“Search engine optimization” has always been an odd term as it’s somewhat misleading. After all, we’re not optimizing search engines.
SEO came about when webmasters optimized websites. Specifically, they optimized the source code of pages to appeal to search engines. The intent of SEO was to ensure websites appeared higher in search results than if the site was simply left to site designers and copywriters. Often, designers would inadvertently make sites uncrawlable, and therefore invisible in search engines.
But there was more to it than just enhancing crawlability.
SEOs examined the highest ranking page, looked at the source code, often copied it wholesale, added a few tweaks, then republished the page. In the days of Infoseek, this was all you needed to do to get an instant top ranking.
I know, because I used to do it!
At the time, I thought it was an amusing hacker trick. It also occurred to me that such positioning could be valuable. Of course, this rather obvious truth occurred to many other people, too. A similar game had been going on in the Yahoo Directory where people named sites “AAAA...whatever” because Yahoo listed sites in alphabetical order. People also used to obsessively track spiders, spotting fresh spiders (Hey Scooter!) as they appeared and....cough......guiding them through their websites in a favourable fashion.
When it comes to search engines, there’s always been gaming. The glittering prize awaits.
The new breed of search engines made things a bit more tricky. You couldn’t just focus on optimizing code in order to rank well. There was something else going on.
So, SEO was no longer just about optimizing the underlying page code, SEO was also about getting links. At that point, SEO jumped from being just a technical coding exercise to a marketing exercise. Webmasters had to reach out to other webmasters and convince them to link up.
A young upstart, Google, placed heavy emphasis on links, making use of a clever algorithm that sorted “good” links from, well, “evil” links. This helped make Google’s result set more relevant than other search engines. Amusingly enough, Google once claimed it wasn’t possible to spam Google.
Webmasters responded by spamming Google.
Or, should I say, Google likely categorized what many webmasters were doing as “spam”, at least internally, and may have regretted their earlier hubris. Webmasters sought links that looked like “good” links. Sometimes, they even earned them.
And Google has been pushing back ever since.
Building links pre-dated SEO, and search engines, but, once backlinks were counted in ranking scores, link building was blended into SEO. These days, most SEO's consider link building a natural part of SEO. But, as we've seen, it wasn’t always this way.
We sometimes get comments on this blog about how marketing is different from SEO. Well, it is, but if you look at the history of SEO, there has always been marketing elements involved. Getting external links could be characterized as PR, or relationship building, or marketing, but I doubt anyone would claim getting links is not SEO.
More recently, we’ve seen a massive change in Google. It’s a change that is likely being rolled out over a number of years. It’s a change that makes a lot of old school SEO a lot less effective in the same way introducing link analysis made meta-tag optimization a lot less effective.
My takeaways from Panda are that this is not an individual change or something with a magic bullet solution. Panda is clearly based on data about the user interacting with the SERP (Bounce, Pogo Sticking), time on site, page views, etc., but it is not something you can easily reduce to 1 number or a short set of recommendations. To address a site that has been Pandalized requires you to isolate the "best content" based on your user engagement and try to improve that.
Google is likely applying different algorithms to different sectors, so the SEO tactics used in on sector don’t work in another. They’re also looking at engagement metrics, so they’re trying to figure out if the user really wanted the result they clicked on. When you consider Google's work on PPC landing pages, this development is obvious. It’s the same measure. If people click back often, too quickly, then the landing page quality score drops. This is likely happening in the SERPs, too.
So, just like link building once got rolled into SEO, engagement will be rolled into SEO. Some may see that as a death of SEO, and in some ways it is, just like when meta-tag optimization, and other code optimizations, were deprecated in favour of other, more useful relevancy metrics. In others ways, it's SEO just changing like it always has done.
The objective remains the same.
Deciding On Strategy
So, how do you construct your SEO strategy? What will be your strategy going forward?
Some read Google’s Webmaster Guidelines. They'll watch every Matt Cutts video. They follow it all to the letter. There’s nothing wrong with this approach.
Others read Google’s Guidelines. They'll watch every Matt Cutts video. They read between the lines and do the complete opposite. Nothing wrong with that approach, either.
It depends on what strategy you've adopted.
One of the problems with letting Google define your game is that they can move the goalposts anytime they like. The linking that used to be acceptable, at least in practice, often no longer is. Thinking of firing off a press release? Well, think carefully before loading it with keywords:
This is one of the big changes that may have not been so clear for many webmasters. Google said, “links with optimized anchor text in articles or press releases distributed on other sites,” is an example of an unnatural link that violate their guidelines. The key are the examples given and the phrase “distributed on other sites.” If you are publishing a press release or an article on your site and distribute it through a wire or through an article site, you must make sure to nofollow the links if those links are “optimized anchor text.
Do you now have to go back and unwind a lot of link building in order to stay in their good books? Or, perhaps you conclude that links in press releases must work a little too well, else Google wouldn’t be making a point of it. Or conclude that Google is running a cunning double-bluff hoping you’ll spend a lot more time doing things you think Google does or doesn’t like, but really Google doesn’t care about at all, as they’ve found a way to mitigate it.
Bulk guest posting were also included in Google's webmaster guidelines as a no no. Along with keyword rich anchors in article directories. Even how a site monetizes by doing things like blocking the back button can be considered "deceptive" and grounds for banning.
How about the simple strategy of finding the top ranking sites, do what they do, and add a little more? Do you avoid saturated niches, and aim for the low-hanging fruit? Do you try and guess all the metrics and make sure you cover every one? Do you churn and burn? Do you play the long game with one site? Is social media and marketing part of your game, or do you leave these aspects out of the SEO equation? Is your currency persuasion?
Think about your personal influence and the influence you can manage without dollars or gold or permission from Google. Think about how people throughout history have sought karma, invested in social credits, and injected good will into their communities, as a way to “prep” for disaster. Think about it.
We may be “search marketers” and “search engine optimizers” who work within the confines of an economy controlled (manipulated) by Google, but our currency is persuasion. Persuasion within a market niche transcends Google
It would be interesting to hear the strategies you use, and if you plan on using different strategy going forward.
There are quite a few rank tracking options on the market today and selecting one (or two) can be difficult. Some have lots of integrations, some have no integrations. Some are trustworthy, some are not.
Deciding on the feature set is tough enough but you also need to take into account who is storing your data. Can you trust that person or company? Will they use your aggregate data in a blog post (which is a signal that they are using your data for their own gains) or use your data to out a client of yours? Decisions, decisions...
What I Use
I use and recommend 2 services; one is web-based and one is software-based (where I have full control over the data). The software version is quite robust and has many integrations and options (that you may not need). This review covers my recommended web-based platform, Authority Labs.
I use Authority Labs for most rank checking reports and I find it to be a wonderfully powerful web-based tool that is super easy to use. My recommended software package is Advanced Web Ranking. AWR is what I use for really in-depth analysis of pretty much everything (rankings, analytics, links, competitive analysis, etc.). If you are interested in learning a bit more, check out our Advanced Web Ranking review.
In-depth analysis doesn't need to occur every day, but overviews of overall ranking health does. Daily, aggregate spot checks will help you spot large-scale changes quickly. Be consistently proactive with your clients and your own sites is quite a bit better than always being reactive.
Benefits of the Two Tool Approach
The benefits of this approach are that I get a locally-owned copy of my data and all the options I'd ever need while getting a reliable, hassle-free web-based copy that updates daily and is really easy to report on and/or give clients access to ranking reports if needed.
Some clients require more in-depth reporting as a whole and you should strive to make yourself way more valuable than just a ranking report hand-off company, but if you are rolling your own reports and mashing data together then Authority Labs can really make your life quite a bit simpler.
With Authority Labs and Advanced Web Ranking I get the best of both worlds and redundancy. It's a beautiful thing.
What Does Authority Labs Do?
