We all enjoy the excitement of the prospect of making amazing business relationships that become highly profitable, but we are not so keen on taking risks. We all have overheads and worry about making decisions that do not provide us with the quick return on our time-investments.
In the summer of 2015 I began to consider providing SEO for companies on a monthly basis, in exchange for a share of the profits and share of the exit. The only problem was, how do you find companies that are potentially right for this type of deal. Whilst on holiday, weirdly I received an email from a director of a fashion-based company pitching this type of deal to me. Unfortunately, I couldn’t see the potential and because the takings were so minimal, I had to decline.
Fast forward one month and an existing client introduced me to the director of a body jewellery company, who had a proven track record of developing and selling niche businesses for a very healthy price. We began discussing his immediate SEO needs and decided to carry out an initial technical SEO audit. Whilst going into the finer details of this piece of work, I mentioned my interest in an alternative business relationship, whereby I provide my services in exchange for shares and % of exit. By chance, he was currently working in this way on another market-leading online business specializing in smoking paraphernalia. The only difference was that he had a development agency in this agreement, not an SEO agency.
We agreed to discuss this as an option after we have established a good working relationship, post-audit. This is advisable, as it means you can earn each other’s trust and see if you enjoy dealing with each other.
How old is the business and how are they performing organically/revenue?
It is important to understand how long the business has been running, so you can gauge where they are at in their development. If a company is in the startup phase with little income, then you have to be aware that you won’t be earning much in your first couple of quarters. If you can see lots of potential and find out that their rankings are poor, they have not built quality links and they have not given attention to onsite SEO, then there could be promise.
In my case, the business was 18 months old and had developed to a point where the turnover was £6000 a month, with 450 visits a day. This boiled down to around £3000 a month in profits.
With this knowledge it becomes very apparent that you won’t be making much money if the traffic and revenue stays the same.
Is there a substantial market?
Using tools like SEMrush, you can get a feel for the size of market by looking at the organic rankings for the top-ranking competitors. You can study their rankings and the associated monthly search volumes in any given country that you are going to target. When you compare your client’s rankings to the leaders, you can begin to see how much room for improvement there may be.
For example, if the leader ranks number 1 for “body jewellery” (a keyword that gets searched for 6,600 times a month in the UK alone) and your client ranks at 16, you can see clear signs of opportunity here. When you carry this activity out across 10s to 100s of keywords, you get a much clearer picture of the opportunity you have.
How good is the platform?
Before embarking on such a deal, you also have to consider how SEO-friendly their platform is. If they have an awful platform, it will make your job much harder. If you don’t get SEO results then you are going to be working at a much lower day rate than if you got a different client on a retainer.
Look out for the options to edit all elements of metadata – title tags, h tags, alt tags and canonical tags. As well as this, you need to be able to change page copy with ease.
If you can work with someone who has a good track record of developing businesses and selling them, then you are in a better standing. In this case, the client has developed multiple niche businesses and sold each of them for as high as £8,000,000 within 5 years from launch.
One of the highest selling businesses is actually the current market leader in this niche – so he obviously knows how to find a buyer and how to run a successful business.
Negotiation and risk
You have to respect your own time and consider that you can’t buy time back. At the same time, you have to realise that this business could reach a stage where your day rate is completely squashed by the return that this deal provides you on a quarterly basis. And that is without even taking into account what you can receive on the exit from this deal.
You need to calculate what quarter one will provide you based on the current company profits, with a desired percentage of profits in your mind. You then need to think about how much time per month you need to dedicate to this project to make an impact.
Consider how much your quarterly rate would be, for example 3 days per month for 3 months. Lets say quarter one would have provided you with £3000 if this was a normal client. With a 10% deal, are you able to sustain receiving £400-600 for quarter one, instead of £3000. You need to make a calculated decision on if you can afford to do this, as you can’t guarantee how quickly you can raise the bar on the traffic and revenue front.
You need to be clear on the terms of the deal. This includes involving your accountant on discussing the shares and how the payment is made to you each quarter. Ideally you want to be paid dividends each quarter to your own business with the b-shares in your personal name. If you are not on their books as an employee with shares, then you will be stung on a higher rate of tax when it comes to the sale of the business, as you are not eligible for entrepreneur’s relief.
So if the business sells for £5,000,000 and you are entitled to £500,000 you could be taxed £50,000 (if you are an employee with shares) or up to £160,000 if you are not an employee. This is where your accountant steps in to discuss these financial details, as they do need to be set up properly from day one.
Intent to sell
Let’s face it, the exciting part of this deal is when the director decides it is time to sell the business and move on. Keep in mind business sale prices can be calculated at 5-10x annual profits. You have no voting rights in this deal and so you have to wait for the day to come when the business is sold.
There are usually two types of buyers – the first type of buyer brings the sale price down by 10-20%, but pays cash up front. The second type of buyer pays the full amount, with 25% upfront and the remainder paid over 3 years. We prepared for either scenario.
Have an SEO strategy
It kind of goes without saying, but make sure you have a whole lot of SEO ideas for a project like this because your results equal your return.
Note: The opinions expressed in this article are the views of the author, and not necessarily the views of Caphyon, its staff, or its partners.