So, you’re the proud owner of an e-commerce business that has seen increasing revenue, and now you’re looking to sell. You have probably put in countless hours of hard work and equity to build a profitable site and now your objective is to get the maximum return on your investment. Well, if you’re looking to best prepare your e-commerce website for the sale, then you’ve come to the right place. In this guest post from brokerage expert, Thomas Smale of FE International, we will explore the options that you have when looking to sell ecommerce business websites, and how to maximize the overall sale price of your business.
What Is My E-Commerce Business Worth?
E-commerce businesses are valued using a variety of metrics. Typical factors which are often assessed when determining the multiple for your business might include the volume of sales required to reach your revenue, revenue distribution across products, the cost base, marketing spend and the multiples achieved in precedent deals. The average sale price of an e-commerce business is approximately 2-3x annual net profit for businesses in the $20k-$2m range.
E-commerce businesses can require a more detailed valuation compared to other business models due to the variety of costs involved in running the business. Some of these include wholesale costs, processing fees, shipping, fulfillment, marketing (paid and organic) and the cost of employees. Most businesses are valued using seller discretionary earnings, thus removing one-off costs and the owner’s compensation, although the latter would vary depending on how heavily involved you are in the day-to-day running of the operations. Combined, these facets make valuing and selling an e-commerce business more complicated than other niches, but fortunately, e-commerce is one of the more popular business models with buyers.
An experienced website broker can give you the most accurate valuation by combining industry knowledge with a thorough analysis of the unique aspects of your business. At FE International, we have sold nearly 350 online businesses and have the most data-points in the industry, ensuring our valuations are the most accurate.
Tip: be aware of brokers that provide exaggerated valuation multiples. This is a tactic employed by some brokers to entice sellers into long-term representation agreements and often leads to no offers or sale being achieved. Also, beware of brokers using “ready willing and able” buyer clauses. This may leave you out of pocket for thousands of dollars if you choose to not accept an offer/sell your business.
What Makes an E-Commerce Website Valuable?
The main reason an e-commerce business has value is because a buyer can expect a return on investment (ROI). The value of an e-commerce business is dependent upon many business-specific factors, but the amount a buyer is willing to pay also depends on the relative risk involved. Buyers look to make their money back in the quickest way possible – they will pay a higher or lower amount for an e-commerce business based on the perceived risk and likelihood of turning a profit, and whether this is worth the time involved. Put simply, the lower the risk and time involved, the higher the multiple you can expect to receive for when you sell ecommerce business sites.
How Can I Increase the Value of My E-Commerce Business to Buyers?
You can increase the value of your e-commerce business by reducing the risks to a buyer. The simplest way of doing this is by having the following characteristics attributed to your e-commerce store:
- Aged site – at least 12-24 months old
- Predictable key drivers of new sales
- Diversified traffic sources, PPC, organic, referral and social
- Traffic stats (Google Analytics or other) with a long history
- Brand with no trademark, copyright or legal concerns
- An engaged and growing mailing list
- Clear growth potential
- A history of stable or growing revenue
- A high percentage of repeat visitors and sales
- Diverse revenue base (i.e. no one product making up 100% of sales)
- A growing niche or industry
- Strong gross profit margins
- Low physical stock/cash requirements
- Streamlined and scalable systems and processes
- Proven warehouse/dropship/fulfillment ordering processes
- A proven team in place
- Use of CRM and sales software (HubSpot does both)
- Strong relationships with established suppliers with backups in place
For some further reading, take a look at this post on Entrepreneur.com about doubling the value of your online business.
When Is the Best Time to Sell My E-Commerce Business for the Highest Valuation?
The best time to sell your e-commerce business is dependent on both your personal goals and the situation of the business. If you’re serious about selling and looking to achieve the highest possible multiple, the importance of planning the right exit time should not be underestimated.
E-commerce businesses that attract the highest multiples are those that satisfy the criteria already discussed. This is often not achieved in a short period of time, so selling due to short-term personal goals or external factors may leave value on the table.
Consult with an online business broker well ahead of time to see what you can do to increase the value of your business. The exercise of exit planning (even if you aren’t selling) can often lead to minor improvements in efficiency in several areas that can add up to a big change in profits.
Tip: avoid selling straight after a seasonal high period. You may often get more value by selling just before or during a seasonal uptick, as buyers will be reassured by the strong numbers and may want a quick execution to capture some of the higher revenues for themselves (thus reducing the time taken for a return on their investment)
Where Can I Sell My E-Commerce Business?
