Editor’s Note: In this killer article, Greg from Empire Flippers goes over some of the most common mistakes and solutions for creating an SEO agency that can actually be sold. Even if you’re not planning on selling your agency, you should still implement these tactics, and make it “built to sell.” The same things that you would do to make it sellable are the same things that are going to make the business successfully be able operate, profit, and grow.
How To Build An SEO Agency – The Right Way
Building a business is exciting. Selling one is even more exciting. It is the culmination of all that sweat equity you’ve put into the business. It is the reward at the end of the journey.
Considering you could collect 20 to 40 times your monthly net profit up-front, that reward can be quite lucrative.
Search engine optimization (SEO) agencies have great margins. Often, they produce pure profit every month once your clients are actually ranked on the first page of Google. The agencies can be wonderful cash cows, especially if you are managing your clients correctly so they don’t take up too much of your time.
Despite bringing in the profit, SEO agencies are incredibly difficult to sell.
Service businesses, in general, are always the hardest style of online businesses to sell for a variety of reasons. However, the good news is you can fix most of these issues.
Do that, plus understand how a buyer’s mind works, and you can create a real sellable asset from your SEO agency.
So what are the issues that make it nearly impossible for most SEO agencies to sell?
The Big Bad Problem With Selling SEO Agencies
There are a lot of problems that ail SEO agencies.
One of the biggest issues is the fact that most agencies are one-person shows, which means the owner is doing everything. They are running:
- Fulfillment of services
- Customer service
- And everything in between
It’s all on them, and doing everything is not something buyers are usually interested in doing. At the end of the day, the majority of buyers are looking to invest in an asset, not a job where they are working 40+ hours per week.
The second issue agencies run into is their actual clients. Most agencies have only a handful of clients. Out of those clients, there is often one big client that is making up 50 percent or more of the agency’s revenue. Having one majority client is a huge critical point of failure. It would take just one bad day for that agency to lose half of its earnings from a client stepping out, and buyers aren’t on board with purchasing an agency with that issue.
If your business has only one majority client right now, you need to do some serious client acquisition to get away from this problem as fast as possible. At Empire Flippers, we won’t even accept an agency that gets 50 percent or more of their revenue from a single client.
Speaking of clients, a lot of SEO agencies are super broad, which means they never really took on a single niche. For SEO agencies, there are two kinds of niches:
- Localities (i.e., Austin, Texas)
- Industries (i.e., Chiropractors)
An SEO agency that is too broad, meaning they are trying to cover every industry and locality, can sometimes be an issue for a buyer. Buyers like to see a focused business that is laser targeted with their client acquisition. For one, it makes running paid ads to acquire more clients a lot more scalable; your ads can use a common pain point for a focused target market and still reach a large new audience. Plus, it is easier to rank for SEO terms targeting one particular type of client well versus hundreds of different kinds of clients.
One thing to think about from a seller perspective is that most buyers will make you sign a non-compete agreement. If your SEO agency is super broad, you may run into a problem telling them you’re selling the business to expand your other SEO agency that also has broad targeting. Instead, it is a lot easier to say you’re selling your SEO agency that handles only mold restoration companies so you can focus on your SEO agency that handles only plastic surgeons.
To fix these issues and prepare your agency for selling SEO, here are three of the best solutions to follow:
- Turn the agency into the Rank and Rent model
- Use a White Label method for fulfilling the services
- Scale your team
Let’s explore these three models in more detail.
Rank and Rent Model
This is a great model that allows you to build out an asset for your agency. Unlike working on client sites, you actually own these sites. Create your own website and rank for something like “Fort Lauderdale Plumber,” and once you’re ranked #1 on Google, you can rent out the entire website to a business in that area.
A lot of businesses will hop onto this solution and be more than happy to pay you a monthly fee for replacing the information on the site with theirs. The really powerful thing here is that if the client ever stops paying you … you just call their competitor and give them the same deal.
From a selling perspective, the Rank and Rent model can be more appealing to potential buyers who have zero interest in dealing with clients.
You can usually turn a Rank and Rent model easily into a simple local lead generation model. Simply sign up for a local lead generation network like QuinStreet, RingPartner, or HomeAdvisor and they’ll pay you out in a similar fashion as affiliate networks would.
This method creates real assets in the business, minimizes the need for client interaction, and is less fragile in terms of revenue plummeting if a client decides to stop paying you.
All of these traits are much more attractive to a potential buyer than a typical SEO agency. If it’s more attractive to a buyer, that makes it way easier for you to sell quickly and collect that 20 to 40 times of net monthly profit up-front.
The White Label Method
One of the biggest issues with SEO agencies, especially when selling one, goes back to the fact that buyers are looking for investments, not jobs. So, if your SEO agency requires you to actually fulfill the service, that limits your potential buyer pool by a dramatic amount.
Not only do you need a buyer who knows SEO, sales, and operations, but you need someone who knows your particular system of SEO. That can be a really tough ask.
You can use the power of white labeling to handle the majority of your actual fulfillment. White labeling is simply where you hire an SEO service provider to fulfill the SEO services your clients are paying you for. An easy way to look at this model is to view your agency as retail prices and the white label service provider as the wholesale prices. You make your money on the difference in the price tag.
Ideally, your white labeling method should not rely on a single person.
Instead, you should seek out an agency that can fulfill your needs at scale, and can adjust as you go up or down that scale.
