The Exchanges

Q So then we can just multiply by 12 to get to that 48% number. Do you guys have a sort of a clear path to expanding a customer? In other words, upselling them from one product line to another or upgrading them on a feature set or things like that?

A Uh, yes and no. Uh, it depends on what the customer is. So there are some of our customers where up Upselling them to our other products makes perfect sense. So for example, if you are a WP Simple Pay or an Easy Digital Downloads, or prior to the sale, a Restricted Content Pro customer, all of these are customers where you are running a business of some kind, you are taking money in, and it probably, at least for many of them, makes sense for you to have an affiliate program. And so we'll upsell you to Affiliate WP. If, however, you are an Affiliate WP customer, and you are already running your store on, say, something like WooCommerce, upgrading you to Easy Digital Downloads doesn't make any sense. Because you already have the payment processing side of your business taken care of. Um, and then, so if we're going from any of our products besides the affiliate program, we'll upsell to affiliate WP. If they are an affiliate WP customer, then we upsell them to the payout service.

AI assessment note: “yes and no. Uh, it depends on what the customer is.”

Q Okay. Got it. So a good chunk, but not a majority of, of your monthly revenue. Yeah. Interesting. Okay. So why'd you decide to sell it? It's doing 55,000 bucks a month. I assume it's high margin. Why sell?

A Uh, it was doing, uh, very hard, hard margins. Uh, frankly, it wasn't something that we originally planned to sell, uh, but the opportunity arose and we've always tried to approach business with a mentality that everything is, you know, has a possibility of being sold at some point, um, and the right opportunity arose. And what we ultimately decided was that it allowed us to narrow our focus. Uh, at the time we were running five different product brands. Um, and there was a little bit of overlap between them, between the membership and e-commerce tools that we built. And so transferring one of them basically allowed us to narrow our focus and we kept our whole team. So we didn't transfer any of our team members with the product, uh, only the product. So we effectively were able to hire three new people, uh, without actually hiring anybody. Cause we took the people that were working on the product and have put them onto some of our other projects.

AI assessment note: “what we ultimately decided was that it allowed us to narrow our focus.”

Q So you get, um, again, you can't say the exact number, but two to three X, 55,000 dollars a month in terms of AR. It sounds like something, you know, it'd be something between one and two million bucks coming into the company. How do you decide where to invest in that for the longterm? Like, what does that actually mean?

A Sure. So the first thing that we're, uh, wanting to do after the sale is make sure that we still have profitability. So we operate on a model that we will always aim for profitability because that's the only thing that we can ensure that keeps the business alive. We are a hundred percent bootstrapped, self-funded business. We have no outside investment and we're all privately owned. Um, and so at that, uh, we typically aim for about the 20% profit margin. And when we sold off restricted content pro, That was basically the loss of that revenue was majority of our profit margin. So what we want to do at that point is operate for the next couple of months carefully. Um, but also very strategically to make sure that we can still maintain a monthly profit margin. You know, we can, with enough cash in the bank, obviously we can take on losses for a few months. No problem. Uh, we can actually take it off for quite a few months, but we still want to reattain our month to month profit margin. So the first strategy is just Just pay attention. See where we are. Um, we, we don't have our numbers from, uh, August yet, but we think we've already achieved that profitability margin again. Uh, and so then basically we get to decide if we want to make some strategic investments, uh, for long-term growth, whether that is hiring or acquisition. Uh, we can choose to just sit on it and, you know, no…

AI assessment note: “decide if we want to make some strategic investments, uh, for long-term growth”

Q Oh, wow. Okay. So that is, if that's doing 130,000 dollars per month, each, each person's paying what, like 10 bucks a month?

A No, we have it priced out. Uh, so our starting plan today is one 49. Uh, but they used to be down, uh, to 49 a month was the lowest price. Uh, we've changed prices three times in the last, uh, six, seven years. Uh, and so we have a lot of customers that used that are still grandfathered in. Uh, we used to also do annual renewal discounts. Uh, the earliest original renewal discount for 40%, then we dropped it to 30% and we dropped it to 20% and now we don't have renewal discounts, but anybody who Purchased before those were removed, our grandfathered in. So our annual, uh, customer value is between, I think lowest right now is 34 up to, uh, um, two hunt, uh, 299 per year.

AI assessment note: “No, we have it priced out. Uh, so our starting plan today is one 49.”

Q The toughest part of any sale like that, obviously, is number one, finding a buyer that you think is going to treat your customers right. And then secondly, seeing a buyer will essentially pay you what you want to let the tool go, right? So walk me through both of those. Let's start with the harder one first, which is how do you think about valuation?

A Um, valuation wise, we, I mean, frankly, we had to look at it from a The price had to be right for us. Uh, because it's like we mentioned earlier, it was a profitable product already. Uh, it is something that we had been running for a long time. We had been running it for about eight years. Uh, we were very comfortable with it. We had a lot of longterm plans for it. And so if we're going to do it, the price had to be right. Um, so we basically came up with a valuation based off of annual revenue, um, and estimated profits for the next few years. Uh, and basically told our buyer that this is what we need. And if we can meet there, uh, then we can make a deal.

AI assessment note: “came up with a valuation based off of annual revenue, um, and estimated profits”

Q And why did you come up with that? Like when you were sitting down with your team, what was that? Why was two to three X the number?

A Uh, number one, it was a number that I felt that I could reasonably get. Um, I thought it seemed fair from a buyer's perspective. You know, we can, we can say that we would love to have 10 X annual, but you know, it's probably never going to happen. Not in any kind of reasonable negotiation. So we really wanted to try to find a balance between what do we need to justify this and what is somebody reasonably going to pay because they're going to try to regain their investments. Um, and in this case, we didn't sell it to a private equity firm or somebody that is more, not just able, but maybe operates off of a business model of, uh, larger gambles. Uh, we sold it to another team within the WordPress ecosystem. Uh, and so we had to make it make sense for them too.

AI assessment note: “number one, it was a number that I felt that I could reasonably get.”