The cost of commencing an online store is lower than ever. Still, launching an online business from scratch always carries a certain amount of risk as many things can go wrong – potential customers might not like what you’re trying to sell; you can run into inventory issues; your marketing strategy might not pan out as you foresaw.
A way to minimize the risks is to purchase an existing eCommerce business. Rather than testing the waters with an unproven idea, you can buy an eCommerce website with proven demand and established customers. Many entrepreneurs are longing to buy one, some of them enjoy the process of building a business; others are passionate about the products they’re selling, or love working in the industry they’re in. Modern-day entrepreneurs buy already established eCommerce websites because they know it’s a much faster path to seeing success than trying to build one from ground zero. Here are a few key reasons why crafty people in business choose to buy over build:
- Established eCommerce businesses have already proven to be profitable.
- Entrepreneurs buy eCommerce businesses to scale their existing businesses or enter into a new niche.
- Experienced buyers expect handsome returns far sooner than they would by building from scratch.
Either way, there is one caveat – it takes money to make money. If you ever decide to buy an existing online business, you should be aware that the initial upfront investment could be quite significant, depending on the size of the eCommerce business you’re willing to invest in. Before you decide to depart from a hefty sum of money for good, always make sure that you’re making a good investment. Here are our top acquisition tips that you need to know before you purchase an eCommerce business.
Instead On Revenue – Focus On The Profit
In all fairness, it’s relatively easy to get distraught by all the digits in a business’s listed revenue. So if you are genuinely looking to purchase a particular website for sale, always remember that in eCommerce, the revenue stream can be misleading. As revenue accounts for the business’s total income, it certainly doesn’t factor in the costs that the company generates. For instance, if a brand sells high-priced items, it might have an imposing revenue stream without actually making any profits.
For that reason, you should always focus on the money left over after all operations – the profit. Reach out and try to obtain each product’s cost of goods sold, so you can masterfully plan on which items and assets you’ll keep in the portfolio of the eCommerce business, and which you’ll dismiss. Besides, ask for the company’s profit and loss statement for the last three years to see the figures they reached with your own eyes.
Understand The Website’s Traffic Sources And Costs
If you’re into eCommerce, you probably know that not all web traffic is equal. Some of it comes from search engines, other via referrals from other websites, and some from paid search networks. One of the first things you should acknowledge when buying an eCommerce business is finding out where your clients originate from and how much they cost. A particular website that you’ve set eyes on might be generating over $10,000 in sales every day, which seems like a high figure, no doubt. Yet, if the eCommerce website relies heavily on paid traffic, and the present owners are spending 70% of their sales to drive it, it might start to look less glamorous. Take the necessary time to examine the business’s analytics, acknowledge where the traffic comes from, and how much it costs.
Speaking of traffic, make sure that it’s sustainable as well. If most of the website traffic comes from search, it could be quite beneficial to have an SEO consultant by your side and analyze the site’s backlink portfolio. Better yet, prepare a list of proven SEO methods and strategies for driving traffic to your online store, so you can build upon the website you’re about to purchase and compete with the big guys. Forget the past performance of the business you’re trying to acquire and find out if it is beneficial and sustainable for the long term.
Speak To Suppliers And Check Logistics
You are willingly stepping into the company’s supplier agreements, so you better understand how they were established, the terms of the deals, whether those suppliers can be replaced, and the relationships that the previous owners built with theirs. Figure out how reliant on each particular supplier the previous owners were, and whether you could potentially negotiate better deals without damaging the process. The transfer of the existing relationships between the business you’re about to acquire and the leading suppliers is vital, so make sure you don’t misjudge anything.
Triple-check that the eCommerce business will run as usual under your ownership and inspect all shipping arrangements, software licenses, and rental spaces. You definitely want to avoid a situation where the business doesn’t transfer the deals they previously had over to you, and you are forced to negotiate various contracts because you are the new owner.
Figure Out Why The Business Is For Sale
This is adequate advice for buying an eCommerce website, but this is also good advice for buying anything – figure out why it’s for sale. Nearly nobody sells a profitable business without thinking it through properly. Dig deep and figure out why the company is being sold. A bunch of times, there’s a naive reason like the seller wants to retire early and live the easy life, or they want to focus on something else. Sometimes, the seller will be sincere about a company shortfalling, and you have the resources to fix it under your ownership.
Be aware that many snake-oil entrepreneurs are selling their worthless eCommerce businesses for jaw-dropping sums of money. If you fail to recognize a satisfying reason why the business is for sale or feel like the seller is hiding something from you, don’t ignore the red flags and think twice before committing.
Acquiring an established eCommerce business is both incredibly exciting and risky. Approach the situation with caution and knowledge and set yourself up for financial success. Assess if the company is worth its selling price and bring in profits in the future. Propose the right questions, triple-check the details, and ensure that your potential purchase is a smart investment. By bringing your unique set of skills to the table – you might capitalize on the previous owner’s success in ways they were not able to.