A question we get asked from smaller hosters is about Annualized Revenues.
Companies making acquisitions in the hosting services space often look at a firm's Annualized Revenues as a key component to valuation. This is generally because the acquiring firm will be consolidating the acquired customers into its own operations and thus is not as concerned with the seller's cost structure so much as it is how profitable the acquired customers would be on its own system.
Annualized Revenues is essentially the amount of revenue the customer base would produce over the course of a year if there were no changes to it - no churn, no growth, no price changes. One way to calculate it is to add up the following;
- Totaling the amount of payments for all accounts that pay monthly and multiply by 12.
- Totaling the amount of payments for all accounts that pay quarterly and multiply by 4.
- Totaling the amount of payments for all accounts that pay semi-annually and multiply by 2.
- Totaling the amount of payments for all accounts that pay annually and multiply by 1.
Acquirors often also want to see it broken down into categories by products or services like shared hosting, domain registration, etc.
I hope this is helpful and if you have any questions or would like more detail on how to do calculations like this for your business please send us an email or give us a call.
BE AWARE THAT THE PURCHASE OF ASSETS OR BUSINESSES MAY BE RISKY. SMALL BUSINESSES ARE OFTEN DEVELOPMENT STAGE OPPORTUNITIES WITH SIGNIFICANT FINANCIAL, TECHNOLOGICAL AND OPERATING HURDLES TO OVERCOME AND PURCHASERS HAVE A MEANINGFUL RISK OF LOSS OF THEIR ENTIRE PURCHASE PRICE.
Disclaimer: This post is for general information purposes and is not meant to be taken as finanical advice, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.
