Dry cleaning businesses are facing three secular headwinds in the U.S.:
More casual wear in the workplace
More people working from home
An aging-into-retirement population
However, I was still curious what kind of profit margins dry cleaners typically get. I dug around a bit, and the first-person stories I found from people in the dry cleaning industry are listed below.
In general, a well-run dry cleaning business that is operated day-to-day by employees rather than the business owner can expect a pre-tax profit margin of about 12%.
1. John Felt (Dry cleaner owner)
“I opened my dry cleaner in 2008. Nine years later, after many mistakes, missteps, and missed vacations, I am claiming 12% from gross sales of $700,000…[Our] unit sales mix is 70% Laundered Shirt, 25% Dry Cleaning, and 5% other household cleaning…The real profit is made in the dry cleaning… Frankly, I was making $100,000 per year as an employee. [But] I am happier, healthier, and empowered by being my own boss…I am fortunate to have a prime retail location and enough money today to purchase the real estate and own the building. I have a great manager that I pay well and I can jump in my motor home and leave for weeks at a time without worry… There are four key things one needs to do in order to be successful and profitable [as a high-volume dry cleaner].
#1 Location is the most important element in the business. Dry cleaning and laundry customers come from all economic levels, but the most important and highest spending customers come from $80,000+ average household income neighborhoods. Make sure your location has over 10,000 homes that fit that profile.
#2 Don’t pay too much for a lease!… And insist on a drive-thru space or dedicated parking in front of your unit.
#3 Do not buy new equipment… Capital cost for equipment is the biggest expense for a cleaner…
#4 Your business model should define you as a quality cleaner. Do not try to make your business work by being a low price leader.”
John Felt (via Quora)
2. Howard Scott (Industry journalist at American Drycleaner)
“I reviewed a dry cleaner who does $240,000 in revenue. The business has been going for 18 years. The operation incurs $130,000 in expenses [not counting the labor of the owner-operators]. The husband and wife, who both work 50- to 55-hour weeks, take out [the remaining $110,000] as income…[Assuming the owner hired two employees to replace him and his wife at $40,000 per year each] profit is now $30,000… That’s a 12.5% return, which is more or less in order with existing small drycleaner figures.”
The world is aging, and retirees around the world collectively spend well over a $1 trillion each year. Here are 4 startup ideas to serve retirees:
1. Franchised fitness classes for retirement communities
Go to retirement communities, age-restricted 55+ communities, independent living facilities, and assisted living facilities, and pitch them on letting you use some of their space to offer fitness classes. You might be able to get them to let you use the space for free because you are offering something of value to their residents, or you might have to negotiate a fee for use. You can also ask for the community manager’s permission to door knock.
Once you have the space reserved, go knock on doors in the community and tell people about the fitness class you’re going to be hosting. You may want to offer the first one for free or cheap. Alternatively, you could leave door hangers out with a phone number to call to reserve their spot and make payment if you are charging something.
Once you have success in one location, you can hire staff and start adding classes at other locations. After you have 10-100 different locations that are all working, you can start franchising the business.
2. Long-term care insurance
People don’t save enough for retirement (especially since science continues to improve life spans). So, offer a product that let’s people outsource the financial planning with a product that forces them to invest a certain amount each month. This is basically life insurance but instead of paying out a death benefit, it eventually pays for long-term in-home care or the cost of entering an assisted living facility or nursing home.
3. Tech & science classes for seniors
Here are some specific course ideas:
Mastering the Smartphone (especially how to use messaging and video call apps, open and exit apps, login using biometrics, search Google, take photos & videos, and use social media)
Astronomy for Beginners
Chemistry for Beginners
DNA for Beginners
ChatGPT for Beginners
AI for Beginners
Mastering AI
Programming for Complete Beginners
4. Humanoid robots for care giving
The U.S. (and the world) is aging (meaning the average age is increasing FAST). Yet there are not enough care givers. Care givers are not paid a lot, yet care is already on the edge of affordability for many seniors. Robots can help solve this.
Biden Announces Meaningless Deal with AI Companies
Last week, Biden announced a new set of AI safety rules that will apply to seven of the largest AI companies: Amazon, Google, Meta, Microsoft, OpenAI, Anthropic, and Inflection. The new rules require AI-generated content to be watermarked, require AI systems be subjected to cybersecurity and capability testing before release to the general public, and require AI systems be made available to external vulnerability auditers.
