Over the past few years, we’ve seen many acquisitions and merges in the WordPress space. This is a quick look at how their valuations may work and what important factors could come into play.
The ideal situation for selling is when your plugin or theme business already has a relatively stable month over month revenue. The market is currently dictating a sale price of 2.5x to 3.x annual net profit.
In most cases, as a buyer, you’ll have to put in some work to arrive at an accurate net profit figure. Most of the smaller plugin businesses are run by their original creators and they tend to not evaluate the effort involved correctly, leading to higher net profit figures.
When you compare the multiples of WordPress plugin and theme sales to other kinds of online businesses, they are still quite low. Consider for example SaaS businesses, which sell at 3x to 4x annual net profit.
I think it’s a question of having more demand in the market, as well as the fact that plugins are GPL and so, in theory, anyone could just copy the plugin and start selling it without having to buy your business.
If you’re selling your plugin or theme business, make sure your accounts are clean and your PayPal account only contains income related to the plugin you want to sell and not other products or services that you offer within your business. Buyers will ask for at least the past 6 months of accounts, as well as Google Analytics data, another very important thing you need to take care of.
Legal documentation is usually handled by the broker, and of course, they will take a commission for the trouble of promoting your plugin, dealing with the buyer and drawing up contracts. Typically it will be around 15% of the sale price.
An Alternative Approach
Another way of selling your plugin could be to launch it on the free .org repository, then build it up to a stage where many users are asking for premium add-ons.
At that point, it could be an attractive proposition to a seller, as although the core plugin is free, there would be a clear interest in premium add-ons. This will invariably fetch less than what a fully functioning premium plugin business would, but on the other hand, it can be perfect for developers who want a quick cash inflow or simply don’t have the time to run a premium plugin business.
They might have a day job and prefer building free plugins on the side with no pressure from paying clients, and this is a great way to monetize for such developers.
What are your thoughts on the acquisitions that have been happening in the WordPress space? Let us know in the comments below.
This article was written by Jean Galea and originally published on WP Mayor.