How to value intellectual assets in your WordPress agency sale | Freshy

Many WordPress agencies develop intellectual assets like proprietary processes, WordPress themes/plugins, and branded materials. So when it comes to selling your business, you need to know how much they’re worth.

For starters, you’ll want to determine which items are eligible for protection under copyrights, patents, and trademarks. Then, you can choose from three different methods for valuing IP, which focus on costs, predicted income, and market value.

In this post, we’ll explain the importance of an IP valuation and discuss the main types of protection. Then, we’ll introduce you to three approaches to evaluating the worth of your agency’s assets. Let’s get to it!

Why is accurate IP valuation necessary in a business sale?

You need to assess the value of your WordPress agency before listing it for sale. There are various factors that impact value, but IP rights are one of the most effective ways to increase it.

With exclusive ownership and access to creations like software or processes, buyers will greatly benefit from your company’s competitive standing. The property can be sold, licensed, and franchised, so it offers plenty of opportunities for future growth and revenue.

It’s also important to properly protect your assets (and know their value) since it lowers the risk of post-sale complications like legal disputes. Taking steps to mitigate this risk can help promote a smooth transition for all parties.

Most qualified buyers will conduct comprehensive due diligence when deciding to carry out a merger or acquisition. Therefore, you’ll need to be prepared with the relevant documentation, registrations, licensing agreements, etc.

Four types of IP protection (and common examples)

You need to know the options you have for protecting your intellectual assets. In this section, we’ll explain the main categories of intellectual property (IP) and provide some common examples.

Copyrights

Copyrights refer to the rights attached to original work and the expression of ideas. It’s an asset that can be owned, so the rights associated with it can be bought, licensed, and transferred.

Most custom WordPress agencies use code to make changes to websites. Therefore, they’ll often have more assets to protect than WordPress designers who rely on third-party tools.

Here are some assets that you can protect under copyright law:

• Creative website elements e.g. graphics, content, music, etc
• Original source code (that doesn’t rely on CSS snippets or JavaScript libraries created by others)
• Software (e.g. WordPress themes and plugins)
• Document precedents
• Training manuals

You don’t have to actively apply copyright protection. Instead, it’s automatically obtained through the creation of original work.

But you can register your copyright for an added layer of protection. Typically, copyright protection lasts as long as the creator’s life plus 70 years.

Patents

Patents are usually a concern for technology-based businesses. It grants the developer exclusive rights to innovations such as devices, methods, and processes.

Essentially, a patent forms a kind of contract between the inventor and the public. It gives the creator exclusive rights to produce, use, and sell the product for a set period of time. In exchange, the creator will share details of the invention.

Here are some things that might fall under patent protection within your WordPress agency:

• Technology
• Software systems
• Devices
• Appliances
• Materials

Different countries have different criteria for patents, but typically, you need to prove three things:

• That the asset hasn’t already been produced
• That it wasn’t likely to develop naturally
• That there’s a clear benefit to using it

Patents tend to expire after 20 years, so there’s a critical window where you can benefit from the production and sale of the creation.

Unlike copyrights, you do need to apply for patents. That said, they are often difficult to obtain and the application can be lengthy.

Trademarks

Trademarks are obtained to distinguish your services from other WordPress agencies. They provide legal protection for your brand assets and prevent other companies from using similar elements.

These assets include:

• Brand names
• Product names
• Logo
• Slogans
• Color schemes

Like patents, you’ll need to file a trademark application, which takes roughly 12-18 months. The protection can last forever, but you’ll have to pay a renewal fee every 10 years.

Trade secrets

Trade secrets are a form of classified, confidential information that gives your agency a competitive advantage in the market. Therefore, they are essential for preserving your company’s success.

It could apply to closely guarded methods, processes, or formulas that are known to a select group of employees. Note that while it’s illegal to steal trade secrets, other agencies are free to discover them (if they develop something themselves) or reverse engineer a product.

Here are some common examples of trade secrets that you might need to protect:

• Proprietary processes or methods
• Client lists
• Marketing information (strategies and data)
• Financial details (sales forecasts, profit/loss statements)

Trade secrets can’t be registered. However, you can protect them by developing tight employee contracts and using confidentiality agreements.

When it comes to selling your agency, we recommend using non-disclosure agreements (NDA) to keep sensitive information secure during negotiations.

How to value IP in your WordPress agency sale (three methods)

When preparing your WordPress agency for sale, you need to know the value of your IP assets. Here are three common methods for determining the worth of IP.

1. The cost method

The cost valuation method considers the costs incurred during the development and creation of the asset. It also takes into account the costs that the buyer would face if they were to recreate or develop a similar product/service.