However, the announcement is pure theater. The new rules are not regulations or laws. They are just voluntary commitments by the tech companies involved — voluntary commitments to safety measures that the companies have already implemented or are working on implementing. The voluntary deal accomplishes nothing that wasn’t already going to happen, despite Biden emphasizing in a press statement that the commitments were “real”.
In fact, pushing this misleading narrative that AI companies are adopting new safety rules may actually lower the probability that AI safety legislation is passed in the U.S. anytime soon. However, when AI safety legislation is eventually passed in the U.S., and make no mistake, it will be, it will likely include provisions similar to the requirements in this voluntary deal. Why do I say that? Because it’s what happened to the car industry 80 years ago.
A search fund is essentially a mini SPAC (special purpose acquisition company).
A fresh MBA grad (or anyone else with a rudimentary grasp of business) raises about $400-600k ($500k is typical) from investors to fund a shell company. The MBA grad is called the “searcher”. The shell company is called the “search fund”.
The Search
After raising money, the searcher then begins searching for a business to buy. The searcher can spend up to 2 years searching for the right business. During that time, the search fund pays them a salary of about $100-150k per year.
The searcher is typically looking for a business they can buy for somewhere between $5 million and $30 million. The median acquisition price for search funds is around $15 million. Don’t worry — the searcher isn’t expected to have this money up front. When they raised their search fund, they didn’t only raise $500k. They also got letters from their investors saying that each investor planned to invest up to a certain amount of additional money once the searcher found a business to buy.
Most searchers look for businesses that meet certain criteria:
Industry growth
High return on tangible capital (ROTC)
Recurring revenue
Low customer/revenue concentration
Low cyclicality (i.e. recession-resistant)
Low seasonality
High barriers to entry
TAM of at least $150 million
Low regulatory/tech/environmental risk
The most frequent acquisition targets are in technology and business services. However, metalworking can also be a good industry, and data businesses are fantastic but rare.
The Acquisition
Once the searcher finds a business they want to buy, they send the details to their investors to see if the investors like it. If enough investors like it (“enough” means the investors who like it have pledged enough capital to cover the acquisition costs), then the searcher will submit an LOI (Letter of Intent) to the business owner to begin the sale process. However, if not enough investors like the deal, then the searcher will move on to look for another business.
After the LOI is submitted, due diligence begins. Depending on the size and type of the company being acquired, different types of due diligence may be used. However, one type of diligence that is always required is a “Quality of Earnings” (QoE) analysis. A QoE analysis is basically an “audit-light”. An accounting firm will come in to look for hidden financial risks in the company being acquired. The QoE analysis should do things like:
Make sure no personal business expenses of the business owner have been attributed to the business.
Look for revenue concentration. E.g. are there any customers who account for more than 30% of revenue? Are there any groups of customers who all know each other who account for more than 30% of revenue?
How much revenue (and how much profit) is coming from one-off jobs versus recurring subscriptions or long-term contracts?
Simultaneously with the QoE analysis, the search fund’s legal counsel will begin legal due diligence. This includes things like:
Reviewing long-term customer contracts to ensure they are actually enforceable, and
Ensuring that the company is operating with all required licenses, permits, and surety bonding.
If due diligence turns up any unsurmountable issues or risks, then the search fund will break the LOI and move on to continue searching for another business. Typically, a search fund should expect to enter and break 3 LOIs before finally acquiring a business (or just winding down after 2 years if no suitable acquisition target is found).
After the searchfund finds the business it is going to acquire, it receives an infusion of additional capital from investors to actually fund the acquisition which will merge the acquisition target with the search fund. The acquisition will typically be funded by some amount of equity from investors together with a bit of seller financing plus an SBA loan.
The operation
After the acquisition, the searcher becomes the CEO and operator of the business that was acquired. The searcher’s goal now is to hold and grow the business for the next several years. On average, a searcher will operate and grow the business for about 7 years. However, it’s not uncommon for hold times to exceed 10 years.
In exchange for operating the business, the searcher will receive not only a salary but also equity compensation. Here’s how equity compensation might be structured:
5% equity vested immediately upon conclusion of the acquisition
10% equity vested over the first 4 years of hold time.
10% equity vested based on IRR performance hurdles agreed upon with the investors. A typical IRR hurdle might start at 20%, with full vesting at an IRR 35%.
The exit
Eventually, the searcher will find a buyer for the company and sell it. The buyer will typically be either a private equity fund or a larger competitor.