It's a rank tracking application, plain and simple. Some of the main features I use most of the time are:
Tracking keywords daily
Tracking Google, Bing, and Yahoo SERPs
Viewing estimated search volume (via a bar graph) for your tracked keywords
Selecting a location all the way down to the zip code
Viewing daily ranking charts for a selected keyword
Exporting PDF reports for monthly, weekly, quarterly, *since added* date, and/or daily comparison reports
Comparing rankings against a competitor
Sharing a public URL with a client for their project
Exporting one domain or an entire account history in CSV format as part of a backup process
Producing white label reports
The local feature is quite nice as well. It will track as if the search is occurring in that particular location (obviously really, really helpful for locally based keywords).
Another feature that I really like is the "results type" column:
In this column, which appears next to the keyword, it will show you if any of the following items appeared in that SERP:
Google Places results
There are some other solid features as well but the ones mentioned above are some of my favorites.
Working with Domains
Authority Labs gives us the ability to do a few nifty things with domains. We can:
In order to understand how best to use the domain categorization features we have to understand how domain tracking works in the application. You can utilize specific URL, subdomain, or root domain tracking and also introduce wildcards to track more in-depth site structures.
Some general rules of thumb:
If you choose a subdomain it will not track the root and beyond, only what's housed under the sub-domain structure
If you choose a root domain, it will track sub-domains and sub-pages across the root and any sub-domains
If you add just a site.com/folder it will only track that folder and down
If you add just a site.com/folder/page it will track just that page
If you use a wild card like site.com/wildcard/something it will track anything on the root and on any sub-domains that have "something" as a folder or page name preceded by a category or folder
You can tag to your hearts content but it can get a bit unwieldy so I'd recommended using the solution that works best for your set up.
Personally I like the ability to use grouping to group my sites/client sites and competing sites while relying on tagging to determine whether it's a client site, a site I own, and the market it is in (finance, ecommerce, SEO, whatever). This way I can quickly see a client-specific group, my own sites separated out, and then drill down into a particular market/core keyword to see the competing sites and such. Remember that when you sync domains together to track against each other, they reside in their own group.
I also like the ability to group domains that might not be a direct competitor and tag them as "watch" just to track their growth and then try and reverse engineer the strategy.
These options offer a lot of flexibility and there's no real wrong way to use them, I just recommended really thinking through how you want to organize things prior to moving things around in the interface.
Adding a Domain
Adding a domain is simple. Click on domains and then add a domain in the sidebar on the left:
From here, you add the domain (or subdomain, page, domain with wildcard, etc) and select what engines to track, what options to show, and what location (if any) to search from:
Next up is adding the keywords to the domain, up to 25 at a time (otherwise you should use the import function):
After I add a site my workflow usually is to add tags to the domain, add competing sites, then group them. So here is the ranking interface of a specific domain:
You can see in the upper left where you can add tags, the link in the upper right is for the publicly shareable link, the paper icon is for a PDF report of what you see on the screen + time frame selected, and you can see where you can filter keywords by tag or name.
The time frames available:
Compared to previous day
Compared to previous week
Compared to previous month
Compared to 3 months ago(quarterly)
Compared to date added
So then I'd add the competing sites in the same way, except with different tags. Keep in mind that when you want to add competing sites with yours they have to have the same keyword sets (no more, no less).
If you want to do a lot of specific competitor tracking across the entire breadth of your site's keywords then you can utilize the grouping and tagging features mentioned above to split them off into relevant buckets. Keep in mind that any synced domains will also belong to their own group (the domains that are synced are grouped together)
When you are in the domain interface you can see average rank based on time period selected (same as time periods above) and filter by domain name and tag:
Here's what a domain looks like in this overview area:
Overall average rank is 7 for all the keywords and +6 since last week (as that is the time frame selected).
Grouping and Syncing Domains
After adding the domains, their keywords, and tagging them you can then group them as needed. Back on the domain overview page you can see my ungrouped domains for this particular review:
To group or sync them just check off the boxes and click group in the left sidebar.
Once they are synced you just go back to the domain overview, click on the group name where the domains are synced, and you get the keywords side by side with the synced domains.
Working with Keywords
To add up to 25 keywords to a project just get into the domain and click add keywords on the left. If you need to bulk upload keywords you can click on the bulk upload button and the instructions are there for you:
If you click on a keyword the tag dialog comes up on the left. If you have a large keyword list and you aren't using the domain strategies mentioned above, tagging keywords certainly makes sense.
You can also filter keywords by tags and keyword names (just the keyword itself).
Another thing you can do with keywords is to click on the graph to the left of the keyword to see a daily history over the course of a month, 3 months, 6 months, and 1 year.
You can click on multiple keywords to graph them together. This is helpful when diagnosing ranking nosedives (or upticks of signifigance). If you are tracking multiple engines you can switch between them too
There are 3 types of reporting options available:
PDF's are available in the upper right of the domain landing page and the report will show the changes relative to the time frame selected on the screen. Again, the time frames available are:
Compared to previous day
Compared to previous week
Compared to previous month
Compared to 3 months ago(quarterly)
Compared to date added
If you want to compare a specific date range outside of the above, you'll get an excel download. This is something I hope they can update in the future to be a bit more robust with PDF reporting.
The excel download is really just an export (as described in the next section) for a specific time period with day by day numbers. So if you exported for a 30 day period you'd get the rank for each keyword on each day in Excel format.
You can also white label reports, which is standard in just about all rank tracking/reporting applications.
Importing and Exporting
Currently you can only import keywords as described above, you cannot import historical data (they did offer a Raven import back when Raven shut down Rank Tracking) from another application yet.
Exporting is easy, you can choose 1 domain or all domains and a specific time frame:
Whatever date range you select here will result in day by day ranking positions (the excel report mentioned above). This is one (kind of clunky) way to compare specific dates. In fairness, the date ranges they give you for onsite viewing and PDF downloads really do cover a good percentage of the date ranges you'd need to figure out what was going on. Still, it would be nice to have more granular comparison options.
You can do the following with access levels:
Add someone to your team (they get access to selected domains in your account)
If you add them as an Admin they can manage the entire account
Create a new "Team" and give that team access to specific domains only and add people to that team only (great for clients)
Another great feature is that 1 keyword only counts once even if you are tracking competitors with those keywords and using the 3 engines. This really makes it cost-effective to track pretty much everything you want to track.
There are some improvements that I'd like to see (analytics integration, link integration, and some more granular reporting options) but for a web-based rank tracker Authority Labs is my tool of choice.
The fundamental shift in the past couple of years has been more emphasis on what could be characterized as engagement factors.
I became convinced that Panda is really the public face of a much deeper switch towards user engagement. While the Panda score is sitewide the engagement "penalty" or weighting effect on also occurs at the individual page. The pages or content areas that were hurt less by Panda seem to be the ones that were not also being hurt by the engagement issue.
Inbound links to a page still count, as inbound links are engagement factors. How about a keyword in the title tag? On-page text? They are certainly basic requirements, but of low importance when it comes to determining ranking. This is because the web is not short of content, so there will always likely to be on-topic content to serve against a query. Rather, Google refines in order to deliver the most relevant content.
Google does so by checking a range of metrics to see what people really think about the content Google is serving, and the oldest form of this check is an inbound link, which is a form of vote by users. Engagement metrics are just a logical extension of the same idea.
Brands appear to have an advantage, not because they fit into an arbitrary category marked “brand,” but because of signals that define them as being more relevant i.e. a brand keyword search likely results in a high number of click-thrus, and few click-backs. This factor, when combined with other metrics, such as their name in the backlink, helps define relevance.
Social signals are also playing a part, and likely measured in the same way as brands. If enough people talk about something, associate terms with it, and point to it, and users don’t click-back in sufficient number, then it’s plausible that activity results in higher relevance scores.
We don’t know for sure, of course. We can only speculate based on limited blackbox testing which will always be incomplete. However, even if some SEOs don’t accept the ranking boost that comes from engagement metrics, there’s still a sound business reason to pay attention to the main difference between brand and non-brand sites.
Investing In The Return
Typically, internet marketers place a lot of emphasis, and spend, on getting a new visitor to a site. They may also place emphasis on converting the buyer, using conversion optimization and other persuasion techniques.
But how much effort are they investing to ensure the visitor comes back?
