Tips for putting a realistic price tag on yourself
At the heart of almost every startup are entrepreneurship and innovation. That means once you’ve built a solid business, you might eventually be looking to sell so you can dive into your next big idea.
When so much passion, love, sweat, and (probably) tears have gone into your startup, it’s almost impossible to translate that into a number on a price tag. So how do you ensure that you ask for the right amount of money for this company that is ultimately priceless to you?
Know your worth.
Since startups, by nature, lack a long financial history for investors to consider, it’s up to you to come up with a starting point for conversations about how much you’re worth. In the CPG industry, you can study the trends in how other startups have been valued at the point of acquisition. There are a few ways to get started on crunching a number for potential buyers.
- Compare your numbers to similar companies. First, make sure the other startups are in the CPG world. CPG is so different from any other industry that, though there may be similarities, startups in tech or other areas will have vastly different valuation variables than yours. In many cases, if a startup has recently sold or is trying to sell, you’ll be able to look up the actual dollar amount of the company’s worth. Use those numbers as a jumping-off point in your own calculations.
- Have your accounting team develop detailed forecasts. Whether or not you’re considering selling, understanding your future is crucial to your success. Using the numbers you’ve seen since you got started, build forecasts to predict what you’re likely to see in sales, expenses, and revenue. You can never know the future, but you can get a reasonable idea based on past trends. If your forecasts don’t show a performance you’re satisfied with passing onto a buyer, then you have some work to do. On the other hand, if they predict that business will likely continue to boom, that’s an excellent addition to your presentation for potential investors.
- Consult the market. If you know any investors, ask them how much they think you’re worth. If a buyer thinks you have a $200K company on your hands, other buyers are likely to agree, even if you estimate its value at a million. Figure out what the potential investors think and how they calculated that amount, and use that to inform your process. If their number is close to (or higher than!) yours, great! If their appraisal is way below what you expected, it’s time to figure out how to make up that difference.
- Prove that you’re profitable. If you can’t present your startup to an investor in a way that convinces them they will make money, your startup is worth exactly zero dollars. Even if you have $2 million sitting in the bank, you have to be able to demonstrate that the startup itself and the product are actively successful. It’s ongoing profit, not static net worth, that determines the sale value and level of interest for potential buyers.
Make your startup more attractive.
If you’re not satisfied with your current value, or if you’re not quite ready to sell, there are ways you can go about building more value into your company, laying the groundwork for a bigger deal down the line.
- Cut out the middleman. Find a way to get your product into consumers’ hands without going through retailers. If you can establish a model where customers can buy your product straight from your website and have it shipped to their front door, that’s excellent value. This doesn’t mean you have to cut out retailers altogether! It’s just an incredibly valuable feature for a buyer to see that the success of your product doesn’t rely on stocking the shelves of a third party.
- If the customer can automate the above process, all the better. Subscription-based models are money in the bank in the eyes of a buyer because they’ll see guaranteed purchases and ongoing profits in their financial projections. It means a lot for them to see that your consumers love your product enough to commit on a recurring basis. Establish a way for your customers to sign up for weekly, monthly, or bimonthly deliveries, depending on what makes sense for the product.
- Make it easy for your customers to tweak their subscription. Whether you give them a sleek, easy-to-use app or the option to update their order via text message, having flexibility to skip a month now and then will keep them happy. Letting your customers constantly switch up their orders might seem like a hassle, but we’re human! Who really uses the exact same number of razors every month? Plus, longevity in subscriber relationships will also look great to a buyer, as it shows people aren’t just subscribing for three months and then canceling.
- Don’t completely abandon retail experiences. Selling directly to your customers and offering subscriptions are incredibly valuable tools, but having diversity in customer sourcing is also key to your brand’s longevity—and your sale value. Whether you establish a small number of your own storefronts in popular neighborhoods, or negotiate to have a polished and attractive setup in every location of a larger chain retailer, make sure that potential customers have the opportunity to walk past your branding every so often. Investors want to know that there are multiple avenues through which your product’s customer base can grow, so maintaining a retail presence will add additional value to your acquisition.
Don’t go it alone.
Ultimately, you want to consult with a financial expert (or a team of them!) to ensure you and your company get what you’re worth. The valuation process can get complicated, and you don’t want to sell yourself short. Ask for help!
Consider partnering with us at P&G Ventures, where we support startups and innovators on their journey to create incredible products and make customers’ lives better. We have been in the CPG game for 180 years, so we know a thing or two about the value of certain products and company models.
We have a proven record of helping brands grow, and we’ve seen what works when it comes to increasing value. We’re ready to share our resources with you if you’re ready to share your creativity with us.
To learn more about how P&G’s startup studio can help make your ideas into reality, visit www.pgventuresstudio.com.