Let's face it, focusing only on pulling in massive amounts of ad revenue can be tempting – it’s big, flashy, and often seen as the holy grail of monetization in the digital publishing world. But what if we told you there's a huge amount of revenue that's often overlooked in the shadow of those ad banners? Hint: it's in focusing on recurring membership revenue.
A Succession PlanÂ
Your mind might automatically think of paywalls, but we're actually talking about recurring membership. This often overlooked revenue source is a combination of content, resources, early access to events, perks and other benefits. We view membership as a holistic offering that engages your readers, provides quantitative value, and more. (Keep reading more of our content to see what we mean.)
Some folks are eyeing the exit door within the next five to 10 years. And when it comes time to sell their business, they're quickly realizing that relying solely on advertising sales might not be the golden ticket they once thought it was.
“Picture this: You've got a two-million-dollar publishing business with a 10% profit margin, bringing in $200,000 in earnings before interest, taxes, depreciation, and amortization (EBITDA),” says Joel Pape, CEO and Founder of MediaOS. “Now, traditionally, businesses in this realm are bringing in about two times their EBITDA in sales price. So, in this scenario, you're looking at a sale price somewhere between $200,000 and $400,000.”
But here's where things get interesting – and a little grim. In most cases, these businesses are selling for much less than that. Sometimes, they're not selling at all. And believe it or not, there are instances in which the owner is actually paying the buyer to take it off their hands.
Why is Membership Revenue So Valuable?
Well, for starters, it's recurring. Once you've got those subscribers locked in, the revenue just keeps rolling in month after month, year after year. And here's the best part – you can dial back on marketing costs once you've built up that loyal membership base, and still watch the cash flow in.
Sure, membership revenue might not directly add to your bottom line in terms of net profit, but when it comes to an exit strategy, it can make all the difference in the world.
“So, if you're a publisher with dreams of cashing out down the road, it's time to start thinking beyond the allure of ad dollars and tapping into the true cash cow that is recurring membership revenue,” says Joel.
Preparing Your Exit Strategy
So, what's a publisher to do if they're looking to beef up their nest egg for a future sale? It might be time to consider the power of membership revenue.
Let's break it down. “Say you've got a thousand loyal subscribers shelling out eight bucks a month for membership. That's a hundred grand in revenue right there,” says Joel. “Now, here's the kicker – when it comes to valuing this kind of revenue, we're not talking about multiples of profits (like with ad sales). Oh no, we're talking multiples of revenue itself.”
Depending on factors like subscriber growth, churn rate, and overall revenue size, you could be looking at a valuation ranging from one times EBITDA all the way up to six times that revenue. That means $100,000 of membership revenue could be worth $600,000 when it comes time to sell.
Remember, in the world of publishing, it's not just about the size of your audience – it's about the loyalty of your members and the value they bring to the table. So go ahead, invest in building that membership base, and watch as your publishing empire becomes not just a cash cow, but a hot commodity in the eyes of potential buyers.