Some may say ensuring the visitor comes back isn't SEO, but in a post-Panda environment, SEO is about a lot more than the first click. As you build up brand searches, bookmarking, and word-of-mouth metrics, you’ll likely create the type of signals Google favours.
Focusing on the returning visitor also makes sense from a business point of view. Selling to existing customers - whether you’re selling a physical thing or a point of view - is cheaper than selling to a new customer.
Acquiring new customers is expensive (five to ten times the cost of retaining an existing one), and the average spend of a repeat customer is a whopping 67 percent more than a new one
So, customer loyalty pays off on a number of levels.
Techniques To Foster Loyalty
Return purchasers, repeat purchasers and repeat visitors can often be missed in analytics, or their importance not well understood. According to the Q2 2012 Adobe analysis, “8% of site visitors, they generated a disproportionately high 41% of site sales. What’s more, return and repeat purchasers had higher average order values and conversion rates than shoppers with no previous purchase history
One obvious technique, if you’re selling products, is to use loyalty programs. Offer points, discounts and other monetary rewards. One drawback of this approach is is that giving rewards and pricing discounts is essentially purchasing loyalty. Customers will only be “loyal” so long as they think they’re getting a bargain, so this approach works best if you’re in a position to be price competitive. Contrast this with the deeper loyalty that can be achieved through an emotional loyalty to a brand, by the likes of Apple, Google and Coke.
Fostering deeper loyalty, then, is about finding out what really matters to people, hopefully something other than price.
Take a look at Zappos. What makes customers loyal to Zappos? Customers may get better prices elsewhere, but Zappos is mostly about service. Zappos is about ease of use. Zappos is about lowering the risk of purchase by offering free returns. Zappos have identified and provided what their market really wants - high service levels and reasonable pricing - so people keep coming back.
Does anyone think the engagement metrics of Zappos would be overlooked by Google? If Zappos were not seen as relevant by Google, then there would be something badly wrong - with Google. Zappos have high brand awareness in the shoe sector, built on solving a genuine problem for visitors. They offer high service levels, which keeps people coming back, and keeps customers talking about them.
Sure, they’re a well-funded, outlier internet success, but the metrics will still apply to all verticals. The brands who engage customers the most, and continue to do so, are, by definition, most relevant.
Another thing to consider, especially if you’re a small operator competing against big players, is closely related to service. Try going over-the-top in you attentiveness to customers. Paul Graham, of Y Combinator, talks about how start-ups should go well beyond what big companies do, and the payback is increased loyalty:
But perhaps the biggest thing preventing founders from realizing how attentive they could be to their users is that they've never experienced such attention themselves. Their standards for customer service have been set by the companies they've been customers of, which are mostly big ones. Tim Cook doesn't send you a hand-written note after you buy a laptop. He can't. But you can. That's one advantage of being small: you can provide a level of service no big company can
That strategy syncs with Seth Godin’s Purple Cow notion of “being remarkable” i.e do something different - good different - so people remark upon it. These days, and in the context of SEO, that translates into social media mentions and links, and brand searches, all of which will help keep the Google Gods smiling, too.
The feedback loop of high engagement will also help you refine your relevance:
Over-engaging with early users is not just a permissible technique for getting growth rolling. For most successful startups it's a necessary part of the feedback loop that makes the product good. Making a better mousetrap is not an atomic operation. Even if you start the way most successful startups have, by building something you yourself need, the first thing you build is never quite right.....
Gamification has got a lot of press in the last few years as a means of fostering higher levels of engagement and return visits.
The concept is called gamification - that is, implementing design concepts from games, loyalty programs, and behavioral economics, to drive user engagement”. M2 research expects that US companies alone will be spending $3b per year on gamification technologies and services before the end of the decade
People have natural desires to be competitive, to achieve, to gain status, closure and feel altruistic. Incorporating game features helps fulfil these desires.
And games aren’t just for kids. According to The Gamification Revolution, by Zichermann and Linder - a great read on gamification strategy, BTW - the average “gamer” in the US is a 43 year old female. Gaming is one of the few channels where levels of attention are increasing. Contrast this with content-based advertising, which is often rendered invisible by repetition.
This is not to say everything must be turned into a game. Rather, pay attention to the desires that games fulfil, and try to incorporate those aspects into your site, where appropriate. Central to the idea of gamification is orienting around the deep desires of a visitor for some form of reward and status.
The user may want to buy product X, but if they can feel a sense of achievement in doing so, they’ll be engaging at a deeper level, which could then lead to brand loyalty.
eBay, a pure web e-commerce play dealing in stuff, have a “chief engagement officer”, someone who’s job it is to tweak eBay so it becomes more-gamelike. This, in turn, drives customer engagement and loyalty. If your selling history becomes a marker of achievement and status, then how likely are you to start anew at the competition?
This is one of the reasons eBay has remained so entrenched.
Gamification has also been used as a tool for customer engagement, and for encouraging desirable website usage behaviour. Additionally, gamification is readily applicable to increasing engagement on sites built on social network services. For example, in August 2010, one site, DevHub, announced that they have increased the number of users who completed their online tasks from 10% to 80% after adding gamification elements. On the programming question-and-answer site Stack Overflow users receive points and/or badges for performing a variety of actions, including spreading links to questions and answers via Facebook and Twitter. A large number of different badges are available, and when a user's reputation points exceed various thresholds, he or she gains additional privileges, including at the higher end, the privilege of helping to moderate the site
Gamification, in terms of the web, is relatively new. It didn’t even appear in Google Trends until 2010. But it’s not just some buzzword, it has practical application, and it can help improve ranking by boosting engagement metrics through loyalty and referrals. Loyalty marketing guru Fredrick Reichheld has claimed a strong link between customer loyalty marketing and customer referral.
Obviously, this approach is highly user-centric. Google orient around this principle, too. “Focus on the user and all else will follow.”
Google has always had the mantra of 'focus on the user and all else will follow,' so the company puts a significant amount of effort into researching its users. In fact, Au estimates that 30 to 40 per cent of her 200-strong worldwide user experience team is compromised of user researchers
Google fosters return visits and loyalty by giving the user what they want, and they use a lot of testing to ensure that happens. Websites that focus on keywords, but don’t give the user what they want, either due to a lack of focus, lack of depth, or by using deliberate bait-and-switch, are going against Google’s defining principles and will likely ultimately lose the SEO game.
The focus on the needs and desires of the user, both before their first click, to their return visits, should be stronger than ever.
According to Microsoft research, the average new visitor gives your site 10 seconds or less. Personally, I think ten seconds sounds somewhat generous! If a visitor makes it past 30 seconds, you’re lucky to get two minutes of their attention, in total. What does this do to your engagement metrics if Google is counting click backs, and clicks to other pages in the same domain?
And these metrics are even worse for mobile.
There’s been a lot of diversification in terms of platforms, and many users are stuck in gamified silo environments, like Facebook, so it’s getting harder and harder to attract people out of their comfort zone and to your brand.
So it’s no longer just about building brand, we also need to think about more ways to foster ongoing engagement and attention. We’ve seen that people are spending a lot of attention on games. In so doing, they have been conditioned to expect heightened rewards, stimulation and feedback as a reward for that attention.
Do you reward visitors for their attention?
If not, think about ways you can build reward and status for visitors into your site.
Sites like 99 Designs use a game to solicit engagement from suppliers as a point of differentiation for buyers. Challenges, such as “win the design” competition, delivers dozens of solutions at no extra cost to the user. The winners also receive a form of status, which is also a form of “payment” for their efforts. We could argue that this type of gamification is weighed heavily against the supplier, but there’s no doubting the heightened level of engagement and attraction for the buyer. Not only do they get multiple web design ideas for the price of one, they get to be the judge in a design version of the X-Factor.
Hopefully, this article has provided some food for thought. If we were going to measure success of loyalty and engagement campaigns, we might look at recency i.e. how long ago did the users last visit, frequency i.e. how often do they visit in a period of time, and duration i.e. when do they come, and how long do they stay. We could then map these metrics back against rankings, and look for patterns.
