Selling your ecommerce business is the ultimate safety net. It’s your exit strategy should you tire of running your business or itch to move to the next big project.
You’ve probably heard that profit is king in ecommerce. But even if your business is profitable, you may not get the high sale price you think you deserve. Buyers may only pay a strict multiple of your profits, and without other benefits on the table, you’ll struggle to negotiate a better price.
If you ever decide to sell your ecommerce business, focus on the intangible benefits too. They’re harder to measure but could translate to more negotiating power in the deal room.
So what are these intangibles? Besides profits, ecommerce buyers look for three other factors things when acquiring a business:
I’ve sold multiple businesses and currently run the largest marketplace for buying and selling startups, Acquire.com. I see ecommerce businesses sell on Acquire.com every day and I’ve learned a thing or two about what makes them desirable to buyers. Here’s an overview of what buyers look for when acquiring an ecommerce business.
If you do branding right, customers (and potential buyers) should look at your products and your webpage and understand what you’re about in a heartbeat.
What makes a plain white t-shirt from Gildan different from a plain white t-shirt from Champion? It’s not so much product quality but the little “C” stitched into the breast.
Champion could lose money quarter after quarter and still be valuable to buyers. Why? Because people remember when it was a strong brand and feel a connection to it. With a couple of well-designed pieces, Champion could resurrect its former glory.
For a newly-minted product to get the kind of recognition Champion has today, you’ll likely need to build an inventory of desirable products coupled with an aggressive marketing strategy.
Fortunately, you don’t need to make a household name immediately. You just need to create a brand that evokes emotion in customers. To do that, customize your storefront, website, and products to fit a unified theme.
Your product could be profitable, unique, high quality, and desirable – buyers will still balk if they see armies of competitors hungrily eyeing your market share.
More competition also means spending more on marketing. Running ads on high-competition keywords means increased cost per click (CPC) and therefore a higher cost per acquisition (CPA). That’s not to mention a lower customer lifetime value (LTV) – if customers are bombarded with competitor ads and prices every day you can bet they will shop around.
Everyone wants to make that cool streetwear business. They’re relatively easy to make once you have a contract with any t-shirt manufacturing plant. The only problem is that everyone is doing the same thing. You’ll need to launch a gargantuan marketing campaign or slash prices to ever hope to get ahead of larger brands.
You’ll notice the best brands differentiate their products. Sometimes that’s through better branding, other times that’s by increasing complexity. You’ve probably noticed only a handful of apparel brands truly dominate the athletic shoe industry – a lot of science goes into footwear. The best brands simply make the comfiest shoes. That reputation for comfort trickles into everything else they manufacture.
You could also differentiate by creating products targeting new market segments no one else touches. Maybe you run a Tupperware store and you make a product specifically for storing old bananas. Suddenly, you’re the go-to brand for banana lovers (don’t steal my idea!).
You could also differentiate in ways completely unrelated to your product. Maybe your Tupperware brand could donate a percentage of sales to a partner charity saving the monkeys, for example. There are lots of opportunities out there.
Ideally, your target market would mysteriously sense your product and come to you, but in reality, you have to find them. Fortunately, modern advertising and consumer behavior tracking has done much of the work for you already.
Surgical precision with pay-per-click (PPC) ads might be your best option for finding your ideal customer. The more you zero in on demographics that like your products, the easier it is to guarantee that every click you pay for will result in a purchase.
Tools like Triple Whale’s Pixel can help you identify and serve your target market. It’s a simple tool that helps you better track where your customers are coming from (it even works through the new IOS updates) so you can double down on what works.
American scientist, Alan Perlis, said, “Fools ignore complexity, pragmatists suffer from it. Some can avoid it. Geniuses remove it.”
The most challenging part of selling ecommerce businesses is that they are usually complex.
Some businesses only need to transfer one or two assets like a webpage and some lines of code. On the other hand, ecommerce businesses possess a wide assortment of contracts, data, and inventory on hand they need to relinquish with any sale.
The more assets you have and the more people and contracts involved, the more difficult your business is to assess and purchase. Here are some common assets you’ll transfer and some tips for each.
While contract transfers are usually straightforward, check your manufacturer is willing to work with a new owner. The more niche your product is, the more difficult it is for your buyer to source a new manufacturer if things go south. This manufacturer relationship is especially important if you specialize in print-on-demand or dropshipping as they are more integral to your business.
Separate contracts with warehouses, fulfillment centers, and trucking companies are difficult to transact. It’s much easier to transfer ownership of a dropshipping business (where manufacturers ship directly to customers) or if you use a plug-and-play service like the Shopify fulfillment network.
While you’ll probably receive more buyers for an ecommerce business with simple logistics, having some control over your supply chains can be more valuable.
It’s easier to outsource services to monolithic fulfillment providers like FedEx, but to scale an ecommerce business, you need to have control of the logistics.
One-provider courier contracts can limit your business once it’s reached a certain size. You sacrifice control and flexibility for simplicity and often a better price.
Couriers service millions of customers every day and rarely make exceptions to accommodate your store. At any time and with little warning, they can change prices or delay shipments – pushing customer fallout to you.
Couriers also tend to work with affiliated operators only, like delivery drivers and fulfillment centers. This can limit your business if you push into a new market where they don’t operate. If you’ve already done the legwork to establish flexible, in-house logistics networks, you may save your buyers a future headache when they want to expand.
Decide if a marginally higher sale price is worth the extra effort of creating a more complex supply chain.
Your inventory affects your sales price in two ways. It can boost your asking price if it’s usable and accessible, or, it can drive down your price if your buyer can’t use, move, or sell it.
Along with logistics contracts, you need to be able to both locate and include all current inventory stored at factories or in warehouses in each transaction. This is easier to do if you use a just-in-time (JIT) model where you source or build inventory to satisfy immediate demand.
One more tip: While the JIT delivery model took a hit over Covid, your logistical goal should always be to minimize the time your products spend in warehouses.
My number one takeaway for you is this: you don’t need to do all of these things to give your ecommerce brand more power at the bargaining table. Just doing one or two of the above can set your business miles apart from the competition.
I guarantee you’ll sleep better knowing you’re building a strong ecommerce business that fetches a market price that validates your hard work should you ever decide to sell.
Oh, and when you decide to sell, be sure to list your startup on Acquire.com.
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