The Definitive Guide to Selling an Ecommerce Business (part 1/3)

Selling Your Ecommerce Business

You’ve undoubtedly put hundreds, if not thousands of hours of blood, sweat and tears into your business.  For some reason or another, you have decided to part ways with it.  It may be that you built it with the intention of selling, you want to purchase another asset such as a house or apartment complex.  Or, you are like many of our clients and you simply enjoy the process of building businesses more than you do of running them.

In order to sell your Ecommerce business with a website broker like Upward Exits, there are some criteria your business must meet:

  • Make at least $50k in profit per year.
  • Be at least two year old.
  • Must not be dependent on a skill or asset that only you possess.  (this rules out people selling their own artwork or pottery.)

You can still sell your business if it doesn’t check all of these boxes, but it is really too small for a website broker like us to help you.  You may look into selling it on a forum or message board in addition to listing it on a platform like flippa.  You can feel free to reach out to us anyways and we can recommend you to one of our competitors who may have the capacity to serve smaller businesses.

How Much is My Ecommerce Business Worth?

As of the writing of this post (January 2019) we are seeing most Ecommerce businesses sell for between 2.5 X and 3.5 X their annual profit. 

Businesses making over $250K in annual profit will be at the higher end of that valuation, while smaller businesses <$100K will be for the lower end of the valuation spectrum.

Factors Affecting Ecommerce Business Valuation

The primary factor affecting the valuation of your Ecommerce business is simple, “how much money is it making you?”  But there are a litany of other factors that play a role in the valuation process for Ecommerce businesses.  We’ll cover a few of the major ones here:

  1. The industry your business is in.

    • Some industries are more popular/ competitive than others.  If a business in the restaurant supply industry is looking to expand its product offering, they may be interested in acquiring another business selling similar products, but it is unlikely that they will purchase a business selling kitchen accessories.

  2. How old your business is. 

    • A sustainable track record of profitability is as good as gold.
  3. Where your business is based.

    • Businesses based in the USA that have tax returns on their business are at a major advantage.  When a business has clean books and tax returns, we can help buyers secure financing to purchase the business.  Not only does this provide cash closings for the buyers, it also gets the business a higher valuation.
  4. How many hrs./ Week are you working in your business.

    • If you’ve managed to streamline your business operations either through the use of software or through hiring employees, it is far more valuable than if you have to spend 20+ hrs./week in the business.  Most buyers are looking to purchase income producing assets, not jobs.
  5. What countries are you selling to.

    • If you are able to fulfill product to several geographic regions, this enhances your business value. 
  6. How are you sourcing product.

    • Are these non-proprietary products that you are marking-up 200% and reselling? Your days are limited and your competitors are close.  We likely won’t be listing your business for sale. 
    • Do you have proprietary products or unique relationships with your suppliers? That’s a business that will see some attention from buyers.
  7.  Fulfillment.

    • More and more businesses are turning to fulfillment solutions such as Amazon FBA or ship station.  If you are one of the few lone survivors of the warehouse days, you should have very clean operating procedures that a buyer not located in your area can operate.
  8. Traffic sources.

    • Customer acquisition is still the name of the game in Ecommerce.  Businesses with blended traffic channels will see higher valuations than businesses that are completely reliant on one traffic source.  If there was an exception to this rule, it would be the rare Ecommerce business that gets the majority of it’s traffic organically, either by superior SEO or superior branding.
  9. Other assets.

    • We see a number of businesses that have utility patents on their products.  Patents, email lists, social media followings and recognizable brands are the assets that are most commonly found in successful ecommerce businesses.

  10. Sales channels.

    • Ecommerce businesses that are able to add productive sales channels such as Amazon, Walmart.com or wholesale without substantially increasing their workload will see a meaningful increase in their valuation.  This is particularly common in businesses selling for over $500K.

If you get serious about selling your ecommerce business, you can contact us to setup a call or request a complimentary valuation.

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