So you’ve finally decided to move on from your e-commerce business and you’re looking to sell it for the right price. The question is, do you have any idea what your online business is worth? For all you know, your e-commerce business is worth a million dollars or more. So, is your e-commerce business worth that much? Here are some factors that will indicate if you have a million-dollar e-commerce business.
The profit that your online business earns is the single most essential factor in determining its value. Whatever profit your e-commerce business makes, buyers are likely to pay a multiple of that profit—at 2-3 times earnings—to acquire your business. So if your e-commerce business makes a net profit of between $333,000 to $500,000 per year, then it’s worth a million dollars or more.
If your e-commerce business is showing signs of growth or at the early stages of maturity, then you would do well to sell your business. That’s because a growing online business is bound to be offered a higher price by potential buyers, for the simple reason that they can see future upside and a quicker return on investment. Generally, buyers assume a baseline trend make when looking at financials and project that trend into the future. And if your business is registering growth within the last 12 months and earning a neat profit, you are likely to get a higher offer for it, maybe even in the million-dollar range.
Does your e-commerce business fall under a niche where growth, high margins and a defensible market position are very much possible? If yes, then the chances of your online business getting a much higher valuation are better. As long as you’re operating in a market where demand for your business is evergreen or growing, getting a million-dollar valuation when it’s time to sell is a more distinct possibility than if your business sold products or services that may be in demand at first, but suffers a steady dip as time goes by.
It is practically a given that the older your e-commerce business is, the higher the valuation would be. That’s because older businesses possess more data, a longer earnings history and are perceived to have a much lower risk of failing.
Your e-commerce business will typically get a much higher offer if it has systems and processes that automate practically everything about it. It’s these systems and processes that run a business that provide a lot of value. Potential buyers are likely to pay more if there are lesser and lesser human elements in your online business, particularly when it’s an e-commerce store.
So you claim your online business has been doing very well and has been growing steadily over the years. Do you have the books to prove either claim? This may come as a surprise, but for some reason, there are e-commerce business owners who have poorly-formed or even non-existent financials. And with practically all potential buyers eager to know about stuff like your e-commerce business’s gross earnings and net profit, you won’t be doing yourself any favours if you don’t have clean books, if you even have a book at all. To ensure a smooth and speedy transaction, you must collect all this information, and present it in a way that would help your potential buyers accurately valuate your e-commerce business.
So far, no platform can be definitively declared as the best for your e-commerce business just yet. However, if your e-commerce business is on a platform that allows you to tweak the performance of the site to boost profitability, your online business has a better chance of fetching a good price when you decide to sell it.
When you’re on a platform that has tracking mechanisms in place, you get a better understanding of your site’s metrics, and that is something potential buyers would definitely want. Smart buyers will be willing to pay a premium on your e-commerce business because those same metrics will help them get an idea of the future potential of your site. More often than not, the elements that you need to monitor include conversion rate, subscriber growth rate, value per visitor, average order size and cart abandonment rate. By tracking these elements, you can boost not just the profitability of your site today, but also the likelihood of a higher valuation—which could reach the million-dollar mark—when the time to sell comes.