But even if we’re overestimating the effect of engagement on rankings, it still makes good sense from a business point of view. It costs a lot to get the first visit, but a whole lot less to keep happy visitors coming back, particularly on brand searches.
There’s an in-depth discussion going on in the members area about how to sell an SEO business. There will surely be readers of the blog interested in the topic, too, so I thought I’d look at the more general issues of selling a business - SEO, or otherwise. Specifically, how to structure a business so it can be sold.
Who can sell a service? The answer is simple--anyone and everyone. Everyone is qualified because each of us has skills, knowledge or experience that other people are willing to pay for in the form of a service; or they're willing to pay you to teach them your specific skill or knowledge. Selling services knows no boundaries--anyone with a need or desire to earn extra money, work from home, or start and operate a full-time business can sell a service, regardless of age, business experience, education or current financial resources
The downside of a service based business is that they’re easy to establish, so any service area that’s worth any money soon gets flooded with competition. The ease with which competitors can enter service-based markets is one of the reasons why service-based business can be more difficult to sell for a reasonable price.
Selling A Consultancy
Some businesses are more difficult to sell than others. Agency business, such as SEO consulting, can be especially problematic if they’re oriented around highly customized services.
In Built To Sell: Creating Business That Can Thrive Without You, John Warrillow outlines the reasons why, and what can be done about it. The book is an allegory about the troubles the founder of a design agency experiences when, after eight years, he is fed up with the demands of the business and decides to sell, only to find it’s essentially worthless. His business creates logos, does SEO, web design, and brochures, so many of his trials and tribulations will sound familiar to readers of SEOBook.com
Smart businesspeople believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon
There are 23 million businesses in the US, yet only a few hundred thousand sell each year. Is this simply because the owners want to hold onto them? Yes, in some cases. But mainly it’s because a lot of them can’t be sold due to structural issues. They might be worth something to the seller, but they’re not worth much to to anyone else.
If You Were To Buy A Business, Would You Buy Yours?
If you put yourself in the shoes of a buyer, what would you be looking for in an SEO-related business? What are the traps?
We might start by looking at turnover. Let’s say turnover looks good. We may look at the customer list. Let’s say the customer list looks good, too. There are forward contracts. Typically, owners of businesses place a lot of value on goodwill - their established reputation of a business regarded as a quantifiable asset.
Frequently, goodwill is overvalued and here’s why:
It is fleeting.
A company may have happy customers, happy staff, and people may say good things about them, but that might all change next week. Let’s say Update Zebra, or whatever black n white exotic animal is heading our way next, is rolled out next month and trashes all the good SEO work built up over years. Is everyone still happy? Clients still happy? Staff still happy? Were there performance guarantees in place that will no longer be met? The most difficult thing about the SEO business is that critical delivery aspects are beyond the SEOs control.
Goodwill is so subjective and ephemeral that many investors deduct it completely when valuing a company. This is not to say a good name and reputation has no tangible value, but the ephemeral nature perhaps illustrates why buyers may place less value on goodwill than sellers. If you think most of your business value lies in goodwill, then you may have trouble selling for the price you desire.
....the only aspect of goodwill that can unequivocally offer comfort to an investor is the going-concern value of a company. This represents things such as the value of assets in place, institutional knowledge, reputational value not already captured by trade names, and superior location. All these attributes can lead to sources of competitive advantage and sustainable results; and/or they can give an entity the ability to develop hot products, as well as to achieve above-average earnings.
If a buyer discounts most or all of the goodwill, then what is left? There is staff. But staff can leave. There are forward contracts. How long do these contracts last? What are they worth? Will they roll over? Can they be cancelled or exited? A lot of the value of an agency businesses will lay in those forward contracts. What if the customers really like the founder on a personal level, and that is why they do business with him or her? A service business that is dependent on a small group of clients, who demand personal attention of the founder, and where the business competes with a lot of other players offering similar services is, in the words of John Warrillow “virtually worthless”.
But there are changes that can be made to make it valuable.
Thinking Of Service Provision In Terms Of Product
Warrillow argues that a business can be made more valuable if they create a standard service offering. Package services into a consistent, repeatable process that staff can follow without depending on you. The service should be something that clients need on a regular basis, so revenue is recurring.
His key point is to think like a product company, rather than a service company.
Good service companies have some unique approaches and talented people. But as long as they customize their approach to solving client problems, there is no scale to the business and it’s operations are contingent on people. When people are the main assets of the business - and they can come and go every night - the business is not worth very much
That’s not to say a service business can’t be sold for good money. However, Warrillow points out that they’re typically purchased on less than ideal terms, often involving earn-outs. An earn-out is when the owner gets some money up front, but to get the full price, they need to hit earnings targets, and that may involve staying on for years. In that time, anything can happen, and the people buying the company may make those targets difficult or impossible to achieve. This doesn’t necessarily happen through malice - although sometimes it does - but can arise out of conflicting incentives.
There are other stories of entrepreneurs going through the change from service to products, although the process may not be quite as straightforward as the character in the book experiences:
So I’m sure there’s a lot of entrepreneurs out there that want to make the switch from consultancy to selling products. Belgian entrepreneur Inge Geerdens did exactly that: she pivoted successfully from providing services to selling a product.......A product is entirely different. You have costs that you can’t cut. In a service company, you can downsize everyone if you want, and run it at basically zero cost. It’s impossible to do that with a product. There’s hosting, development, upgrades, bug fixes, support: those are costs that you can’t flatten in any way. Your developers need new PC’s a lot sooner than consultants!
Nonetheless, the book offers seventeen tips on how to adjust a service based business to make it more saleable, and there are a lot more great ideas in it. Hopefully, outlining these tips will encourage you to buy the book - I’m not on commission, honest, but it’s a great read for anyone starting or running a business with the intention to sell it one day.
Let’s look at these tips in the context of SEO-related businesses.
It’s difficult for small firms to be generalists.
Large firms can offer many services simply by having many specialists on the payroll. If a small business tries to do likewise, small business end up with staff wearing many hats. Someone who is a generalist is unlikely to be as proficient as a specialist, and this makes it more difficult to establish a point of difference and outperform the competition.
In terms of SEO, it’s already a pretty specialized area. The businesses that might be more difficult to sell in this market sector are the businesses offering multiple service lines including SEO, web design, brochures, etc, unless they have some local advantage that can’t easily be replicated.
Despite the corporate world’s insistence on specialization, the workers most likely to come out on top are generalists—but not just because of their innate ability to adapt to new workplaces, job descriptions or cultural shifts. Instead, according to writer Carter Phipps, author of 2012’sEvolutionaries generalists will thrive in a culture where it’s becoming increasingly valuable to know “a little bit about a lot.” Meaning that where you fall on the spectrum of specialist to generalist could be one of the most important aspects of your personality—
This is perhaps more true of individual workers than entities.
2. Make Sure No One Client Makes Up More Than 15% Of Your Revenue
If a business is too reliant on one client, then risk is increased. If the business loses the client, then a big chunk of the business value walks out the door.
Even though we usually land an annual contract, once that runs out, the client can cut us loose without any of the messiness involved in firing employees — that is, no severance pay, no paying unemployment benefits, no risk of being sued for discrimination or harassment or any of the other three million reasons why an ex-employee sues an ex-employer
3. Owning A Process Makes It Easier To Pitch And Puts You In Control
It is more difficult and time consuming to sell highly configured solutions than it is to sell packaged services. Highly configured services are also harder to scale, as this usually involves adding highly skilled and therefore expensive staff.
In SEO, it can be difficult to implement packaged, repeatable processes. Another way of looking at it might be to focus on adaptive processes, as used in Agile:
Reliable processes focus on outputs, not inputs. Using a reliable process, team members figure out ways to consistently achieve a given goal even though the inputs vary dramatically. Because of the input variations, the team may not use the same processes or practices from one project, or even one iteration, to the next. Reliability is results driven. Repeatability is input driven.
4. Don’t Become Synonymous With Your Company
Yahoo lived on without its founders. As will Google and Microsoft. The founders created “machines” that will “go” whether the founders are there or not.