Example:
Suppose Bob the searcher buys a business for $10 million and grows the business to $50 million over 10 years, earning 22% equity in the process. Once Bob sells, he will have earned 0.22 x $50 million = $11 million. The investors will have made (0.78 x $50M) – ($10M) = $29 million in total gain (a 14.6% annualized return over 10 years).
If you’re interested in starting or investing in a search fund, subscribe to my free newsletter about tactics and strategies for business buyers and investors.
In this article, I’m going to describe 31 different types of businesses that will often pay $10,000 or more for websites.
In general, here’s what a high-ticket website development client looks like:
High margin service provider
Average customer value of at least $1,000 / year (or per job)
At least $100k annual revenue
Customers of the client’s industry typically are consumers or small businesses who follow a mostly self-directed process to find a service provider. For example, people may find their veterinarian by searching Google, but they’ll find their surgeon through a recommendation from their doctor.
NOT a very general business that few people specifically search for (e.g. general contractor)
NOT a business which gets most of its clients via referrals from other businesses (e.g. surgeons get most of their business from other doctors, and mortgage lenders get a lot of their customers as referrals from real estate agents)
NOT a franchisee or other business whose marketing is heavily constrained by suppliers (e.g. car dealerships, window replacement contractors, etc)
NOT an age-restricted business that Google or Facebook won’t allow you to easily market
You also want to target an industry niche with at least 10,000 different businesses in the U.S. so that you have enough customers.
Here are 31 examples of high-ticket web development niches:
1. Personal injury lawyers
Typical personal injury lawsuits range from a few thousand dollars up to a hundred thousand dollars, and lawyers often take 30% of that as a contingent fee. That means a single customer is HIGHLY valuable for a personal injury lawyer. That in turn means that having a high-performing website and Google presence is critical for personal injury lawyers.
2. Tax attorneys
Tax attorneys help clients who are facing an audit or are being investigated for tax crimes. They may also advise clients with complex tax issues.
Tax attorneys often charge $3-5k for individual tax resolution cases. For business cases, that’s often more like $5-7k. However, it’s not uncommon for cases to run to $10k+.
3. Real estate attorneys
Real estate attorneys advise real estate developers and investors about real estate transactions (e.g. setting up land trusts, reviewing or drafting contracts, and putting together closing documents).
Some states actually require real estate attorneys to close transactions rather than real estate agents. In these states, most real estate attorneys will get most of their work via referrals from real estate agents which means they won’t care as much about their website.
However, in states which DON’T require real estate attorneys to complete transactions, the majority of real estate attorney demand will be from investors (a more lucrative niche). In these states, a decent amount of business will still come from referrals from real estate agents, but there is definitely a benefit to be had from a strong web presence also.
4. Estate planners
Estate planning is a complex topic that people tend to Google a lot of questions about. That means a strong website is a valuable asset for estate planning professionals.
Estate planners might be lawyers, accountants, or finance professionals. They have credentials such as “Chartered trust and estate planner” (CTEP), “Accredited estate planner” (AEP), or “Certified trust and fiduciary advisor” (CTFA).
Here are some of the problems that estate planners help people to solve:
What happens to you wealth as you age?
If you are a multi-millionaire or billionaire, then you probably won’t consume all the assets you have before you die. In that case, do you want to start giving some of that to your kids, relatives, or friends before you die? If so, how soon do you want to give it to them, keeping in mind any tax consequences?
What happens if you are incapacitated?
If you are incapacitated and cannot make your own medical decisions, who do you want to make those decisions for you? Do you want to leave any specific instructions for that person (e.g. telling them that you either do or do not want them to pull the plug if you are in a coma for more than 3 months)?
If you become incapacitated or get dementia, who do you want to make financial decisions on your behalf? Who will be responsible for paying your bills, maintaining your mortgage, selling any real estate on your behalf, overseeing your investments, etc?
What happens after you die?
Who will take custody of your dependent children if you die before they stop being dependents?
What will happen to any real estate that you own? Will it be sold? Will it be given to your children or other relatives? How much will go to each person? What if you give half to each of your two children and then one decides they want to sell while the other wants to keep the land?
What will happen to any stocks or other assets that you own?
How will your cash assets be distributed?
Who will inherit certain family heirlooms (e.g. grandma’s wedding ring)?
What kind of funeral do you want and how will it be paid for? Have you already paid for it in advance?
