Seller note on a listing-marketing shop: 38 retainers, 4.5% monthly churn, 60 month paper

The $480 average is the other thing I'd pull apart. Is that 38 clients all paying somewhere near $480, or four teams paying $1,400 and thirty solo agents paying $250? Because the teams are the ones who can afford to bring it in house the second they hire a marketing coordinator, and that's a normal hire for a team doing volume. Losing one of those is a bigger hole than losing five solos.

I'm mid licensing and I've sat through four different vendors pitching the new agent class. Every one of them charged between $200 and $350 a month and every one of them was selling the same listing presentation template with your headshot dropped in. The agents who stayed past six months were the ones who actually got listings, and most of the class won't. So churn in the low end of that roster isn't a marketing quality problem, it's just agents washing out of the business. Vellum, ask how many of the departed clients left for another provider versus left the industry.

Curious what happens to the contractors when the owner leaves. If the two 1099s are the ones the agents actually talk to and they're loyal to him, the buyer inherits a list with no delivery capacity.

Following this because I've been poking at the same corner of the industry from the other side. What jumps out is the $95k of project work. That's 30% of revenue and it's the least sticky line on the page. A brand refresh happens once. Whoever bought one last year is not a customer this year. If you're valuing the business on total revenue you're paying a multiple on a number that has to be re-won from scratch every twelve months.

What I'd want to see most is the acquisition side, which vellum already flagged. The seller replaced 42% of the roster every year and stayed flat. That means he was landing roughly 16 new clients annually. How? If the answer is he's been in the market twenty years and people call him, that channel walks out the door at closing and the buyer starts at zero replacement with 42% still leaving. Price the note as if MRR falls to $12k in year two and see if $3,770 still clears.

On security, a UCC-1 on the assets of a shop like this gets you a used iMac and a subscription you can't transfer. What I'd actually want in the documents is an assignment of the client contracts, a covenant that the buyer keeps monthly revenue reporting to you, and an acceleration trigger tied to MRR falling below a stated floor. Whether an assignment of those retainer agreements is even enforceable depends on the language in the client contracts and on state law, so have a lawyer in that state read the actual retainer form before you rely on it. Also check whether the retainers are month to month. If they are, there's nothing to assign.

Dumb question from someone still working out his first deal: if the buyer's putting in $124k of his own cash, doesn't that give him enough skin that he fights hard to keep it? Or is $124k small enough on a $310k business that walking away is easy?

@tally in the trades I've watched people walk from more than that. Skin in the game holds until the monthly payment is bigger than the take-home, then it stops holding.

We tried buying our listing content from a shop like this and dropped them inside eight months, so I'm one of vellum's churn data points. The reason wasn't price. It was turnaround. We'd get a listing on Thursday and need the package Monday, and they were on a five business day cycle. Whoever buys this needs to know what the delivery SLA is and whether the two contractors can hold it while the owner's gone. Speed is what agents actually pay for.

Numbers as given. $18,240 MRR, 4.5% monthly decay, no new clients: month 24 MRR is about $6,200. Even at half that decay you're at $10,400. Your $3,770 payment is 21% of today's MRR and 61% of the no-replacement month-24 number, before the buyer pays himself or the contractors. The note survives only on the replacement assumption, which is the one number nobody in the data room has documented. I'd want three years of new-client counts by month and the source of each one. If he can't produce that, you're lending against a story.

This reads like buying a 38 unit building where the leases are all month to month and half the tenants move every year. I'd never say that's uninvestable, I own units like that. But I'd underwrite it at replacement cost of the tenant, not at current rent roll. What does it cost to land one agent client? If it's $900 in effort and ads and the client pays $480 for 22 months, the unit economics are fine and the whole question is whether the buyer can execute the acquisition. If nobody knows the cost, you don't have unit economics.

Two things wrong with the P&L as described. The owner draw of $118k isn't necessarily the SDE, because if he was also doing the selling and the account management, the buyer either does both jobs or hires. And $310k on $118k of owner earnings is 2.6x, which is not obviously crazy for a service book, but you're not the buyer. You're the lender at 8% on a 60 month term against a 22 month asset. Shorten it. 36 months takes the payment to roughly $5,830, which is 32% of current MRR and probably too much for the buyer to swallow, and that refusal will tell you what he actually thinks the revenue does. @sextant is right that the replacement rate is the whole trade.

I'm nowhere near this kind of deal, but reading it, what happens if the buyer just stops paying and the business is worth nothing to repossess? Do you end up chasing the personal guarantee, and is that usually worth anything?