Often, small consulting businesses are built around the founder, and this can make selling the company more difficult than need be. If customers want the founder handling or overseeing their account, then a buyer is going to wonder how much of the customer list will be left after the founder exits. It can even happen to big companies, like Apple, although their worry is perhaps more about the ability of successors to lead innovation.
Test yourself simply by asking yourself these questions and if you can respond yes to all of them you are well prepared:
Do you have a strategy in place should you, or a key staff member, be unable to return to work for a long period, or never?
Is this strategy documented and has it been communicated effectively to the business?
Do you have a process in place that ensures qualified and appropriately trained people are able to take over competently when the current generation of managers and key people retire or move on?
Has this strategy been documented and communicated to the key people involved?
Do you have a 'vision' for your business? Does it link easily to the 'values' of the business and the behaviours of the people within the business?
Has your 'vision' been well articulated and communicated with the people in the business?
Are you able to demonstrate your business plans for a clearly-defined viable future?
Have these plans been clearly articulated, documented and communicated to the key people within your organisation?
5. Avoid The Cash Suck
Essentially, try to get payment up-front. This is a lot easier to do for products than services. Alternatively, use progress billing. Either way, you need to be cash-flow positive.
Poor cashflow is the silent killer of many businesses, and poor, lumpy cashflow looks especially bad when a business is being packaged up for sale. It's difficult to make accurate forward revenue predictions when looking at sporadic cashflow.
6. Don’t Be Afraid To Say No To Projects
It can be difficult to turn down work, but if the work doesn’t fit into your existing processes, then you need to find extra resources to do it. Above all else, it’s a distraction from your core function, which will also likely be your competitive advantage.
Never, ever let distractions - often labelled as new opportunities - take hold. Weed them out fast
7. Take Time To Figure Out How Many Pipeline Prospects Will Likely Lead To Sales
What’s your conversion rate? This helps a buyer determine the market potential. They want to know if they can expect the same rate of sales when they take it over.
8. Two Sales Reps Are Always Better Than One
The reasoning for this is that sales people are naturally competitive, so will compete against each other, which benefits the business.
Most of us would agree that salespeople are competitive by nature. This is obvious and necessary. After all, these are the people we put on the front lines to win the day and bring back revenue-producing opportunities for the company. They are assessed on their sales performance via metrics and measurements, and they’re incentivized with compensation and perks. Many organizations even have annual sales drives or competitions to quantify the level of performance and measure who is the best.
9. Hire People Who Are Good At Selling Products, Not Services
If you’ve gone to the trouble of systematizing your services to turn it into a product, then you don’t want salespeople agreeing to meet a customers demands by bending the product to those demands. Either the product meets their demands, or it doesn’t. I have known some service-oriented salespeople sell solutions that the company doesn’t even offer, reasoning the sale is the important thing, and the “back office” will work it out somehow!
Part of the rationale is that product based salespeople will filter out clients who want something else, and focus on those who are best served by the product, and likely to want more of it in future.
10. Ignore Your Profit And Loss Statement In The Year You Make A Switch To The Standardized Offering
It will likely show losses due to restructuring around a repeatable process or product. In any case, the future buyer is not buying the previous service business, they’re buying the new product business, and it is on these figures alone, going forward, the business will be judged.
11. You Need At Least Two Years Financial Statements Reflecting Your Standardized Model
12. Build A Management Team And Offer A Long Term Incentive Plan That Rewards Their Loyalty
Just like a buyer doesn’t want to see a business dependent on the founder, a buyer doesn’t want a management team abandoning ship after they’ve bought a company, either, unless the buyer is happy putting their own management in place.
13. Find An Adviser For Whom You Will Be Neither Their Largest Nor Smallest Client. Ensure They Know The Industry
Between 1995 and 2006 about a quarter of merging firms hired boutique banks as their advisors on mergers and acquisitions (M&A). Boutique advisors, often specialized by industry, are generally smaller and more independent than full-service banks. This paper investigates firms' choice between boutique and full-service advisors and the impact of advisor choice on deal outcomes. We find that both acquirers and targets are more likely to choose boutique advisors in complex deals, suggesting that boutique advisors are chosen for their skill and expertise.
14. Avoid An Advisor Who Offers To Broker A Discussion With A Single Client. You Need To Ensure (Buyer) Competition
Sometimes, advisors are scouts for favoured clients. This can create a conflict of interest as the advisor may be trying to limit the bidding competition as a favor to the buyer, or because they’re earning higher margins from that one client for introducing deals.
15. Think Big. Write A Three-Year Business Plan That Paints A Picture Of What Is Possible For Your Business
Think in terms of what the business could be, not necessarily what it is within your capabilities. For example, if the business is regional, what are the possibilities if it was scaled to every state? Or the world?
The buyer may have resources to leverage that you do not, such as established agencies in different markets. What happens if they sell your product to all their existing customers? Suddenly the scope of the business is increased, and the possible value is highlighted. Imagine what it would be like if you had the networks that were possible, as opposed to those you have at present.
16. If You Want A Sellable, Product Oriented Business, You Need To Use The Language Of One
“Clients” become “customers”, “firm” becomes “business”. It’s not just a change of positioning, it’s also a change of mindset and rhetoric, which in turn helps frame the company in the right light for the buyer.
17. Don’t Issue Stock Options To Retain Key Employees After Acquisition. Instead, Use A Simple Bonus.
Stock options can be complicated, although pretty common in the tech world. Warrillow’s argument against stock options is that they can complicate the sales process, as it’s reasonable all stockholders should get some say in the terms of the sale. This probably isn’t such an issue for larger businesses, as buyers would expect it.
Instead, Warrillow recommends a stay bonus, which is a cash reward for key staff if you sell the company. There should also be bonuses beyond the transition in order to inceentivise them to stay.
There are a lot of good tips and ideas in Warrillow’s book, and I’ve really only scratched the surface with this summary. These tips require context to get the most out of them, but hopefully they've provided a good starting point.
Have you bought or sold an SEO business? It would be great to hear your experience of doing so. Do you agree with some of these tips, or disagree? Please feel free to add to the comments!
For SEO practitioners, it's been quite a bumpy ride over the past few years. Costs have gone up, the broader economy has continued to go south, and margins may have gotten a bit tighter.
Algorithms have gotten more wild, more complex, and Google has continue to trend towards less transparency while increasing their consumption of the SERPs.
The evolution of SEO as a business model is summed up nicely by this quote from Walter Elliot:
Perseverance is not a long race; it is many short races one after another.
To me, that quote speaks to the vision and willingness to change with the times needed by people not just in the SEO industry but the broader industry as well.
From a high-level overview perspective, if you practice SEO, you have 2 ways of doing it with respect to revenue generation:
The self-publishing side of the house has certainly taken a much harder beating than the client work side of the house but opportunities continue to exist (and will continue) for those folks going forward.
It's more difficult for a self-publisher to prudently spread financial risk across multiple sites given the collateral damage caused by some of the more recent, bigger updates that Google has launched in the last few years.
In the world of make believe (i.e. people who dispense advice without really having any idea what's going on because they are not in the actual game) it's fine to say that a self-publisher should just concentrate on a couple sites, or even just one, and make them "the best site(s) ever!!!"
Well, for those of you that pay attention you understand that the harsher, longer penalties of the last few years apply to those sites as well. I would say it's more risky to have that kind of model than a more diverse portfolio of sites and/or a combo of sites and client work.
Is it Too Risky Now?
Also in the world of make believe are people who will want to chastise you for "relying on Google traffic". It certainly makes sense to develop sites and products that are not solely reliant on organic traffic but to scold folks for having a part of their business reliant on search engine traffic, for an "online" business no less, just doesn't make sense.
It's a risk, of course it is, but that's what business ventures are. The key question is whether it's an unnecessary risk or not, the answer to that is clearly no.
As with most things the correct answer lies in the middle. You shouldn't consider your business a bad one if part of it relies on organic traffic but if *all* of it does then yes, you should be very concerned about the long term viability of your business model.
So to scale your business in the face of all of this where should you start (or perhaps revisit)?
