Buying a Saas for 50k?

[bod2411]

Hey folks I’d really like some advice,

I have an opportunity to buy a saas for roughly $50k…

The service operates as a free service and makes about 10k a year in advertising.

A ball-park estimate of users is 10,000 with maybe half of them being active users. I don’t know how accurate this is yet.

The service is low maintenance and has just been maintained by the developer. It has a lot of potential for premium features that I would
build.

As a software developer, I can easily rebuild this service but the already existing user base is what I’m interested in.

Thing is, $50k is about half of my liquid net worth. This would dip into our 6-month emergency fund. I’ve never purchased a business before, so this is uncharted waters for me.

I was wondering if Reddit had any advice?

Thank you!!

 

[me112233]

@bod2411 Careful with free users. What you want are the ones who are willing to pay for your service.

 

[bod2411]

@me112233 Wow that’s very wise. Thank you for mentioning that, you’re right.

 

[akhilstan]

@bod2411 Your conversion rate will probably be single digit percentages.

 

[shinemoon]

@me112233 Agreed.

 

[mercies892]

@bod2411 Alright you’re getting a ton of terrible advice in this thread so ima chime in even though I never comment on this sub.

The truth is you haven’t given enough info for anyone to give you any kind of good advice, but I can make some guesses.

I’m a marketing guy, not a saas guy, and pretty much no matter how you cut this deal it’s a bad one.

You’re paying $50k for $10k in revenue. Let’s assume ALL of that is profit (unlikely). So it’s making ~$833/month from advertising.

The average going rate right for extremely small advertising based websites right now is between 35x-47x avg last 12 months of monthly profit. So if ALL of that revenue is profit AND this website deserves a high multiple AND that profit has been stable for the last 12 months (all extremely unlikely from what you’ve described), you’re still overpaying ~$11k (nearly 25%).

Realistically, I’d guess you’re overpaying by $17k+, more than 35%.

And that’s just looking at pure revenue.

Let’s look at users: you say 10k users, half of which are active. So 5k FREE active users. Where are they from? How were they acquired? Do they have other free alternatives that they’d leave for if you start adding premium features?

That’s $10 per active user plus a database of inactive people that likely haven’t heard from the dev in months, maybe years. So they’re basically trash. Unless you’re an expert in reactivating old users. Also unlikely.

I could spin up some ads and get 5k free users from any number of platforms for $2-5/sign up easily, but again, without knowing where they’re from, what they want, what the sign up process looks like, demographics, etc, it’s impossible to know.

If the entire user base is hospitals that have $50m in revenue, shit those leads are worth $10k each let alone $10 each. But if it’s a dating site for single men from India then well, no offense to those wonderful dudes but those leads ain’t worth as much from an advertising perspective, and I could get 500k for $.30 each.

So, unless those leads are all high earning doctors or lawyers or businesses of some kind, and you have a way of verifying that info, then you’re overpaying.

But again, not enough info to be sure.

 

[bod2411]

@mercies892 Thanks for chiming in! The dev and I just have an exploratory conversation today so a lot of details were really just hand waived. It’s starting not to sound like the best deal based on everyone’s responses

 

[ron48170]

@mercies892 Most educated answer ever. Well thought out

 

[bruche]

@mercies892 How can you get sign-ups for $2-5? That seems really cheap

 

[mercies892]

@bruche I mean like I said, details matter here. We're talking about free users, of some unknown app, with no idea who the target market is. What does "Sign up" even mean in this context, an email address? A name and email? Maybe a phone number?

If you want random email addresses from anywhere in the world to sign up, I can get you "sign ups" for less than a dollar. Shit, I can get them for less than a few cents if you don't care about any kind of data validation. Obviously, those are junk leads that wouldn't mean anything, and that's the whole point.

If you want doctors practicing in NYC with 1000 patients making more than $500k/year, yeah those "sign ups" are gonna cost you a whole lot more than $2-5.

But yeah, I can get sign-ups for $2-5 no problem. Without context, it doesn't matter.

 

[wisprof]

@bod2411

As a software developer, I can easily rebuild this service but the already existing user base is what I’m interested in.

So essentially you'd be paying $50,000 for 10,000 users. At $5/piece that seems pricey considering you could probably acquire those users cheaper with paid and organic marketing.

Thing is, $50k is about half of my liquid net worth. This would dip into our 6-month emergency fund. I’ve never purchased a business before, so this is uncharted waters for me.

All of this sounds like a bad idea.

 

[bod2411]

@wisprof That’s what I was thinking too. If I was interested in his user base, I could just advertise on his platform for a lot less money!

 

[tacious]

@bod2411 Looking at revenue alone, not potential, 6x revenue is max is pay. Look at comps on sites like flippa or empire or acquire. Don't pay top dollar for that. This saas has probably peaked, check the numbers.

 

[christopher3927]

@tacious While I agree with the multiplier there is also a base minimum and 50k is not that high.

 

[truckingalongforgod]

@bod2411 How long will it take for you to build the same product? Do you know where to find users and onboard them?

 

[bod2411]

@truckingalongforgod I kind of already have a proof of concept. And the product is actually a service used for marketing products

 

[kobbyclaude]

@wisprof No, he's buying an existing product and its user base, with a view to enhancing it and hopefully attracting more users / revenue.

Software takes a _lot_ of time to develop, then get ready for production.. Then deploy to production, then market and build a user base. That's not nothing.

You've just dismissed all of that and said he's just buying 10k users @ $5 a piece??!?

 

[wisprof]

@kobbyclaude OP is a software developer and says himself he can easily rebuild it. That was literally the first thing I quoted.

Even if it takes 3 months to build, that's 50k he doesn't have to spend. He could even outsource and pay 10k to have it built and still have money leftover that could go to marketing.

And like I mentioned free user sign up are relatively cheap to acquire. With decent marketing you're not going to be paying anywhere near $5/user.

 

[kobbyclaude]

@wisprof Easily rebuilding it is easier said than done. But lets say you're right; with 3 months dev time he's still got zero users.

At that point, it's launch time. SEO is very hit and miss since the Google HCU, so launch day is pay to play.

It might take another year to iron out any bugs and fix issues, learn how to deal with user queries, perhaps outsource support somehow, then focus on marketing and building up a user base to the point wher you've got 10k users. Oh and improve the product at the same time.

So a year in, you've burned a hole in your 50k and you _might_ have a similar level of users. Or you might screw up somewhere along the line (very common) and you have zero users (maybe a bug, maybe poor support, maybe no marketing experience...)

By buying an existing product that's already developed, launched and has a userbase, he's leapfrogging all of that, and working on expanding an existing product and user base.

Sure he's down 50k, but he's gained a market-proven product, a userbase, an income and has gained a year he would've wasted developing something that might've failed at any stage in the pipeline.

I think you're looking at cost and ignoring value.

 

[wisprof]

@kobbyclaude Not every SaaS is extremely complex and takes a year to build. Some things are actually simple and can take a few weeks to build.

You're talking hypotheticals that may or may not be true. I'm assuming OP knows his facts and going by that.

If we're talking hypotheticals, sure OP can be over his head and doesn't know what he's talking about. And hypothetically OP could purchase a platform riddled with bugs, inaccurate numbers, and end up paying for a dud.