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4. Flippa’s Pricing Increase – What Sellers Need To Know

Flippa’s Pricing Increase – What Sellers Need To Know

Don’t you hate it when people try to pass bad news off as good?

Flippa recently published a blog post and sent out an email announcing a decrease in their listing fee.

Nothing wrong with that, eh?

Except that’s not the WHOLE story.

They also dropped these little gems:

• 5% success fee doubled to 10%
• $3,000.00 success fee cap removed COMPLETELY

As it turns out, the listing fee decrease was actually a pricing INCREASE for the vast majority of sellers with profitable websites.

Check out the email they sent to their readers and customers:

No mention regarding the success fee change, eh?

Doesn’t it sound like it’s going to cost you less to list with them? Let’s compare their pricing charts from 2013 to 2014.

Flippa Fees In 2013:

Flippa Fees In 2014:

What This Means For Website Sellers

For anyone selling established websites over $200, they’re going to pay more. How much more depends on how much the site ultimately sells for. Here’s a chart showing a few examples:

As you can see, the difference in pricing is significant the higher the sales price. Things really start to change once the site sells for more than $60,000.00 without the cap.

None of this would really matter if they would have been more transparent with their pricing changes. The real problem here is ignoring the bump and cap removal on the success fee and only focusing in on the decreased listing fee.

One seller nearly got burned for more than $17,000.00 on this change.

Kirk listed his site on Flippa in October and it didn’t sell. As reported on the Warrior Forum, he went to re-list in January and didn’t notice the success fee changes. He went from an expected $3K in fees to over $20K in fees when the site sold successfully. (Funny enough, I’d actually come across this site as a user/searcher quite some time before and thought it was an interesting niche. Check out Kirk’s Flippa listing to find out more about his approach…great stuff.)

Update: Kirk has been in contact with Flippa and, to their credit, they’ve agreed to lower the success fees in this instance.

What Others Are Saying

I reached out to Thomas Smale from FE International who reported the changes on sites like BHW to see if I could get some insights. Here was his reply:

“It is an interesting move from Flippa and a clear signal that they are no longer interested in trying to compete at the mid-five figure range and above – where using a broker is now priced similarly (with a broker being marginally more expensive but with no upfront fees) with less benefits. A broker brings real deal experience, vetted buyers, fully prepares sales materials, more confidentiality and a far higher success rate (a decent broker will close 80%+ of all listings vs. Flippa at less than 50%). I believe this to be a generally sensible move from Flippa (from a business perspective) as they already have a relative monopoly over 3-4 figure listings so can almost charge what they want. Higher than that, it only makes sense to use Flippa if you don’t know of the alternatives.

Flippa’s counter is a service called “Deal-Flow” which is pitched as a “premium brokerage service” but in reality is more of an assisted listing service and far more hands on for a seller than with a real broker. As Flippa generally attracts a very poor quality of listings, multiples for genuinely good sites also suffer accordingly. Whilst Deal-Flow might seem cheaper on the surface, the actual value proposition is inferior . Good brokers have buyers who trust them, and in turn are willing to pay more for a quality business. Flippa does not, even with Deal-Flow. A business that might sell on Flippa for $80k would cost you just over $8k in listing and success fees to net around $72k. A broker might get $100k for that same business and even with a 15% success fee, you will still net more ($85k).”

Thomas makes some interesting arguments about Flippa’s focus on the lowest end of the market and on the value proposition regarding Deal-Flow Vs. professional brokers.

I also reached out to Justin @ Centurica to get his thoughts:

“It’s certainly an interesting strategy, and I’m sure it’s part of a larger plan. I would guess the aim is to increase front end listing volume and ultimately revenue per user. It seems to coincide with the arrival of Adsense display adverts appearing on the platform.

With total selling fees now rivaling that of a specialist broker, I would guess that Flippa (marketplace) have no plans to target the + $30K section of the market, which is a wise move as you can’t be everything to everyone. Sub $1K listings are unlikely to make the company any substantial revenue, unless they’re listed in high volumes. That would explain the reduction in listing fees.

This leaves a ‘sweet spot’ of around $5K – $30K which often doesn’t make sense for brokers due to the low commissions, but would make sense for a marketplace. Their focus should be on attracting more sellers to that particular area. I believe this is where the largest buyer demand will be in 2014, as more potential buyers realize that paying less than $5K for a ‘business’ is more than likely to result in tears.

It’s easy for everyone to take a shot at the market leader and I’m sure this move will attract a fair few critics. It’s also easy to forget that they’re a business, not a forum or social enterprise and they have to do what they believe is best for them as a company in order to serve their users long-term.

Personally, I hope that the increased revenue will be reinvested into marketplace security and moderation to remove and prevent some of the issues they currently have with listing quality.”

Justin again highlights a move towards the lower-end of the market. I agree that spending some of that increased revenue on controls and moderation to improve the quality of sites listed would be an interesting move.

What Was Flippa Thinking?

While they have every right to change or adjust their pricing as they see fit and to meet their business goals, their message and approach to this communication was flawed. It’s not just the email they sent, though…here’s the blog post where they left that out too. (Incidentally, the link to their pricing page on the post isn’t working either.)

The claim that they’re responding to requests to lower listing fees seem to have missed the point. Looking at the comments on their blog post, I haven’t found anyone that seems to respond positively to the change. While Flippa’s entitled to raise their fees whenever they’d like, wrapping it up as a fee decrease is where their users are feeling burned.

Note: A reader Josh @joshuasturgeon brought up an interesting point – He argued that Flippa might be feeling the competitive pressure put on them by Apptopia in the app buying/selling space. They might have seen they’re charging 15% and are looking to up their fees there because they can. Interesting observation.

In Flippa’s Defense

1. They Have Every Right To Change Their Pricing

While it might not have been communicated very well, I don’t think they’re “screwing” over sellers as some have mentioned. Adjusting prices to keep up with the market and their business needs is perfectly acceptable.

2. They’re Still Priced Lower Than Brokers

While the gap has closed a bit, they’re still charging less than us and others that sell in the $5K+ space. This move may simply be signaling that they’re looking to close the value gap as well.

3. We All Make Mistakes

It’s not easy being the market leader. They’re bound to screw up communication from time to time – People make mistakes. This could be a case of the right hand not talking to the left and a simple miscommunication. While Flippa isn’t the huge corporate giant some think them to be, there are things that get missed when you have lots of different people on the team.

What This Means For Brokers

This is relatively good news for us and other brokers like FE International. Flippa has closed the gap in fees, but haven’t much in terms of added value. The shrinking difference between Flippa’s rates and those of a professional broker will (likely) further fragment the market and create opportunities for brokers to offer differentiated service and white glove treatment.

I know that plenty of brokers list and have sold on Flippa as well. This pricing increase is likely to decrease the amount of sites listed on Flippa by brokers, further cutting into their $10K – $50K sites for sale presented by these 3rd party brokers. Flippa still provides a lower-cost alternative for the DIY crowd, but they’ll have to find a way to off-set the brokers that are bound to list elsewhere with the additional cut Flippa is now charging.

So, what do you think? Did they deliver a wrapped-up turd in a box with this one or was it a smart move and a sign that they’re heading in the right direction? Please feel free to leave a comment – we want to know what you think of the changes.

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