Building an eCommerce business is one thing. Selling it is another. Like most owners, you may have started your eCommerce business solo after analyzing an opportunity in the online marketplace and growing your store to the point of consistent revenue and loyal customers’ pool.
It takes years of sweat equity and risk taking, so obviously you want to get the best value when you decide to sell the eCommerce store. That’s why eCommerce business owners often find themselves asking, when is the right time to sell?
This quick guide takes you through:
- The right time to sell your Amazon or eCommerce store
- What makes your eCommerce business attractive to buyers?
- What to consider before selling your online business
The Right Time to Sell Your eCommerce Store
The right time to sell your Amazon business or eCommerce store comes down to your reason(s) for selling. For instance, are you selling to raise capital for another project? Or have you hit the plateau stage and can’t raise the money or make the dynamic changes necessary to grow your business.
Sometimes, personal reasons such as the inability to run the eCommerce store or the need for quick cash can also be a factor. After all, a well-performing eCommerce store is an asset that owners can sell.
Once you know your reason for selling, you are a step closer to understanding the best time to sell your eCommerce store. Case in point: If you want to raise capital for a new venture, you might want to sell your business as fast as possible. That said, when you are in a hurry, you might lose out on selling the business for what it’s worth.
On the other hand, if you can wait to consider all offers and build a lucrative deal structure, you will most likely get the best value for your eCommerce business. However, as Yev Ivanko, VP of Acquisitions at Rainforest, puts it, it’s a seller’s market right now. The odds of high returns and lucrative deals are in favor of eCommerce business owners.
We can attribute this to the spiral growth expected from the eCommerce industry. In fact, according to eMarketer, we can expect the global eCommerce market to grow to 21.0% in 2022, up from 19.6% in 2021.
The next step for you to decide the right time to sell, is the stage your eCommerce business is in. Most businesses go through 5 key stages. Let’s expound on this quickly.
Stage 1: Creation or initiation
At this point, an eCommerce business owner is still trying to figure out the products to sell for the best profit, their technology, and operation model. The business owner is also trying to solidify supplier relations for consistency and quality inventory.
One significant problem that owners face at this point is the risk of inadequate funding. The risk of failure is another to consider (your first product mix may not always be profitable.)
However, an eCommerce business can be attractive to a buyer if the business shows stable and predicted growth and good management. You’ll find that buyers who elect to buy an eCommerce business at this stage are looking for easy entry into the eCommerce industry.
Stage 2: Survival
Here, you most likely understand whether your product mix is right. You also understand your target market, although you might run the risk of running out of money to fuel back into the business.
At this point, most eCommerce business owners may find it hard to put in the effort and finances required to push their storefront further, so they opt to sell.
Buyers opt to purchase a business in its survival stage to expand their product line and business.
Stage 3: Growth
This is the plateau stage. An eCommerce store at this stage has a track record of success. That said, more time, money, and effort are needed to push past the plateau and make the businesses sustainable. Most eCommerce stores at this stage have around three years of operation. The owner may not be willing to make changes or invest more into a business, so they sell it while still profitable.
You’ll find that venture capitalists and aggregators prefer to buy a business in its growth stage. That’s because these businesses are mature, have a record of success, and the buyer has the finances and personnel to push the brand forward.
Stage 4: Takeoff
Business is booming at this stage. If an eCommerce business was able to push past the plateau, it means that the owner may have invested more, made a significant change, or there’s an addition or change to management. The primary challenge owners faced is keeping the growth and expansion under wraps through efficient resource utilization.
At this point, most eCommerce business owners opt for a merger or acquisition.
Stage 5: Maturity
In this stage, the business has a substantial market share, loyal customers, and a strong brand all around. The risk that an eCommerce faces at that moment is a shift in the industry, technology, or consumer preferences. In essence, the main asset for owners at maturity is their customers, technology, reliable supplier base, and operation procedures in place.
An eCommerce business in its maturity stage is the primary target of private investors, portfolio aggregators, and consumer packaged goods companies.
What Makes Your Amazon eCommerce Store Valuable?
A consistent and significant seller discrepancy earning (SDE) is the first thing that entices buyers. If your store brings in a good profit, you can expect to sell your business at a better value. That said, a couple of other factors are considered when determining the value of an eCommerce store.
Age of business
Businesses that have been in operation for 18 months or longer are ideal for most buyers. It’s always easier to analyze the stability of an eCommerce store if there’s verifiable and long-term data.
Also, if an eCommerce store has been in business for long, chances are, it has a dedicated customer base, effective operation procedures, and stable supplier relationships. From the buyer’s standpoint, it’s easier to analyze profit, predict growth and come up with a valuation for such a business.
Diversified revenue sources
The more diversified your revenue sources, the less risk a buyer has to assume. Reliance on one hero product is a major risk for any eCommerce business, especially in an increasingly saturated market with fast changing consumer preference.
Before buying, a prospective buyer needs assurance that your store’s revenue is from diversified products that are easy to source.
‘The name sells’ applies even when valuing your eCommerce store. If you have a significant social media presence and list of customer contact, your business is likely to score higher in valuation. Buyers will look into your traffic sources, brand engagement, product reviews and customers’ overall attitude towards your eCommerce store.
Buyers are looking for an eCommerce business with streamlined processes and systems. They want assurance that the standard operating procedures (SOP) in place are effective and well laid out.
In most cases, the value of your business will be lucrative if you have:
- A reliable team in place
- Proven fulfillment and order processes
- Solid and formal relationships with suppliers and other third-party vendors
- Adept technological infrastructure in place to automate operations
Minimized owner involvement
The more an owner is involved in the business, the harder it can be to sell an eCommerce store. Buyers will usually prefer involvement of 20 hours or less per week since transferability of the business is easier in this situation. If the owner is involved in everyday operations for less than 10 hours per week, they are likely to fetch a premium price during the sale.
What to do When Thinking of Selling Your Amazon or eCommerce Business
Increase your profit
eCommerce businesses with higher profit margin tend to command a higher valuation. You might need to diversify your product offering, improve customer services, and cut back on expenses to increase profit.
You can reduce expenses by minimizing redundancies, such as where two vendors provide the same solution for your business. It’s also vital to re-analyze vendor relations. Have the conditions shifted in your favor? Can you re-negotiate for better rates from your suppliers and service providers?
Know the value of your business
Knowing the valuation of your eCommerce store can help you determine if you are ready to sell your business. You can get a free valuation from Rainforest here to know what your business is worth.
If the valuation is not what you had in mind, you can implement a few strategies to get your business to the value you wish to sell.
Get your records right
You need to have your financial reports up-to-date and ensure that they are verifiable. Your other eCommerce store data, such as sales, expenses, traffic and inventory should also be in place for the buyer to evaluate.
You’ll Know When to Sell Your Amazon eCommerce Store
Deciding when you should sell an Amazon or eCommerce business can be a very personal decision. But it also needs to be objective. It all comes down to how fast or how much you want to sell your eCommerce store. However, before deciding whether it’s time to sell your Amazon store, know what your business is worth first with Rainforest. Once you know the value of your business, you can make a better-informed decision of whether to sell or grow the store further.
This is a guest post by our friends at Rainforest.