Classified websites, marketplaces, and forums – best for smaller businesses (under $20k) – Smaller business making less than $1k per month are usually best sold privately by the owner through classified websites or forums such as:
- Shopify Forum – A great place to communicate with smaller scale buyers and sellers. They also have a useful e-commerce discussion area for everything from feedback on your store to tips on crowdfunding.
- Flippa – Arguably one of the best marketplace for buying and selling small ecommerce businesses.
- Exchange App – This is a Shopify resource that allows you to value your store, create a public listing, and receive offers from buyers. It's one of the more secure ways to sell ecommerce business sites online, and it has an affiliation with Shopify. I would still recommend working with a broker if your sales fall in a certain range, but you could still use this as a jumping off point for your valuation.
- Warrior Forum – One of the original internet forums and a good place to connect with potential buyers and those with an interest in online entrepreneurship.
- Website Brokers – best for medium-sized businesses ($20k – $5m) – Medium sized businesses in the $20k-$5m range are best sold through an experienced website broker. They will have a substantial list of qualified buyers and the experience in negotiating and structuring a superior deal than you might make on your own. A website broker can also provide guidance on how to maximize the value of your business during the exit planning stages in preparation for sale. Click here if you are interested in selling your business. Digital Exits has a decent broker program.
- Private Equity – some Private Equity firms actively engage in buying online businesses. Try WeBuyWebsites who are known to buy established websites from private individuals on a regular basis.
How Long Does It Take to Sell An E-Commerce Business?
If you choose to use a website broker, the time it takes to sell an e-commerce business usually depends on the individual business and the terms of the deal. As you would expect, larger deals (over $1 million) tend to take longer to sell than a smaller business. This is attributed to the complexity of the business and the level of due diligence involved. At FE International, 85% of online businesses sell within 60 days.
Smaller websites with less moving parts tend to be sold much quicker. If your business is a micro business (under $10k) and you have decided to sell it through a marketplace, it might only take a few weeks to sell.
What Could Stop a Buyer From Putting In an Offer on My E-Commerce Business?
We have covered the steps that you can take to ensure that you receive the highest valuation for your e-commerce business. But it’s also important to understand why a buyer might not be interested in your site or pull the plug on the deal. We have listed some reasons to be aware of:
- The wrong business model or niche
- Your stats or data doesn’t add up
- A buyer finds a problem that makes them reconsider their offer
- The seller wants more money than buyers are willing to pay
- Trends with particular business or market (e.g. unfavorable products, niche, ‘fads’)
- Issues with transferability
- Financial, branding or product condition of the business
- The buyer's funding falls through
Planning for the Transition After the Sale
It's important to realize that the transition process requires a significant amount of planning so that you execute properly when the time comes. When you're selling your store, there are several steps involved to make sure that you transfer ownership the right way and allow the new owner to seamlessly move into the new management position. There is also a possibility that you or some of your workers are going to be a part of that transition.
After all, your technical support team is probably wondering what they are going to do for a job after you sell the company.
When you sell ecommerce business sites you'll want to be careful on who you're working with, especially if you're going through an exchange or marketplace online. The same can be said for e-commerce site buyers, considering you might be speaking with someone who has no interest in making the transition simple for you.
A good way to mitigate this problem is to go to the exchange website and see if there is some sort of checkbox or field to specify that you are willing to train the new owners. Not only does this create a sense of trust and potentially bring in multiple buyers, but you know that the business you worked so hard on isn't going to fail after the transition.
The same can be done if you're working with a broker. Make sure you tell the broker that you want a training and transition process specified in the sales documents. This should be a hard selling point, because a new buyer really has no idea how your operations work, especially on a day-to-day basis.
Therefore, we recommend creating a transition plan prior to selling your online store. This might include details like when the training is going to occur, who should be included in the training, and when money is going to be exchanged.
That brings up our final point. To sell ecommerce business sites it's in your best interest to make the buyer feel as comfortable as possible. There is no guarantee that the buyer won't pull out of the transaction at any point during the negotiations.
There aren't always hard set rules that ensure that the buyer is going to pay on time or without any problems. You may find a buyer who is not satisfied with the training and decides that they don't feel comfortable running a business like this with such a lack of knowledge.
All in all, it's your job to plan for the transition and to give your buyer all of the information they're going to need to boost ROI right off the bat and run your business the way it should be run.