Costs incurred during IP development could include:

• Labour
• Materials, equipment, and services
• Research and development
• Creation of a prototype
• Testing and trials
• Regulatory approval and certification
• Registering the IP
• Overheads (e.g. utilities, accommodation, support staff)

Essentially, you’re trying to persuade the buyer of the fact that they can avoid these costs by purchasing the IP from you. This can be an effective way to illustrate the value of your assets.

However, it can undervalue your IP if the development costs are low. The emphasis on costs over profits also means the market potential isn’t considered.

Additionally, the costs incurred have no bearing on the buyer’s potential to financially benefit from the product in the future. Plus, it doesn’t take into account the costs they might incur in bringing the asset to the market.

2. The market value method

The market value method recognizes the worth of your asset based on its track record in your industry.

Over time, supply and demand factors impact the value of products. Think about the emergence and growth of artificial intelligence (AI) which has rendered some products/services obsolete.

Essentially, you’ll review the price at which similar IP has been sold or licensed, and use the findings as a benchmark. This can be a reliable way of assessing what buyers are willing to pay. However, it can also be difficult to ascertain.

For starters, it can be hard to locate publicly accessible data on IP transactions since cases are often kept confidential. Meanwhile, trading in niche markets means the information you do find may not be comparable to your own. Even in a broader market, arrangements differ based on exclusivity, payment structures, the economic climate, etc.

So while this method is considered to be fair and objective for both parties involved, it can be impractical. It’s also not useful for valuing patents (which only hold value because of their novelty).

3. The income method

The final way to value your agency’s intellectual assets is the income approach method (or economic benefit).

This can attract buyers since it focuses on the revenue that the IP rights may generate for your agency in the future. This will result in the net present value (NPV) which factors the future income, risks, and financial costs into the equation.

If the NPV is positive, buyers are more likely to proceed with the purchase of your IP assets. Note that this method tends to be used for valuing patents and trademarks.

There are challenges associated with this approach. First, you’re dealing with expectations for the future rather than past performance. It can be difficult to determine the economic life of an IP asset and estimate the predicted income generated from it over several years.

There are other factors to consider, such as:

• The size of the potential market
• The nature of the competition
• Changes in the economic climate
• The cost of registering and defending the IP rights

In a fast-moving industry like web design and development, it might also be unrealistic to project income for more than five years at a time. It’s also difficult to establish the value of early-stage technology using this method.

Therefore, it might make more sense to utilize a sub method of the economic approach which focuses on the relief from royalties. This takes into account the royalty costs your agency avoids by owning the IP right.

How to sell a WordPress agency with IP assets

When the time comes to sell your WordPress agency with IP assets, you need to safeguard your business.

That means creating an inventory of all your IP assets (including registrations, agreements, etc). You also need to ensure that ownership is clear, which is especially important if employees have created assets.

If you haven’t done so already, give yourself ample time to complete registration (or renewals if relevant) as the process can be lengthy. And, you’ll want to establish an unambiguous IP infringement process.

Once you have everything in order, you’re ready to look for a buyer. You have various options, but it can be easier to sell your business to an established WordPress agency like Freshy:

This way, you can ensure a smooth transition for all clients and employees thanks to Freshy’s dedicated in-house support team.

Freshy also provides a fast and responsive service so you can sell your business much quicker. Our efficiency is demonstrated by a long history of successful mergers and acquisitions.

Not only that, but Freshy boasts an experienced team of employees with skills in all areas of WordPress. This includes development, ongoing maintenance, SEO, security, design, and more.

We’re interested in all kinds of agencies, including general-purpose companies and niche businesses.

It’s super simple to kickstart discussions. All you have to do is complete this quick form and a member of the team will be in touch.

Conclusion

Intellectual property (IP) assets are one way to add value to your WordPress agency. They provide insight into your competitive standing in the market, and enable buyers to predict future income. This goes for all original processes, methods, software, branding, and more.

To recap, here’s how to value intellectual assets in your WordPress agency sale:

• The cost method focuses on the costs incurred while developing the asset (and/or the costs required to replicate it).
• The market value method reviews the sale/licensing of similar IP assets in your industry.
• The income method recognizes the economic benefit that IP rights may generate for your agency in the future.

Once you determine the value of your intellectual assets, you need to find a buyer. At Freshy, we have an in-house support team to facilitate a smooth, speedy transition. We also have a highly capable team of WordPress experts, so you can rest assured that your clients are in excellent hands. Fill out this form to begin discussions today!

Featured image credit: Pexels.