White labeling is a great method of doing traditional client SEO without the potential buyer needing to fulfill the actual service. Plus, there are no employees that the buyer needs to manage.
The buyer will still need to manage clients, which will limit the overall buyer pool interested in purchasing your SEO agency. However, you can minimize this issue by combining a white label SEO service provider with scaling a team of your own.
Scaling Your Team
Just like the Rank and Rent model where you own the sites that create an actual asset for the business, a good team can also be the main asset of a service business.
A team could consist of an account manager, an administrative staff member, and a project manager that oversees the operations side of the business. The team is the other half of the system if you’re using white label service providers that can take care of the clients. Or, if you’re not using white label services, the team is the entire system for operating the business, as they do the actual service fulfillment.
The team must be willing to stay on for the buyer. If a buyer takes over an SEO agency and faces a brain drain of talent, they basically just invested in a high-pressure job to fix all the pieces. You should tell your team you’re selling the business, and make sure they’re comfortable with it. If you really want to make sure they’re going to stay, you could give them a kickback from the sale of your business after staying on for at least six months with the new owner.
While the team is the major thing here, you also need to make sure you’ve created really detailed standard operating procedures (SOPs). These SOPs are the operator’s manual for your SEO agency and will allow your potential buyer to train new employees in the case that any of the current employees leave the business or if they wish to expand the team.
Typically, the best way to install a team is to mix it with white label services. The white label services are there for the SEO fulfillment and the team is there to handle marketing, sales, and all client acquisitions/management.
I’ve talked quite bit about how to keep your buyer pool expanded rather than narrowing the buyer pool. Yet, even by implementing the above strategies, you’ll miss the boat if you don’t understand the mindset of a digital investor.
What is the psychology and anatomy of an online business buyer? Knowing the answer to that question is key if you plan on selling your agency for the highest possible price.
Understanding the Mindset of a Digital Investor
Selling any online business means getting into the heads of buyers/investors. The easiest way to understand your potential buyer is simply by doing what you’re already doing in your SEO agency today. Whenever you are out there hunting for new clients, you are looking for someone that has a problem you can solve. For SEO agencies, that problem is simple: The prospect is not ranking #1 on Google for buyer keyword terms.
Let’s use that same mindset as we approach potential buyers for your SEO agency.
What are their problems? What are their issues? How is your agency in particular the perfect solution to those issues?
Maybe they’re looking for a huge network of specific industry clients to upsell them on their Facebook ads product. They might specifically want to buy your SEO agency focused around mold restoration professionals so they can then upsell that entire client base on Facebook ads too. Or perhaps they love the idea of the Rank and Rent method because they have a lot of connections with the kind of professionals renting these sites.
For the most part, buyers, in general, are not looking to buy a job. That is why I’ve stressed how important it is to build assets for your SEO agency that most agencies don’t have. Potential buyers are looking to acquire a real asset, an investment that can grow month over month for them.
If you’re doing a private deal, then you’ll need to do some discovery. Ask buyers why they are looking at the business in the first place, find out about their background, and feel out why they are searching for an online business.
If you’re using a brokerage to sell your agency, you’ll have an advantage. For example, at Empire Flippers, we know our buyers very well. We talk to them every day about their criteria. Our Business Advisors understand both our clients’ short-term and long-term goals. That goes a long way to position your business as the obvious solution to buyers’ problems.
Once you have the psychology down, you need to know how to negotiate with the investor. Learning how to structure an earn-out, for example, can be extremely helpful if your agency is worth more than $200,000. At this price range, there will be more wheeling and dealing. Buyers will look to structure a deal that benefits them the most.
You’ll need to understand enough about deal structure to make sure you mitigate the risks associated with an earn-out, where a buyer pays you a large up-front amount, and then pays the rest of what they owe over a period of time (often 6-12 months). The payment could be an equal payment every month, or it could be a balloon payment where the buyer pays you a little every month, with a large payment that covers the rest of the price at the end of the loan period.
This kind of seller financing is very common in our industry due to the difficulty of getting traditional loans for online businesses.
While deal structuring almost always benefits the buyer more than the seller, if you find yourself in a seller financing arrangement, I have one pro tip for you: Charge an interest rate to the buyer. Almost zero sellers ask for interest on financing, and it is literally leaving money on the table.
By charging a small interest rate, you can mitigate some of the risk associated with an earn-out, and get paid more than what the business was actually bought for.
If You Want to Sell Your SEO Agency, Turn It Into an Asset
While negotiations and buyer mindset are obviously important aspects of selling your SEO agency, the most important piece of the puzzle is turning your agency into an asset that people want to buy in the first place.
The top three ways to make your business an asset are:
- Rank and Rent Model / Lead Generation Model
- SEO White Labeling to fulfill the service
- Scaling and growing a team
If you focus on creating a valuable asset that is a profit-producing machine with a solid foundation (i.e., SOPs, teams, business model, etc.), then you will put yourself in the best possible position when it does come down to the actual negotiations.
Which is to say, you’re going to make the most money when you do exit your agency.
Clayton Johnson is the CMO of The HOTH SEO company. He has over 8+ years experience in the SEO industry and has spoken at events like SEJ Summit. The HOTH has been featured in Inc 5000, Forbes, SMX, Pubcon, Content Marketing World, Affiliate Summit, Brighton and more.