What information will your family members need in order to access any bank accounts, life insurance policies, real estate deeds, retirement accounts, and other financial assets after you die?
How will your family members access your digital assets? E.g. domain names, social media accounts, pictures and videos held in cloud storage, email accounts, etc?
Important keywords for estate planning include:
will
last will
last will and testament
Preneed guardian designation
advanced healthcare directive
health care agent
durable power of attorney
durable power of attorney for health care
probate
conservator
living trust
revocable trust
irrevocable trust
qualified personal residence trust (QPRTs)
testamentary trust
special needs trust
joint trust
marital trust
bypass trust
bypass trust
credit shelter trust
generation-skipping trust
spendthrift trust
Totten trust
grantor retained annuity trusts (GRATs)
irrevocable life insurance trust
life insurance
letter of instruction
funeral arrangements
trust beneficiary
beneficiary designation
inheritance
payable-on-death
estate tax
inheritance tax
5. CPA & accounting firms
You might want to focus on accounting firms that specialize in particular ultra-high-ticket ($10,000+) services such as:
Quality of Earnings (QoE) analyses for search funds and small to medium private equity companies.
Tax planning services for high net worth individuals.
Fractional CFO services for angel or VC-backed startups.
6. Residential property managers
Residential property managers are always looking for more clients to manage. Some of those leads will come from relationships with realtors who serve investors. However, a strong online presence can also help bring in clients. Even warm leads from realtors may want to check out a property manager online before committing to using them.
A good property manager website will convey authority, experience, and low risk to investors who trust the property manager with their valuable assets. It will also have content that is clearly tailored to the specific geographic area that the property manager services.
7. Vacation property managers
Remote Airbnb investors need local boots on the ground to manage their Airbnb properties. Vacation rental property managers typically charge anywhere from 10-30% of total rent from each property they manage, which can come out to hundreds or thousands of dollars per month per property.
8. HVAC contractors
A new HVAC system may cost anywhere from $5k to $35k.
HVAC repairs are much less, but they’re still often a couple hundred dollars or more.
9. Asbestos contractors
Asbestos testing typically costs between $200 and $800. The national average is around $500.
The national average cost of a single family house asbestos removal job is about $2,000. Setting up and sealing the area accounts for 60+% of the cost.
If asbestos is found throughout an entire house, the cost will be more.
Also, commercial property asbestos removal will be more expensive.
10. Water & mold damage remediation contractors
These contractors may use several different phrases to describe their services:
Water damage restoration
Mold removal
Mold remediation
11. Pest control businesses
Pest control businesses must be licensed which means they tend to be more serious, larger businesses than something like landscaping.
The annual cost of pest control for a 3-bed, 3-bath single family home is typically around $400-1,000 annually.
A good pest control website will have blog content that addresses common questions about pests particular to the area a company services. Questions such as:
What kind of bug is this? (Be sure to include lots of well-captioned images that can rank in Google images)
How to get rid of <type of bug>
Are <type of bug>s dangerous?
12. Pressure washing businesses
Pressure washing is a high-margin, low-barrier service business.
A good pressure washing website is professional and makes it extremely easy to request a quote and then subsequently book an appointment.
It should be paired with a Google Maps presence and an automated system to follow up with customers to ask if they were satisfied and if they would please leave a review.
13. Soft washing businesses
Soft washing is like pressure washing but with less pressure and more soap. Soft washing is used for cleaning the sides and roofs of houses that would be damaged by pressure washing.
14. Window cleaning businesses
Window cleaning (exterior and/or interior) is often paired with soft-washing to provide an all-in-one house washing package.
However, window cleaning can also be a lucrative stand-alone business, especially for luxury homes and commercial properties.
15. Roofing contractors
A new roof costs thousands of dollars at minimum. The average cost of a new roof in the U.S. is around $10,000.
16. Spray foam insulation contractors
Spray foam insulation contractors install or replace attic insulation. This can cost around $1 per square foot which means a standard single family home will often be a $1-3k job.
17. Residential cleaning companies
A single full-house cleaning for an Airbnb host will typically cost anywhere from $100-400. And an Airbnb host is a good type of customer for a cleaning company because they may host their property 50 times during a year, requiring 50 different cleanings.
Cleaning companies also struggle with staffing. You might consider helping a cleaning company to build a website that also has a recruiting portion that advertises open positions to new cleaners.
