What is a UK hosting company actually worth?

The short answer: months of recurring revenue

Small and mid-sized UK hosting books almost always change hands on a multiple of monthly recurring revenue, not on profit and not on turnover. The usual range is six to twelve months of recurring revenue from the hosting accounts.

So a book doing £4,000 a month in hosting revenue is typically worth somewhere between £24,000 and £48,000. That is a wide spread, and where you land inside it is the whole negotiation.

This surprises people who expected a multiple of annual profit, the way a trading business is usually valued. The reason is simple: the buyer is not really buying your business, they are buying a list of customers who currently pay money every month, and taking on the risk that some of them will leave. Your costs, your hardware and your overheads do not transfer, so your profit margin is not what is being bought.

What pushes the multiple up

• Low churn. This is the single biggest factor. A book losing 5% of accounts a year is worth far more than one losing 25%, because more of what the buyer pays for will still be there in a year.
• Monthly billing. Counter-intuitive, but monthly customers are cleaner. Annual customers have paid for service that has not been delivered yet, and that money has to be settled between buyer and seller.
• Standard platform. cPanel and WHM, or Enhance, with WHMCS behind it. Migration risk is the buyer's biggest fear and a standard stack removes most of it.
• Clean records. A billing system that can produce an accurate export of active accounts, prices and renewal dates. You would be amazed how often this is the sticking point.
• Long-standing customers. Accounts that have been with you five years are unlikely to leave over a change of ownership.
• A willing introduction. A seller who sends one warm email to their customers is worth real money to a buyer, because it is the difference between a handover and a mass exodus.

What pulls it down

• High churn, obviously, but also churn you cannot evidence. "It's low" is not a number.
• Heavy discounting. If a third of the book is on a legacy price from 2014 that no longer covers its cost, that revenue is not worth what it looks like.
• Free or nearly-free accounts. Friends, family and charity sites are a cost, not an asset.
• A custom or in-house control panel. It might be excellent. It is still a migration nobody has done before.
• Concentration risk. If two customers are 40% of your revenue, you have two customers, not a book.
• Unresolved abuse or chargeback history. This transfers as reputational and operational cost.

What is usually excluded

This is where expectations most often go wrong, so it is worth being blunt about it.

• Hardware and servers. Your buyer has their own platform. Your kit is worth its second-hand value to somebody, but not to them.
• The limited company itself. Most of these deals are asset sales: the customer list and the revenue, not the company, its history or its liabilities. That is usually better for both sides.
• Domain registrations. Often valued separately, because a domain book is a different asset with different economics. It is not worthless, it is just not hosting revenue.
• Your brand and domain name. Occasionally worth something, usually not much once the customers have moved.
• Non-recurring revenue. One-off design work, ad hoc support and consultancy do not transfer, so they do not count towards the multiple.

How to work out your own number

1. Export every active hosting account with its price and billing period.
2. Convert everything to a monthly figure: divide annual plans by twelve.
3. Strip out VAT, domain renewals, SSL resales, one-off work and any account paying nothing.
4. Add up what is left. That is your monthly recurring revenue, and it is the number a buyer will start from.
5. Multiply by six for a cautious figure and twelve for an optimistic one. Your realistic number is somewhere in between, closer to the top if your churn is low and your billing is monthly.

If the result is lower than you hoped, the usual reason is that a lot of what felt like revenue was not recurring. That is worth knowing before you are sitting in a meeting.

Structure matters as much as the headline number

Two offers with the same headline figure can be very different deals. Ask about all of this before comparing:

• How much is paid on completion, and how much later?
• Is there a retention bonus, and over what period is retention measured?
• Who covers customers who have prepaid for a year they have not received?
• What happens if a customer refuses to migrate?
• Are you expected to stay on, and for how long?

Get proper advice on the tax

How a sale is taxed depends on how it is structured, and the difference between an asset sale, a share sale and simply winding the company up can be substantial. There are reliefs available to business owners disposing of a business, and both the rates and the qualifying conditions change from year to year. This is genuinely a question for your accountant, and not one to take from a hosting company's blog, including this one. Ask them before you agree a structure, not after.

A realistic sanity check

If you are running 500 accounts at an average of £7 a month, that is £3,500 a month recurring and a likely range of roughly £21,000 to £42,000. If you were expecting six figures, the gap is usually explained by counting turnover rather than recurring revenue, or by counting customers who no longer pay.

None of this means your business was not worth building. It means hosting books are valued on the reliability of the income, and the price reflects the risk the buyer is taking on the customers staying.

If you want a real number rather than a range, our acquisitions page has an estimator you can put your own figures into, and we will give you an honest answer on whether your book is something we would buy. If you would rather keep the customers and lose the servers, UK reseller hosting or Agency Partner lets you keep billing them under your brand while we run the infrastructure.