Pricing Strategies
Buyers will buy at their perceived value ... not yours
The value of a company can be perceived differently depending on the type of buyer. It is critical to market your business sale to the right buyer. For example:
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Buyers Looking for Assets
- these buyers are only interested in purchasing equipment or assets that can compliment their current operations
- they will be shopping equipment at bargain prices
- they may have little or no interest in your markets or goodwill
| Pricing Formula: |
| the price they will pay is the market value of your equipment and assets - which is generally priced at its replacement value |
| use this pricing strategy when you want to exit the business |
| target the sale of your business to the competition or other-like businesses in your area |
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Buyers Looking to Buy Location
- there are buyers who are interested in a particular location such as a retail intersection or logistical handling (i.e., next to the airport).
- these buyers may or may not be interested in your assets, goodwill, or markets
- sellers in this situation generally own the building and land
- these buyers will either tear down or renovate your existing location
| Pricing Formula: |
| the perceived value is dependent on the macro-changes that are happening or expected to happen for that location |
| the price they will pay depends on retail price of similar property in the surrounding area |
| understand the potential use of your location. If your location is in a prime retail location for example, you may price your business and land at a premium |
| you should get an independent land appraisal to substantiate your price |
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Buyers Looking to Buy Your Established Market or Operation
- the seller will have established contracts/sales in a geographic location or market to a demographic group where the sales barriers are high
- the buyer will have interest to move into an established market and ramp up their business quickly
| Pricing Formula: |
| the buyer's perceived value is dependent on the cost and time to establish a similar market or operation |
| if the barriers of entry are high, meaning that the cost to setup and capture a similar market relationships are high, then your price could be somewhat high |
| if the cost to setup a similar market is not high, then your price will be dependent on the buyer's perceived value of timing - how quickly they want to be in the market. |
| understand the cost to setup a similar market. If that cost is high, then the perceived value may be high depending on your projected market position |
| if the cost to establish a similar market is not high, then the perceived value is the strength of your documented cash flow position |
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Buyers Looking to Buy Your Technology
- the seller will have a specialized or patented technology that cannot be replicated within a reasonable time or cost
- the buyer will be an established operation that can benefit from this technology
| Pricing Formula: |
| in most cases, the buyer would seek to license the technology and may not be interested in buying your operations |
| the buyer's perceived value is the opportunity cost of not having the technology |
| price the business and technology together with the technology piece the greater portion of the overall value |
| the buyer may perceive the value as a great buy where they can take ownership of the technology and discontinue you as a potential hostage holder or competitor |
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Buyers Looking to Buy Your Goodwill
- the seller will have a strong brand name in a defined market.
- the buyer will want to capitalize on the brand name to expand their marketing operations
| Pricing Formula: |
| the perceived value is dependent on strength of the brand name and the current operations or product line |
| the value will depend on the brand - which can be subject to different opinions - and the value of your assets and earnings |
| If you are in a position of strength - meaning that your cash flow position and brand recognition are strong - you can bump the price up. |
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Buyers Looking to Own Their Business
- the seller has a business that is performing well with potential growth opportunities
- the buyer will be an individual who left the corporate ranks to look for an independent business opportunity
| Pricing Formula: |
| the buyer's perceived value is the cost to finance the business, set an annual salary for the themselves or another business manager, and maintain required capital expenditures |
| the higher your cash flow position, the greater your market value |
| price will be based on your cash flow position which can be 2-3 times over cash flow |
Helpful Tools
Some helpful forms business owners:
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