because the majority of startups fail. Each startup is different, but we can find a few aspects that help with a price tag.
Two common aspects for valuation are:
- Monthly revenue multiple
- Price per active user
This is your best number for valuing your company. At this size (extremely small) you'd probably get 5-10x annual revenue multiple: $36k - $72k
Higher growth rate = higher revenue multiplier.
It seems like you have a low number of users, so this method may not be favorable. You'll need to calculate your Customer Lifetime Value (CLV) and then multiple that by your paying users + expected users over the next 12 months.
CLV x Paying Users (+ expected 12 month change) = price of your company
Unfortunately, the other details do not impact the value of your company significantly. They may increase the potential pool of buyers willing to buy your product, but not really adding $ value to it.
This adds little to no dollar value
I'm no expert on valuation, but I'll add my two cents anyway.
P/E ratio: 4.5
Caveats: The earnings you mention does not account for the current cost of on going support/ops-work?
My intial thought on the P/E ratio, is that this is a good price for the buyer, especially since this is before considering the possibility of selling subscriptions to a wider audience.
If I were to put my own money in something like this, it would come down assessing the quality of the code as well as the the scalability of the idea and infrastructure.
With a P/E of 4.5 it seems like a bargain, but since the absolute numbers are relatively low, even a bit of ongoing ops-work could eat away all the current earnings.
I hope this gives some perspective,
The normal going rate for a startup is about $750.000. However, if you are able to prove your "TamSamSom" you might be able to value your company more accurate. I use lean startup as a method to do so.
The easiest way to do this is simply by making a Facebook ad that links to a landingpage and see:
1: How many potential users your product would have. So just make a specific target audiance within your ad and see how many people fit the description.
2: How many people click on your ad. More specifically the clicktrough ratio.
3: How many people click "buy" or "more info" on your landingspage.
Now you know more about the (potential) value of your product/service.
Hope that helps