Here are some ideas on how you might increase hiring & retention of cleaning staff:
Offer an affiliate program. Any cleaner who refers another cleaner to be hired gets 10% of the revenue from any job the other cleaner does BUT only up to a maximum of whatever the first cleaner does. So, for example, if Sarah cleans 5 hours this week, and she also referred Bob who cleaned 3 hours and Alice who cleaned 8 hours, then Sarah would get 10% of Bob’s 3 hours of work plus 10% of Alice’s first 5 hours of work. That essentially let’s Sarah leverage her own time and incentivizes her both to work a lot and to recruit other cleaners who will work a lot.
Offer discounted housing as long as the cleaner works for the company.
Offer discounted childcare as long as the cleaner works for the company.
You could advertise those things on the recruiting portion of a cleaning company’s website.
18. Hardscaping contractors
Hardscaping contractors build the hard surfaces in a yard (driveways, walkways, patios, decks, sport courts, outdoor pool areas, etc).
These jobs are almost NEVER under $1,000.
19. Irrigation contractors
Irrigation contractors install, maintain, and repair lawn irrigation systems.
20. Pool builders
The cost to build an in-ground pool typically ranges from $10,000 to $100,000.
Indoor pools are much more expensive even than outdoor pools.
21. Water contractors
Water quality contractors may offer a variety of services, including:
Well building
Well maintenance
Well equipment repair
Well testing
Water treatment system installation, maintenance, and repair (e.g. carbon filtration, water softening, or reverse osmosis filtration)
Well pump installation, maintenance, and repair
Water filters also need to be replaced periodically which means you can potentially help your web development clients to set up subscribe-and-save offers to increase their revenue.
22. Kitchen remodeling contractors
Remodeling a kitchen frequently costs over $10,000. That means a kitchen remodeling contractor is willing to pay a lot for a lead (or a website that generates leads).
23. Bathroom remodeling contractors
A typical bathroom remodel will cost somewhere between $2,500 and $15,000.
24. Veterinarians
Veterinarians often undermonetize. You can help them to build a website but you can also help them to add additional service offers such as a subscription to flea and tick medication, a membership that acts sort of like insurance that can only be used at THAT veterinarian, an affiliate program for dog food sales, etc.
25. Fertility doctor
The U.S. population is aging, and people are waiting longer and longer to have kids. That means fertility is an industry experiencing secular growth which means building high-performing websites will be easier.
Fertility is also a high-ticket area. The cost to freeze eggs for example is around $8,000 to $20,000, plus an additional $500-1,000 per year for cold storage.
26. Hormone replacement therapy specialists
Hormone replacement therapy is a medication that contains female hormones, intended to replace the estrogen that a woman’s body stops making during menopause. Hormone therapy is most often used to treat common menopausal symptoms such as hot flashes and vaginal discomfort.
There are two main types of estrogen hormone therapy:
Systemic hormone therapy (which comes in a pill, skin patch, ring, gel, cream, or spray foam).
Low-dose vaginal products (which come in the form of a cream, tablet, or vaginal ring).
Estrogen treatments are often paired with progesterone or progestin treatments to provide hormonal balance.
Hormone replacement therapy often costs at least $1,000 per year (including both the insured and uninsured portions of payment) which makes this a high-ticket treatment.
27. Integrative medicine providers
Integrative medicine “integrates” conventional medical care with non-medical care such as aromatherapy, dietary supplements, music therapy, meditation, resilience training, yoga, or animal-assisted therapy.
There are many types of practitioners who may offer some form of care labeled “integrative medicine”, some of which are more legitimate than others. Here are some examples:
Licensed physicians (high legitimacy)
Chiropractors (medium legitimacy)
Psychotherapists (medium legitimacy)
Acupuncturists (low legitimacy)
Chinese herbal therapists (low legitimacy)
Tai chi practitioners (low legitimacy)
Yoga practitioners (medium legitimacy)
Massage therapists (medium-low legitimacy)
Nutritionists (medium legitimacy)
Chefs / culinary medicine (medium-low legitimacy)
Personally, I don’t like working with people I don’t respect, so I wouldn’t work with low legitimacy practitioners who offered what I consider to be bull**** remedies, but if your moral scruples are more flexible than mine, then those practitioners can be lucrative clients.
