#9: The 9 Factors That Drive Affiliate Business Value

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I’ve been an affiliate for more than half my life. My business partner, John, jokes that I’m a “super affiliate”. I’m always trying to convince him to try a new product (and send him my affiliate link once I’ve convinced him). I can’t help it; at this point, it’s in my blood. 

It’s crazy to think I’ve worked to perfect one niche (iGaming) and marketing as a skillset for so long. I took a detour into crypto and then worked for one of the world’s largest operators running their marketing and commercial functions. This helped me develop a broader knowledge base, which I’ve started to apply to the companies I’ve invested in.

I started my first affiliate website when I was 17 years old. I had some coding skills but no idea what SEO was or how to write proper English. But I didn’t do a bad job – I sold a bunch of sites for more than 500k USD. Was it a game-changing amount of money for me back then? Absolutely. Could I have stopped working forever and lived in my home country Belarus? Yep. Was it a bad sale in terms of value? Haha, of course. But it was a big learning moment, and it gave me experience that no MBA could teach.

So today, I’m going to share my process for valuing affiliate websites based on my history of buying and selling hundreds.

#1: Potential For Growth

This is the first thing I look at. I want to make sure the business won’t just pay back its X multiple but it’ll grow with the right tweaks.

Key things I consider are:

• Possibilities to enter new markets

• Potential to improve traffic channels

• Operational refinements

• New infrastructure

• Re-monetization of existing traffic

If the business has the potential to grow and, most importantly, still be a sellable asset when you want to sell it in the future? It’s a big win.

Lots of businesses are built and sold on potential and valued using DCF or any other model. But even though our industry is quite mature, there’s still a lot of growth potential in the industry. Can your business capitalise on that?

#2: Team

Who are the people running the business? Are they passionate and crazy about iGaming? Or are they just opportunity seekers looking to make money and run? I suggest making sure they’ll stay for some time to run the business, even if you’re talking about full acquisition.

People are one of the most important assets of any business, especially in iGaming, where there’s a huge lack of talent. So going really deep and getting clear on the make-up of the team within the business you’re purchasing is super important. This in itself, if you can ensure they remain motivated after your investment, can be a huge asset in itself.

So, I view the team as one of the key elements of any valuation, and it’ll only negatively impact a valuation if the team isn’t good enough or doesn’t stay with the business. 

But if this team can become an asset that you use to launch future projects, it can add up to 0.5x to EBITDA valuation.

#3: Infrastructure

How dependent is the company on third-party services? For example, how will this impact the affiliate if a card provider goes down, the supplier of Google accounts vanishes, or their traffic distribution tool goes out of business?

You don’t want a single point of failure where your affiliate is heavily reliant on a 3rd party, except for the most well-trusted and market-standard software providers.

I’ve seen so many cases where affiliates lost their business when a third-party provider blew up and they could not find a replacement.

The other thing I look at is how the affiliates' infrastructure empowers the business to perform better and outperform its competitors. When infrastructure is built correctly, it can have a huge impact.

This can include:

• Their TDS (traffic distribution system), as I mentioned earlier

• Solutions to generate cards and accounts if it’s a performance-driven blackhat affiliate

• AI-powered tools that genuinely improve the operational efficiency of the business

• Data and how it’s collected, analysed, and used to make key strategic and tactical decisions

Good infrastructure can lead to an additional 1x yearly EBITDA multiple for some companies.

#4: Diversification

Speaking of single points of failure, traffic is the most dangerous of them all for affiliates. If the business is reliant on one channel, or worse, one funnel? Run. You can barely call it a business.

I’d go one further and say that if 80%+ of revenue depends on a single parameter such as traffic channel, territory, partnership, or funnel, then it’s on dangerous ground and needs to change. Our industry, and traffic especially, is so volatile that you can’t think long-term if you’re so reliant on a single factor.

So forget strong multiples when your business could lose half of its revenue overnight. On the flip side, though, the more diversified the business is, the higher the multiple. 

But clearly, as an investor, sometimes it’s attractive to invest in a business that has a great model but the potential to diversify into other regions.

#5: Stability

Is the business growing? Or at least stable for a number of years?

You don't want to earn your money back in 2-3 years; you want the growth delta applied by either you or the team's efforts or something you saw in the #1 factor—potential.

I’d say stable businesses are least favourable for many (how crazy that sounds). They should have a growth potential that might even explode overnight. Better yet, they should be able to inject know-how into stable companies to give them immediate growth.

#6: Risks

Can Google shut it down tomorrow? Change of algorithms of PPC or Facebook? App attribution techniques or Google Play moderation? We’ve all seen this.

Well, as we saw recently, even SEO can be badly damaged. SEO was considered one of the most evergreen and stable traffic channels.

Of course, there are regulatory risks, particularly in offshore or blackhat markets. Can operators’ payments be shut down overnight? If yes, I’d say the valuation is on the lower (and very tricky) end of the scale.

If you think about an affiliate business, there are so many dependencies. Sometimes selecting the wrong set of partners (operators) can lead to a disaster if they close their affiliate program one day… and we know this happens A LOT.

#7: Traffic Channels

Is there just one channel? Or many, and working in synergy? I love it!

This is one of the least considered valuation factors and growth opportunities for many businesses.

How well do you monetise your existing traffic? Can you grow it? Enter new markets? Add more traffic channels? Sometimes it's impossible, but it’s an attractive proposition if you can.

#8: GEOs

Tier-1? Offshore tier-1? Prohibited territories? Or emerging markets? These are a huge valuation factor for me.

Some markets are losing their investing potential while others are growing.

My opinion? I don’t like investing in pure cashgen projects, and I always think long-term. If you are investing 2-3x multiple into something, I want this to have 2nd hand market value, I want to make sure that in these 2-3 years, I can inject knowledge and know-how so it turns into a 5-6x multiple.

#9: Revenue

I hate discussing valuation during the first phase of the conversation. I don’t think it makes sense. I love what Mark Ritson once said:

I don’t want the price to be the breaking point of a deal. If the business is good, I will be able to find money and convince smart people that the deal is good.

So, revenue is the last point of the discussion, and the valuation is driven by all of the parameters we’ve discussed previously—not just revenue, as some founders would like.

Sometimes, founders don't accept reality, and that's okay—we can't be right on everything. Sometimes, an assessment from someone like me can open eyes to a lot of things your business could’ve possibly not seen because you were too close to the business.

Revenue multiples can start as low as 1.2-1.5x yearly EBITDA if we are talking about a pure cashgen blackhat arbitrage agency. Then, they go all the way up to 20x for a rapid-growth startup showing insane potential by disrupting the hottest markets built on a serious and unique in-house infrastructure.

Okay, let’s wrap it up

I didn’t want to give any advice here. Instead, I wanted to explain my decision-making process and the key aspects of an affiliate business valuation I learned over the years. I hope this will help affiliates understand where they sit within the current affiliate landscape. It’s my belief that the affiliate niche in iGaming is leaning towards consolidation, and you either get acquired or you become the acquirer.

Also, the 15-Minute Mastery brand has lots more cool things coming this month. I’ll update you via this newsletter when I have more news, so keep your eyes peeled!