The work the seller does
A broker emailed me an exciting offer. A lot of what I've seen are operations that might be mildly interesting, but mostly "collecting a paycheck."
Found something that's in a niche I want (I'll try to go more into this in a future post).
The downside is the seller puts in 5-8 hours of work a week on top of having a VA that does some work as well.. The revenue is <$2K/mo which makes me think wow. That's potentially a lot of work. Which is why multiples and straight up revenues are misleading.
I'm going to keep asking the seller questions, I suspect at the heart of it, is the seller is a strong operator that doesn't want to delegate certain tasks.
I also suspect, that at various revenue bands, this changes. At a certain revenue it just makes sense to hire people to do things for you and hopefully better than you.
Curious what types of work people are seeing sellers put in at this price band ($500-$2000/mo).
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Not immediately answering your question, but walking through the costs a little for some perspective (a good exercise for me too).
Let's just say you have to initially do that 5-8 hours/week. For sake of discussion, let's call it 6.5 hours.
You have to put a value on your time, so let's go with $100/hr (even if you would earn less or more if you were doing paid work). For a month, that's $2600 worth of your time right there.
Even if you could off-load most of that work to a VA:
20 hours @ $20/hr = $400
6 hours @ $100/hr = $600
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Month Total = $1000 + Existing VA monthly cost (?) + Any other operational costs
Seems to me the reason the person is selling is because it's not profitable enough.
To know whether or not this small business is worth purchasing, you'd have to have a clear understanding of all the operational costs/overhead. You'd also have to clearly see how you could grow it.
My Side Hustle
For context, I have one side hustle (a WooCommerce Extension) that currently brings in around $1k/month in revenue, on average. In the last 3 months I haven't spent any time on it -- no customer support tickets, no dev needed, no nothing (been running on auto-pilot). Monthly costs are pretty low, leaving profit margins 80%+.
Revenues in 2020 are up 100% from 2019.
Even still, I still don't see it as being that great of side-hustle.
Why? It's not that much monthly net income, and I know that at anytime I will have to invest in dev, support, etc. that will eat away at all the profit.
The only reason I'm keeping it atm, is because revenues are compounding yearly, and I haven't done anything to market it -- all organic traffic & sales, no marketing.
In 2021 I'm looking at three options:
Anyway, I hope the perspective helps somewhat.
Thanks @iammike,
I did similar math - but my VA costs (I have one already) are significantly cheaper.
20 hours @ $4/hr = $80
6 hours @ $100/hr = $600
The existing VA costs were already subtracted from sellers MRR, so This is $680 subtracted from just under $2K, we're netting about $1K.
There's some bonuses that make this more appealing than the price alone.
a. Selling/partnering with businesses/organizations
b. Display advertising
c. Newsletter advertising
Unfortunately those 5 points can blur my more analytical side, but not much. This would be my first purchase, and it's not so large that I'd feel bad if it didn't work out. I need it for a learning exercise for larger projects.
@SoulOfTheGods - sounds like it's worth giving it a go then :)
Good luck and keep us posted!
Separately, where did you find your VA? I'm going to need one in early 2021 and would appreciate any referrals you'd be able to make.
Incidentally it was a process - and another IndieHacker asked me to blog about it. ;)
Read through it. Good stuff.
Sounds similar to how I've hired staff before.
The #1 thing that helps me weed out submissions is to always ask a minimum of 5-7 questions that must be answered and submitted with the application.
The questions should only take 15-20 minutes to answer, and generally can have multiple ok answers.
Any without answers go immediately in the trash :)
Thanks! I'll check it out.