Productize and Diversify
If you have had success in the SEO industry (assuming it's more than the point, link, rank stuff of years ago :D ) then you should be able to add other services to your product mix that complement SEO quite nicely. Here are just a few areas you could expand into:
App Development (iOS, Android, etc)
If you don't do any of these things currently I would suggest adding in a couple that make the most sense for what you do and learn from resources that are available to you online and in print.
The one area that's difficult to "productize" is organic SEO. Some people price by keyword, some have a general retainer, and some just do custom quotes only. I don't see how you could fairly price by keyword given the radical differences in competition, ROI for the client, the actual client, and so on. My suggestion here would be to at least set some kind of floor pricing (Campaigns starting at $999) or whatever.
If you are just doing consulting on organic SEO that's a bit easier, you can just set an hourly rate. However, given how everything is intertwining these days I think you'll find that, for client work, sustainability will be found in doing the actual work for the client to some extent.
Determining Costs Upfront
Once you start adding in hard costs like staff allocated to link building, copy, and so on the ability to package SEO services into a set price becomes exponentially more difficult.
Most of the other items can be packaged, sold, and advertised at fixed prices. You'll want to take into account what your overall overhead is (staff, tools, office space, and so on) to determine what part of the cost is for each "product" and develop pricing from there.
You'll also take into account your time if you are involved in the process and if you're not really involved in the process post sale you'll want to make a determination on your cut of the profit (or piece of your salary) from each product and factor that in.
Establishing Proper Margins
In addition to setting up your margins, or reviewing them, being a really good idea for your own management purposes another benefit is that someday you might want to sell your business to another company or person.
One of the first questions that will likely get asked will be "What are your margins?"
The importance of productizing your business shows up here in this discussion. Without having some element of set pricing and budgets it's going to be harder than necessary for you to scale the sales pipeline. The 3 types of profit margins to look at are:
Your gross margin is going to be your sales revenue minus direct costs divided by sales. In the non-online world direct costs, or Cost of Goods Sold, generally refers to things like materials and labor costs.
So in the online world I generally equate labor costs as staff (freelance or otherwise) and materials as things like tool subscriptions. These are generally fixed costs.
Generally excluded from this are marketing expenses, R&D, and the variable costs not associated with the production of a product.
Once you start adding in administrative costs, marketing costs, research and development, and so on you get operating margin, which essentially is earnings before interest and taxes divided by sales.
Net Profit Margin
Simply put, this is the money left after the costs above and taxes divided by sales.
Adapting Margins for Our Industry
You might have a team of 2, 4, 43, or just 1 so the above definitions need not be rigidly followed. For example, you might decide to role in sales costs (sales staff, commissions, etc) into your COGS, which might be perfectly legitimate given that your sales person might also be a link builder, or designer, or yourself.
I have a small team, but each has a specific role, so it's relatively easy for me to deal with these figures.
Managing Debt and Expenses
Frugality is a trait that can help you outlast your competitors even in the worst of times. It's easy to think that way starting out but I could show you roughly 5 agencies that are multi-million dollar agencies that do things *drastically* different.
Your gross margin should be a good indicator of whether you are pricing things correctly to start; your operating margin should be looked at with an eagle eye towards efficiency and cost-control. Your net margin will determine if the other 2 might need adjusting if, post-tax, you aren't making the kind of money that you want or need to make.
Stay as lean as possible for as long as possible and you are more likely to survive the ups and downs we all inevitably face.
Also, when looking at your pricing and profit keep in mind that as expenses continue to creep up (along with your pricing) you'll have to continue to manage expectations properly.
The client is paying you 10k a month as an example, but if your net margin is 25% then you see them (maybe subconsciously) as a 2,500 per month client. They see themselves as 10k a month and sometimes that can make client relations and results difficult if your margins are too low.
Tracking by Project
If you do any business of scale you probably use Quickbooks or something similar. I like to assign expenses to each job being done or each product being sold. So, for one client you might have multiple products. It's nice to be able to assign costs specifically to each project or product (even under 1 client) to make sure margins are being maintained and can easily be reported on.
For me, SEO remains the foundation for the company and the natural progression into some of these other areas was not as difficult as I thought it might be. Most of the principles are extensions of the fundamentals we've learned by running our own web properties or working on client sites and such.
We are certainly far beyond just ordering links and handing off ranking reports, have been for awhile (but even that could have made you and your clients a lot of money over the years). This goes back to the quote mentioned at the top, it's a series of short races and twists with some turns.
Pay less attention to "what I wish the world was" theories and attention-mongering posts about how things "should be" and instead focus on what's working for you and make educated guesses, on the back of your data and experiences, on where the puck is going to be rather than where it is or where others in the industry want it to be.
If you look at things that way you'll see that there's a lot of life left for quality SEO's and quality SEO work.
One of the problems with affiliate and Adsense has always been that it is difficult to lock in and build value using these models. If the customer is “owned” by someone else, then a lot of the value of the affiliate/Adsense middle-man lies in the SERP placement. When it comes time to sell, apart from possible type-in domain value, how much intrinsic value does such a site have? Rankings are by no means assured.
So, if these areas are no longer earning you what they once did, it makes sense to explore other options, including vertical integration. Valuable online marketing skills can be readily bolted onto an existing business, preferably to a business operating in an area that hasn’t taken full advantage of search marketing in the past.
Even if you plan on building a business as opposed to buying, looking at businesses for sale in the market you intend to build can supply you with great information. You can gauge potential income, level of competition, and undertaking a thorough business analysis can help you discover the hidden traps before you experience them yourself. If there are a lot of businesses for sale in the market you’re looking to enter, and their figures aren’t that flash, then that’s obviously a warning sign.
Such analysis can also help you formulate your own exit strategy. What would make the business you’re building look attractive to a buyer further down the track? It can be useful to envision the criteria for a business you’d like to buy, and then analyse backwards to give you ideas on how to get there.
In this article, we’ll take the 3,000 ft view and look at the main considerations and the type of advice you’ll need. We’ll also take a look at the specifics of buying an existing SEO business.
Build Or Buy?
There are a number of pros and cons for either option and a lot depends on your current circumstances.
You might be an existing owner-operator who wants to scale up, or perhaps add another revenue stream. Can you get there faster and more profitably by taking over a competitor, rather than scaling up your own business?
If you’re an employee thinking of striking out on your own and becoming your own boss, can you afford the time it takes to build revenue from scratch, or would you prefer instant cashflow?
The Advantages Of Building From Scratch
Starting your own business is low cost. Many online businesses cost next to nothing to start. Register the business. Open a bank account. Fill out a few forms and get a business card. You’re in business.
You don’t need to pay for existing assets or a customer base, and you won’t get stuck with any of the negatives an existing business may have built up, like poor contracts, bad debts and a tainted reputation. You can design the business specifically for the market opportunity you’ve spotted. You won’t have legacy issues. It’s yours. It will reflect you and no one else, at least to start with. The decisions are yours. You don’t have to honor existing contracts, deal with clients or suppliers you had no part in being contractually obliged to in the first place.
In short, you don’t have legacy issues.
What’s not to like?
There is more risk. You don’t yet know if your business will work, so it’s going to require time and money to find out. There are no guarantees. It can be difficult to get funding, as banks like to see a trading history before they’ll lend. It can be very difficult to get the right employees, especially early on, as highly skilled employees don’t tend to favor uncertain startups, unless they’re getting equity share. You have to start a structure from scratch. Is the structure appropriate? How will you know? You need to make a myriad of decisions, from advertising, to accommodation, to wages, to pricing, and with little to go on, apart from well-meaning advice and a series of hunches and experiments. Getting the numbers right is typically arrived at via a lot of trial and error, usually error. You have no cashflow. You have no customers. No systems. No location.
Not that the downsides should stop anyone from starting their own business. If it was easy, everyone would do it, but ask anyone who has started a business, and they’ll likely tell you that sure, it’s hard, but also fun, and they wouldn’t go back to being an employee.
There is another option.