The types of clients who pursue integrative medicine tend to be people with complex or chronic conditions, such as:
Autoimmune diseases
Headaches and migraines
Cancer & cancer-related side effects
Digestive disorders
Infertility
Menopausal symptoms (e.g. hot flashes)
Menstrual issues
Obesity
Chronic fatigue
High blood pressure (hypotension)
Sleep issues
Breathing disorders
Fibromyalgia (a poorly-understood chronic condition that causes trouble sleeping, fatigue, and pain and tenderness throughout the body; it more often affects women than men, and it usually starts in middle age.)
A concierge doctor is a personalized medical service provider who usually charges a monthly subscription or retainer fee. The annual cost can be anywhere from $1,500 for basic services to $20,000 for more specialized services.
Most concierge doctors live and work in a relatively wealthy areas or large cities. For example:
Los Angeles, CA
Bay area, CA
King County, WA
New York City, NY
Long Island, NY
New Jersey
Massachusetts
Connecticut
Maryland
D.C.
Loudoun County, VA
Falls Church City, VA
Arlington County, VA
Fairfax City, VA
Alexandria City, VA
Dallas, TX
Houston, TX
Austin, TX
Denver, CO
Telluride, CO
Jackson, WY
Las Vegas, NV
Maricopa County, AZ (especially Scottsdale)
Atlanta, GA
Palm Beach, FL
Vero Beach, FL
Miami, FL
Boca Raton, FL
Boca Grande, FL
Seminole County, FL
Winter Park, FL
Collier County, FL
St. Johns County, FL
29. Dietitians & digestive health doctors
A single consultation with a dietitian can cost $100 or more, and a multi-month package can often cost $1,000.
30. Dermatologists
A single visit to a dermatologist will often cost $100-300 (including both the insured and uninsured amounts). However, skin cancer cases pay more, as do procedures like laser hair removal.
There are a lot of opportunities for dermatologists to rank images in Google images for when people search for things like “red rings on skin” or “white bumps on elbow”.
31. Plastic surgeons & cosmetic doctors
Here are some of the several thousand dollar procedures offered by these doctors:
Cellulaze (over $5,000)
Breast augmentation (can be $2k to $20k)
Facelift ($7-13k)
Nose job, technically called rhinoplasty (about $5-6k on average)
Liposuction ($2-10k)
I also want to note that for any of the niches I listed in this article, you can build a high-value offer that includes more than just web development. Possible services might include:
Website design
Website build
Copywriting
Google My Business (GMB) setup & optimization
Content marketing (via blog articles)
Creating automations to text potential customers when the client misses their call, or to text customers after service was rendered to ask if they were satisfied and if they might leave a review on Google.
Ongoing website maintenance (keeping everything updated, working, secure, and performant)
SEO (via content & white-hat backlink building)
Setting up a CRM for the client (or integrating the website with their existing CRM)
Setting up and running Google ads (Google Search and/or Google Maps)
Setting up email marketing campaigns
Ongoing maintenance & operation of email marketing campaigns
If you’re starting a web development agency and want help to launch your business with the right structure & the right offer as quickly as possible, send me an email through the form below.
How much money should a search fund raise in 2023 for a traditional 2-year search? And how should that money be budgeted? In this article, I report the answers to those questions from over 20 search fund operators and investors. Here’s what they had to say:
$400k is the bare minimum
“Back in 2018 it was 300-400k for a solo searcher. [$500-600k] seem high. The key is building confidence and using templates in expensive processes like legal and diligence to reduce dead deal costs. I wouldn’t spend much on CRM and search tools — you can do most of that yourself or have tools given to you from investors.”
Reagan
“I have recently started to budget my search and am running into $430k as a minimum. This does include savings on rent and generally a low cost of living. I think [$500k] is a fair [number].”
Mohammad
Inflation has raised the average above $500k
“Inflation does push up [the raise amount] a little bit. I would say $550k is a fair number for 2 years search. I budgeted 1/3 of the cost to Legal and DD, 1/4 of the cost to search tools and brokers… It really depends on the industry [though].”
Raymond
Budget at least 1/3 of money raised for legal, due diligence, tools, and brokers
“For [legal, diligence, search tools, and brokers], I would allocate $100K for due diligence and $50K for search tools, and brokers. We could easily say this category forms at least 1/3 of the total expense among other planned/ unplanned events.”