Having Second Thoughts?
This is extremely common, especially when you're trying to sell ecommerce business websites for the first time.
Who knows? You may be a first-time entrepreneur and have a real connection to this business that you started and nurtured over the past months and years.
If you're having second thoughts, don't worry. This is completely normal considering how running an online store could be compared to raising a child. You go through all of the ups and downs, spend tons of money, and have to work with customers who might be more like kids than adults in the first place.
So, it's your job to create a list of pros and cons to see if your reasons for selling are actually valuable to your own life. We'll cover more of that in some of the following sections, since you don't want to sell a store that has great value to you– but at the same time, you don't want to miss out on the deal of a lifetime. Some e-commerce sellers are able to pay for their retirements, travel the world, or support their family for years to come with the sale of an e-commerce business.
Now it's time to think. What can you do to make yourself sure about this sale?
An excellent place to start is by walking through the valuation process. You can use a website like Exchange Marketplace for assistance, but a broker and the tips in this article will most likely get you closer to an actual valuation.
Once you understand how much you would be able to make from the store, you might realize that it's not enough money in the first place. You'd be better off running your store for a few more years to see if you can increase profits and get a better price.
You also might consider posting the website for sale on some of the marketplaces we mentioned before. This would give you an idea if other people are interested in buying and for how much. You might realize that no one is interested, so the choice is made for you. You also might realize that a buyer is willing to pay far more than you expected, which would also make your decision a little bit easier.
The reason we suggest that people post their businesses for sale is because there is no risk involved besides maybe a small fee. So, when you try to sell ecommerce business sites, you have several testing mechanisms that could immediately push you towards or away from that sale.
Overall, it's the hard data that's going to best give you an idea of whether or not you should sell. Once you understand how much you can make compared to how much you could make by keeping the site, it becomes much clearer when landing on that final decision. We also think that the buyer should be factored in as well. If you don't like the person who's about to take over your pride-and-joy business, don't sell it to them.
Avoid the Fear When You Sell Ecommerce Business Sites
Another factor to think about is the underlying fear that you might be missing out on big future profits. If you completely sellout, who's to say that the new owner won't be making billions of dollars off of the business that you nurtured from the beginning? In that case, you wouldn't make a dime.
This is not to scare you in any way, but rather to address a thought that pretty much every business owner has when they try to sell ecommerce business sites.
We've all heard stories of small business owners selling to investors only to find that their company is eventually turned into a global phenomenon.
Try your best to wash this fear completely out of your mind. The reason for this is because a huge explosion in popularity often has to do with the sale itself. There may be a chance that the new owner has incredible connections in that market and was able to complete far more deals than you would've been able to. So, in that situation, your paycheck from the sale was probably the most you ever would've gotten.
Many sales also result in pivoting, where the new owner takes the business in a completely new direction in search of new revenue streams. In short, some people are meant to be entrepreneurs, while others are more comfortable taking a nurtured business and expanding it into something bigger. If you consider yourself more of an entrepreneur, you may find that the money you get from the sale of your website is a great opportunity to create a new business.
Make Sure Your Reason for Selling is Valuable to You
I was once told that buying a $30,000 suit is pointless if that particular suit has no value to you. Some rich folks might simply love the idea of having the best possible fabrics, and the most expensive suit buttons, even if no one else would be able to tell the difference.
I also have a friend who wears microfiber suits, which are typically on the lower end in terms of pricing. But they look great and he values these suits because he's a vegan and doesn't like the idea of wearing wool (which is more expensive).
This is similar to how you should value your company before you sell ecommerce business sites.
Why would the sale be valuable to you?
Would it allow you to live your dream of buying a boat with your spouse and sailing around the world? Would you be able to take the money and focus on a passion business of building furniture? Or maybe you're just burned out by this particular business?
You must at least figure out some reason to keep or sell your business. Otherwise, you may regret it in the future.
Also, consider the reasons it might be good to keep your company. Maybe it gives you a sense of purpose and something to do every day. Maybe you're worried that the selling price isn't enough to allow you to focus on your passion.
Force yourself to understand the “why,” long before you step into negotiations with another person. Some business owners love to sell ecommerce business websites–it's almost like a hobby to them. But most individuals are only looking at one business, so it's a bit more personal.
The decision to sell your e-commerce business isn’t an easy one to make. No matter what your reason is for selling, following the tips in this post will ensure that you receive the maximum valuation for your e-commerce business.