On the plus side, you have cash flow from day one. The killer of any business is cash flow. You can have customers signed up. People may be saying great things about you. You may have a great idea, and other people see that it is, indeed, a great idea.
But if the cash flow doesn’t turn up on time, the lights go out.
If you buy an existing business with sound cashflow, you not only keep the lights on, you’re more likely to raise finance. In many cases, the seller can finance you. If that’s the case, then for a small deposit you get the cashflow you need, based on the total business value, from day one.
You’ve got a structure in place. If the business is profitable and running well, then you don’t need to experiment to find out what works. You know your costs, how much you need to spend, and how much to allocate to which areas. You can then optimize it. You have customers, likely assistance from the vendor, and the knowledge from existing suppliers and employees. There is a reduced risk of failure. Of course, you pay a price for such benefits.
To buy a business, you need money. Whatsmore, you’re betting that money on someone elses idea, not your own, and it can be difficult to spot the traps. You can, of course, reshape and respin the business in your own image. You can get stuck with a structure that wasn’t built to your specifications. You might not like some of the legacy issues, including suppliers, existing contracts or employees.
If you decide buying a business is the right thing for you, then you’ll need good advice.
10.5% of brokers said that more than 12 months was required to sell a business
Buying a business is more complicated than buying an asset, such as a website. You could buy only the assets of a business - more on that shortly - but often the businesses are sold as a going concern, which means you may take on all the potential liabilities of that business, too.
Hence the need for sound advice in three main areas. Assemble a team to cover legal, accounting and business advisory.
Buying is a business, like buying a house, is a legal transaction, consisting of a number of legal issues. They key issues are you want to know exactly what you’re buying and won’t be left with any unexpected liabilities. You also want to make sure the seller won’t compete with you by re-entering the market after you buy.
One of the first things I do with clients is make sure they understand what they are buying,....They need to be able to tell me if they are buying assets, such as customer list and equipment, or the business, with the warts and ugliness that come with it.
Among the things to worry about when you buy an existing business: undisclosed debts, overstated earnings, poor employee relations, overvalued inventory and pending lawsuits, to name a few. Hidden liabilities can exist in all sorts of areas - from land contaminated with toxic chemicals, to accounts receivable that look solid but prove to be uncollectible, to inventory that's defective or dated
If you buy only a corporation's assets, you don't assume its liabilities, including taxes.
If you buy a corporation's shares of stock, however, you end up with both its assets and liabilities - including known and unknown taxes. An example of an unknown tax debt would be one that resulted from an IRS audit that has not yet begun. The seller of the corporate shares is released from all corporate debts unless he personally guarantees them or agrees to be liable for them after the transfer
Which is an important distinction. However, most smaller business sales are likely to be asset sales, as they are often sole proprietorships or partnerships.
There are also financial implications in terms of tax writeoffs.
There are two main areas accountants look at when evaluating a business. The financial history, and the tax ramifications.
In order to know whether or not the asking price for the business is fair, it is very important that you look through the books of the company over a number of financial periods. Don't make the mistake of asking for just last year's accounts. You should have at least three and preferably five years of records for the business. If it is half way through the financial year, ask for an interim set of accounts for this year. You need to be assured that trading conditions have not deteriorated from the last financial year. If you are looking to put your hard-earned money (and other's equally hard-earned money) into a business, you want to make sure that the business is not going backwards. You need to look for evidence of year on year growth at acceptable margins. Remember, any company can show regular growth but it must be profitable. Fire sales can increase revenue with little or no impact on margin or worse, the revenue can be unprofitable
Property acquired by purchase. The depreciable basis is equal to the asset's purchase price, minus any discounts, and plus any sales taxes, delivery charges, and installation fees. For real estate, you can also include costs of legal and accounting fees, revenue stamps, recording fees, title abstracts/insurance, surveys, and real estate taxes assumed for the seller
After lawyers and accountants, the third member of your evaluation team should be a qualified business adviser who is familiar with businesses in your area of interest.
A thorough competitive analysis should be a first step. Where does this business sit in relation to existing competition? How easy is it for new competitors to enter the market? How much risk is involved?
Whenever you buy an existing business and look at its records, you're looking at the past. There's no guarantee things won't change going forward. If you're negotiating to buy a business and you think the seller is giving you a great deal, be very suspicious--there's probably something heading down the road at 90 miles an hour that will blow this business apart when it hits
That’s the same if you plan to build a business from scratch, the difference being you probably won’t have to risk as much up front.
It can also pay to go through a broker acting on your behalf, as opposed to the seller. ">Brokers can:
Prescreen businesses for you. Good brokers turn down many of the businesses they are asked to sell, whether because the seller won't provide full financial disclosures or because the business is overpriced. Going through a broker helps you avoid these bad risks. Help you pinpoint your interest. A good broker starts by finding out about your skills and interests, then helps you select the right business for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you. NegotiateThe negotiating process is really when brokers earn their keep. They help both parties stay focused on the ultimate goal and smooth over any problems that may arise. Assist with paperwork. Brokers know the latest laws and regulations affecting everything from licenses and permits to financing and escrow. They also know the most efficient ways to cut through red tape, which can slash months off the purchase process. Working with a broker reduces the risk that you'll neglect some crucial form, fee or step in the process.
When you are building your agency, you need to focus on getting clients that pay you 6 figures a year. It’s hard to build a profitable agency and provide great results when someone only pays you a few grand a month.
There’s a lot of competition in this market because there are no real barriers to entry. Anyone can call themselves an SEO and anyone can advertise such services. The result is that it can be pretty difficult to differentiate yourself.
The advantages of buying an SEO business are the same for buying any other type of business i.e. you get instant cashflow, a client list, and reputation. The standard analysis, as outlined in this article, applies. Evaluate financials, legal issues and position in the market, the same as any other business.
If you’re considering buying an SEO business you need to pay particular attention to reputation. It’s a market where, I think it’s fair to say, there is a significant level of hype. Customers are often oversold on benefits that don’t eventuate i.e. a focus on rankings that don’t result in leads or customers.
Reputable SEO businesses are unlikely to have a high level of customer churn. Look for customer lists where the customers has been with the agency for a good length of time, and are ordering more services. Look for locked in forward contracts. It’s pretty easy for other SEOs to poach other customers by offering them lower prices. Again, this is why reputation and evidence of high service levels are important.
One valuable aspect, as Neil alludes to in his article, is relationships:
In the short run you will lose money from business development, but in the long run you’ll be able to make it up. The quickest way for you to increase your revenue is to be the outsourced arm of bigger agencies. As an SEO company, look for ad agencies to partner with, as there are way bigger ad agencies than seo agencies. Feel free and cold call them, offer to help them for free with their own website, and if you do well they’ll drive a lot of clients to you
Look at how the agency gets work. If it comes from established, larger advertising agencies, then these relationships are valuable. They typically result in a steady flow of new work without the need for new advertising spend. Look at the promises that have been made to clients. For example, ongoing payment may rely on performance metrics, such as ongoing rankings.
Hopefully this has article has given you some food for thought. If you're capital rich and time poor, then buying an established business can be an attractive proposition. Here are some of the sources used in this article, and further reading:
If we’re targeting keywords, getting good traffic as a result, but not converting as much traffic as we’d like, then it might be due to a market validation problem.
Basic keyword research typically involves looking at the nature of the web site, creating a list of terms that describe the offers being made, expanding the keyword list out using keyword research tools, and then targeting those keyword terms.
However, if that’s all a search marketer does, and fails to get conversions and engagement as a result, then they might be asking the wrong questions.
Asking The Right Questions
Coca Cola undertook extensive market testing and research before they introduced “New Coke”, yet New Coke failed miserably. Their competitors, Pepsi, used a blind taste test, asking people if they preferred Coke or Pepsi. Coca Cola ran their own testing, and the results were not good. The majority preferred Pepsi.
However, the problem in asking people to take just one sip and compare was to ask the wrong question. People may have preferred the first sip of Pepsi, but they preferred the less sweet Coke when they consumed an entire glass. In “Inside Coca-Cola: A CEO's Life Story of Building the World's Most Popular Brand”, Neville Isdell also postulates that new coke failed because original coke was about the iconic. It was linked to history. It wasn’t just about the taste of the first sip, it was also about the place of Coke in culture. There was a lot more to it than the first, sugary hit.