Virbahu
Create a budget
One searcher named Bhushan provided his detailed 2-year, $600k ($300k/year) budget for his search fund:
Category
Year 1
Year 2
Total
Total (%)
Salary
$150k
$150k
$300k
50%
Benefits & Insurance
$15k
$15k
$30k
5%
Legal
$15k
$15k
$30k
5%
CRM, interns, and licenses
$50k
$30k
$80k
13%
Travel & conferences
$30k
$30k
$60k
10%
Diligence
$40k
$60k
$100k
17%
Total Budget
$300k
$300k
$600k
100%
“Bhushan’s calculation is a safe bet, excluding the cost of acquisition. But in most cases such luxury may not be possible and you can probably manage with about $400k by being very careful on where you spend and with your reduced compensation.”
Damodar
“I will likely be around the $550-$575K range, but may have lower travel expenses than most as I will have slight bias to the east coast. Not exactly the same breakdown as Bhushan but close enough that I would point you to [his numbers].”
Ferdinand Chan
Budget accuracy is better than budget precision
“Your goal should be to be accurate, not overly precise. You can raise up to $600K without encountering significant pushbacks. Raising more funds doesn’t necessarily mean you need it, but in my experience, it’s more correlated with the opportunity costs of another job. Compensation: Aim for a salary around the latest Stanford study average: $120,000. “The range of annual salaries during the search phase was $30,000 to $200,000, with a median of $120,000 (and mean of $116,508) and no bonus.” – Stanford 2020 Search Study
Tech Stack- Here is what you will need:
Systematic Data Tools: Grata (~$1000 per month, seek discounts).
CRM & Marketing Automation: Streak (Free for one user), consider alternatives like Reply.io, HubSpot, Outreach.io.
Website Domain: Google sites (~$7 per month).
VoIP Phone: RingCentral (~$50 per month).
Deal Aggregation: Axial (Free, with a success fee based on Lehman formula if the deal closes).
Incorporation Fees: Allocate around $20K to $30K.
Accounting QoE: You need to budget $24k, $8K for broken deals and $12K to $18K if the deal closes. You will budget for 3 broken deals. (Shop around before you choose who you work with)
Legal Fees: Budget zero, most search fund lawyers roll their fees forward. (Less room to shop around).
Travel Expenses: Can vary, considering flights, hotels, dining, and entertainment as needed for your specific activity.”
Michael Tabet
Build the budget based on need, not on the max that will get approved by your investors
“I would recommend building the budget you need, not the budget you think will get approval. For established traditional search fund investors, my $500k budget has been perceived as being on the tighter side. I live in a cheaper city, have a second household income and assets, so the modest salary is not a problem for me. I have spent a lot of time before my search preparing, so feel confident that I can manage within the constraints I have set. The main risk for my budget will be the travel budget with flights looking like they will stay inflated for at least 12 more months. There may be additional paid tools for proprietary search that I may pass over, but over the past six months with a bit of experimentation I have now developed a system for building lists from scratch with free and cheaper tools that works well for me.”
Ben Page
“I agree with those saying to determine raise amount based on budget. Salary, set up costs, travel, diligence, intern costs – year 1 then year 2. Search capital is expensive capital so you don’t want to raise more than you need.”
Alexander Wallace
“$500k was standard in 2022 and is more than adequate. If you run out of capital towards the end but have a solid deal under LOI, I’m sure your investors would assist you in a smaller re-raise to get you to close.”
Doug
Graduating from a good school helps you raise more
“I know what a bunch of people from Kellogg budgeted this year and the range was $500-$600k skewed a little bit toward the high end of that range.”
Brett
Mid-career search fund operators get paid more than fresh MBA grads
“I just closed in June – it was $670k all-in. My salary was higher than average because I’m mid-career and live in the bay area. Investors want the salary to feel tight but not be a source of severe stress. For the costs you asked about:
Legal – I only budgeted $5k. My law firm charges $5k up front and all legal costs are rolled into the transaction (including any broken deal costs)
Diligence – mostly QoE (which, unlike legal, must be paid immediately if there’s a broken deal). I budgeted $30k / year.
Search Tools – I budgeted $30k / year for “search infrastructure” (software, paid interns)
Brokers – I didn’t budget for this – would be paid for in the deal costs”
Chris
How much should a European search fund raise?
“[In Europe] it is above EUR 650k. Roughly the distribution works as follows 40% salary, 20% DD, 40% other expenses…”
Michael
“My opinion, at least for Europe is that at least 600k€ are needed for 2 years search.”
Valerio
How much should a Brazilian search fund raise?
“In Brazil it might be lower than US, I have seen a range of 420k – 460k for a solo searcher.”
