Web hosting is a business that contains at times a significant percentage of passive income. It's also a technical business and that scares people away. Both of these combine to create a unique opportunity for people who know what they are doing. Web hosting is essentially renting space on a server, so that a clients website, software, app or data can live somewhere on the internet. Typically, the client pays from $10 a year, right up to thousands of dollars per year depending on what, and how they are hosting.
If the servers stay up, email keeps working, and the service is reliable, the client is happy and pays their monthly or annual invoices. That is what makes hosting so wonderful, is the passive nature of it. However, it is predicated on setting up a clients website properly, and providing quality service as required, which is the true product. At WTQ we have been webhosting since 2010, and have a long established record of both reliable server uptime, and quality service. Your investment can help us grow, and you can receive greater than normal returns through webhosting.
Regularly, webhosting businesess are listed for sale. This happens for a variety of reasons, such as retirement, change of career, or sometimes people cannot handle the stress of an on call 24 hour support lifestyle. Also, due to the fact that clients can easily leave, this limits how high a webhosting business can be valued. Thus the cost of a typical acquisition is generally from 70% of annual turnover to 140% of annual turnover depending on the type of host and it's clients. If the acquiring partner has a good track record, and is able to offer good support to the incoming clients, it will retain them, and generate much more asset value than the 12 months of profit it purchased them for. Typically it only needs to retain the clients long enough for the profit to pay for itself once, and then the many years of ongoing benefit are profitable to the business.
To give an example, you could buy a hosting business for 100% of it's annual income, which for this example is $100,000. If we then take all of the income in that first year after expenses - we will have already paid back about 80% of the cost of acquisition.
By about 15 months after acquisition, the income from this will have paid for the acquisition, and it becomes profitable from then on. So over 3 years, on a business with $100,000 income and $20,000 gross expenses, these are the figures from an owners point of view.
Year 1:
Income $100,000
Expenses $20,000
Investment Repayment $80,000
Net Profit $0
Year 2:
Income $100,000
Expenses $20,000
Investment Repayment $20,000
Net Profit $60,000
Year 3:
Income $100,000M
Expenses $20,000
Investment Repayment $0
Net Profit $80,000
Here is how such an investment might work from an investors point of view, showing all figures.
Year 1:
Income $100,000
Expenses $20,000
Return on Investment to the Investor $20,000 (20% return first year)
Investment Repayment $60,000 back to Investor
Net Owner's Profit for Business $0
Year 2:
Income $100,000
Expenses $20,000
Return on Investment to the Investor $20,000 (20% return per year)
Investment Repayment $40,000 back to investor
Net Owner's Profit $20,000
Year 3:
Income $100,000
Expenses $20,000
Return on Investment to the Investor $20,000 (20% return per year)
Investment Repayment $0
Net Owner's Profit $60,000
With this type of plan - an investor will get back their money in 3 years, plus 20% return for 3 years in a row. After this they can reinvest in another investment if they wish. The owner in this example makes no money, until the third, year, but they pay for the eventual returns by offering quality support. Thus the owner minimises their risk by putting down time rather than money, and the investor minimises their risk by getting back their investment in the first two years, and making a 20% return on top.
Naturally, there are risks associated with this type of investment. Past successes are not an indicator of future success. In a pandemic world there are uncertainties, although the pandemic has pushed people more online, and not away from it. Typically (in our experience) less than 10% of clients leave every year, and growth is usually in excess of 10%. That combined with higher than 20% gross returns means that the risk that a 20% return will not be achieved is mitigated barring exceptional circumstances.
Talk to us about how we can serve you, and discuss real life scenarios and opportunities