Coca Cola asked the wrong questions. Getting the context right was important if they were to understand the answers.
If you’ve designed relevant landing pages but not getting the conversion rate you desire, no matter how much split/run testing you do, or if you’ve managed to rank #1 for your chosen term, and you’ve written some great copy, but the traffic just keeps bouncing away, then it might be a problem with positioning in the market.
These market validation ideas apply mostly to search marketers who build their own sites, but it’s also applicable to marketers working on client sites if those client sites have poor targeting. Bolting on search marketing won’t do much good if a site is making substandard, or redundant offers.
“Market Validation” was a concept defined by Rob Adams in his book “If You Build It They Will Come”. It’s the process of figuring out if a market exists before you go to the expense and time of filling that market. Market validation is typically used by entrepreneurs in order to determine if they should enter a market, however the more general aspects can also be applied to search marketing.
Two aspects that are particularly useful for search marketers, especially those marketers who care what happens after the click, is a market analysis - to determine what stage in the market the business is at - and a competitive analysis. Armed with this information, they’ll know how to best pitch the offer, which, when combined with effective copywriting and calls to action should increase engagement and conversion.
Entrepreneurs are concerned with the growth rate of a market sector.
Typically, entrepreneurs want to get into fast rising, new markets, as opposed to mature or sunset markets. It’s difficult for new entrants to compete with incumbents, as doing so involves high costs. It is estimated that the cost of taking a customer off a competitor is typically three to ten times the cost of acquiring a new customer.
Try to figure out the stage of growth of the market. If the site operates in a mature market, with multiple competitors, then aspects such as price and features are important. In a mature market, the site you’re working with should be competitive on these aspects, else a top ranking position and compelling copy won’t help much, as the buyer will likely be comparing offers.
Similarly, if the client is competitive in these areas, then it pays to push these aspects hard in your copy and calls to action. For example, if a mobile phone site focused, first and foremost, on buyer education, it probably won’t do as well as a site that focuses on price and features. Generally speaking, buyers in this mature market sector don’t need to be educated on the merits of a mobile phone. They’re probably mainly interested in looks, availability, price and features.
If your client is in a fast growing new market, then there’s typically a lot more buyer education involved. People need to be convinced of new offers, so consider making your copy more education focused in these niches.
For example, when the iPhone came out, it didn’t have any direct competition. Apple didn’t need to push hard on price or features - there were cheaper phones, and there were phones that could do some things better, but there was nothing directly comparable in the smartphone market. Only recently, now that the market has matured, are Apple focusing on price with the introduction of lower priced entry level phones. This is a characteristic of more mature markets with high levels of competition and price pressure.
Since mobile phone penetration has reached almost saturation levels in Europe and the United Kingdom, mobile service providers are focusing attention on the 55–65 and 65-plus segment to improve usage and penetration. Their high disposable incomes and their ability to devote time to new habits are seen as a lucrative market opportunity. 5 At the other end of the demographic scale, Red Bull has built a following among youth worldwide.
Identify what stage the business is at, and adjust your approach based on the strengths or weaknesses of that market.
The more specific the keyword, the more the keyword is likely to identify subcategories within broader markets. For example, a travel agent could target a general term like “hotels in Spain”, or the more specific “luxury hotels in Marbella”.
Look for competitive strengths a business may have in a submarket and consider focusing search marketing efforts in these areas first. An easy-win builds confidence. Is this submarket fast-growing? Even better. Build both confidence and revenue. It may lead to more of the business being refocused around these submarkets.
Are there some submarkets that have decent keyword volume, but they’re mature? Ensure that you have some competitive advantage in terms of pricing and features before devoting too much time targeting them.
Even if the traffic isn't particularly high in some submarkets, at very least you’ll have earned the engagement metrics Google likes to see, and likely built some brand reputation in these submarkets that can then be leveraged into other submarkets.
Determine the audience in term of product lifecycle.
Are you targeting keyword areas relating to new products? If so, you’re most likely talking to early adopters. Therefore, the pitch is likely to involve aspects such as education, being first, desirability, being forward-thinking, and standing out from the crowd. The pitch is less likely to focus on negating buyer risk.
If you’re dealing with a business later in the lifecycle, then you’ll likely be talking more about price and comparing and differentiating features.
Competitive analysis is perhaps the most important, yet often overlooked, aspect of SEO/PPC.
Top rankings can be a waste of time if direct competitors are more competitive on features, price, service and brand recognition. Buyers will compare these aspects clicking from link to link, or will use third-party comparison sites, a sure signal of a mature market.
Find out what competitors are doing. And what they’re not doing. Try creating a competitive matrix:
A competitive matrix is an analysis tool that helps you establish your company's competitive advantage. It provides an easy-to-read portrait of your competitive landscape and your position in the marketplace. The matrix can be just a simple chart. In the left column, you list the main features and benefits of your product or service. On the top row, you list your company and the names of your competitors. Then fill in the chart with the appropriate information for each company. For example, if you own a dry cleaning service, you might list the different services you offer or the quick turnaround you provide on items (24 hours), and then note how your competitors fail at these features.
If there are competitors, then obviously a market exists. Compare your competitors against as many keyword terms as possible, and see how well they’re doing in each keyword area. Not just in terms of ranking, but in terms of their offer and the maturity of the market. If there are numerous competitors gunning for the same keyword terms, then determine if your offer is strong enough that should you beat their rankings, you can still stand up to a side-by-side feature, service and price comparison. Is there a submarket in which they are weak? Would you be better off devoting your time and energy to this submarket?
Examine their pitch. In any competitive niche, the pitch made by those occupying the top three spots in Adwords over time is likely to be the most relevant to the audience. If their pitch wasn’t relevant, it’s unlikely they could remain in those positions, due to quality score metrics, and the financial strength to keep outbidding competitors. There are exceptions i.e. competitors running losses for some reason, but generally, it’s safe to assume they’re doing something right.
Are they talking price? Features? Are they using video? Are they using long copy? Are they using people in their photographs? How big is their text? What’s the path to ordering? Do they highlight a phone number, or do they bury it? Pull their offer, and presentation of that offer, apart.
Make a note of everything the top three or four sites Adwords sites are doing and then emulate the commonalities. This gives you a strong baseline for further experimentation, testing and positioning on the SEO side. Keep in mind it’s not good enough to beat these competitors by a small margin. Incumbents often have brand awareness and customer bases (high trust levels), so to counter that, your should be considerably better. A “better offer” can mean superior price or features, but it can also be better service levels, a more specific solution, or a fresh new angle on an existing solution.
Also consider substitutions.
If a buyer can substitute a product or service, then this offers a potential opportunity. For example, lets say a buyer has a transportation problem. They could buy a car to solve that problem. Or, they could lease a car on a pay-per-drive model. The pay-per-drive model is a substitution threat for car sellers. If you take a step back and determine what problem the visitor trying to solve, as opposed to leaping to conclusions about the obvious keyword that describes that solution, then you might find rich, unmined substitution keywords. Perhaps your offer can be repackaged slightly differently in order to mine a substitution keyword stream.
Of course, people don’t always buy on price and features, even if the market is mature, but they still need a compelling value proposition. One example is organic produce. It’s typically more expensive, and the “features” are the same, but the context is different. The produce is sold on environmental values.
So look for value propositions that customers might respond to, but competitors aren’t taking advantage of. Or you can extend the ones they use. Now that Google is coming from behind with their own Motorola phones they are extending Apple's designed in California with made in America.
There are many links on the page a searcher can click. The more mature the market, the more relevant search results they’re likely to encounter, and those results, both PPC and natural search are likely to match their intent. At that point, getting the offer right is important. If you can’t compete in terms of offer, try looking for submarkets and position there, instead.
I hope this article has given you some new angles to explore. A good reference book on the topic of market validation, and the inspiration for this article, is “If You Build It They Will Come”, by Rob Adams.