It’s never simple (or cheap) to purchase an eCommerce business — or any other company for that matter. While things may appear to be easy on the surface, there are always a few “small issues” lurking within every company, even the tiny ones.
If you want to buy an eCommerce business, all of these small details are important for you to consider. In this article, we’d like to share with you some of the advice that can save you a lot of time and money.
What to Look for When Buying an eCommerce Business: a Step-by-Step Guide
You may already know how to start an eCommerce business, but the eCommerce company model includes a few more moving pieces for which you should be prepared. Depending on the price of your goods, their manufacturing location, and the logistics of your items, you’ll have other expenditures that add up before you see a return.
That’s why many investors and entrepreneurs opt to buy an established business rather than starting one from scratch: to avoid the unpleasant start-up phase. However, each person’s own decision is impacted differently based on where they are in their entrepreneurial journey.
It might be a good idea to buy an existing business, but you want the purchase process to go as smoothly as possible. That’s why we’re instructing you on what to look for when purchasing an eCommerce business.
First of All: Why Do People Buy Established eCommerce Businesses?
Why would you pay such a large amount of money upfront, when you can start something from the very beginning — with less money — then build on top of it?
Making a decision like this is usually based on your company and personal objectives. Everyone has a different side they prefer, but it will usually be determined by the number of hours you are prepared to spend working on your business.
Let’s look at it like this:
- Establishing relationships with others in your niche
- Longer relationship history with your manufacturer and suppliers
- Less upfront investment to get started
- A better understanding of what is trending in your industry
Cons of Building an eCommerce Business from Scratch
- Much longer time to see any type of return
- Pay-Per-Click (PPC) will be new data that has not yet been tested
- Building a social following from the ground up is hard work
- Risk of investing in a product that loses demand
Bootstrapping a startup can be tough.
If you don’t already have consistent sales, the process to get to this stage can be long and expensive. Depending on your audience feedback, you may need to make updates to your product(s) to stand out in the niche.
You might also run into an issue where your inventory runs out of stock. Worse, your inventory could collect storage fees if none of the products are moving off the shelves.
These all have the potential to be unexpected expenses for any eCommerce startup that many newcomers often overlook. Let’s face it: It can be difficult to start your own business.
Next, Let’s Compare Buying an eCommerce Business to Building One
Many online investors are interested in buying established enterprises that are already making revenue since they represent a great opportunity.
This eliminates the concern of whether there’s sufficient market demand and a large enough audience for a product that seems to be a good idea (no matter how much research you do).
Pros of Buying an eCommerce Business:
- Scaling is much easier
- Data from both traffic and pay-per-click (PPC) sources
- Immediate cash flow
- Save time by skipping the startup phase
Cons of Buying an eCommerce Business:
- Not being acquainted with the company’s operations
- Large up-front investment
- Finding a good bargain is difficult
However, we need to understand how eCommerce business valuations operate before we can assist you in finding the appropriate eCommerce business at the right price.
5 Steps for Buying an eCommerce Business
When looking for an eCommerce business to buy, consider these 5 steps:
1. Understanding The Supply Chain
Before you buy an eCommerce store, you’ll want to know how it gets the items to customers. Fulfillment is a crucial point of any business, and it will assist in ensuring that orders continue to be filled once you take ownership of the company.
Confirm that any supplier connections and contracts that the eCommerce business seller has negotiated will be transferred to you. You don’t want to learn that a seller negotiated a wonderful bargain with a supplier just to have them raise the rates after the deal.
Fortunately, most manufacturers and suppliers are eager to collaborate with new business owners. You should also inquire about the items’ origins, such as where they are created.
Many eCommerce shops source items from overseas, where they may be produced for less money.
This shouldn’t be a problem, but lead times will be longer. This requires you to keep an eye on inventory levels to prevent running out.
2. Age of the eCommerce Business
When purchasing an internet business, many buyers choose companies that have been around for a while over newer ones. The reason for this is that established firms will provide more information and data about their sales history, which can be beneficial for you, the buyer.
Selling a product alone is simple, but developing a product and brand that will last is difficult. The longer a company has been in operation and earning a steady income, the more likely the items are not just another fad.
3. The Acquisition Channels
A variety of methods can be used by an eCommerce company to attract visitors to its store, including:
- SEO (Search Engine Optimization)
- Paid Traffic
- Traffic from social media
The marketing data you get from these traffic sources is one of the best features of purchasing a well-established business. The company’s consumer base is directly linked to its marketing data.
It’s not necessary to employ all of these marketing tactics in order to create a successful eCommerce business. If one part of their marketing is poor, adding another traffic source might be the boost that your firm needs.
You may hire someone who isn’t familiar with a certain subject to assist you if you’re inexperienced in it yourself.
At the end of the day, you’ll need to look at a company’s traffic sources in greater detail. What matters is that you discover what’s working, what can be improved, and whether this data comes from Google Analytics or another trustworthy analytics provider.
You should also look into the source of this traffic. The store’s major sales market should be the country with the most visitors.
To take advantage of Google search traffic, an eCommerce website may easily integrate a blog. When done correctly, SEO is one of the most cost-effective internet marketing tactics.
It needs little care or further investment once installed, resulting in a cheap client acquisition cost. Its disadvantage is that results might take longer to appear, especially when beginning fresh with SEO.
Google and Facebook advertisements are the most frequently used forms of sponsored advertising. They have the potential to be extremely lucrative when properly optimized.
However, if done incorrectly, they might deplete your earnings margins. Purchasing a company that is already successful in paid advertising might help you save time and money.
Social media is a wonderful method to diversify your traffic sources and improve the stability of your company. This may be used to enhance an eCommerce firm after it has been purchased.
So far, we’ve concentrated on researching the eCommerce firm you’re considering purchasing. You should, however, set up a time to research your competitors.
Every firm has competition, whether it is a little business or a market leader. Customers are getting increasingly savvy in their search for the finest items and pricing.
This implies that internet shops are more competitive than they have ever been. Consider how the competitors compare to the brand you want to purchase, make a list of their benefits and drawbacks, and contemplate which one you would choose, as a consumer, if you were faced with this scenario.
5. Customer Reviews And Ratings
Look for a company that has a lot of positive feedback if you’re looking for an eCommerce firm. This is your social proof and product-to-market fit, which assists you in determining whether or not your new business will continue to thrive once you’ve taken full control.
Product evaluations and ratings are important since they influence a company’s reputation and offer prospective customers proof of a business’s quality. The higher the product line’s multiple, the more favorable reviews and evaluations it receives.
Regardless of the size of the company you’re buying, it’s always a good idea to enhance it. You may accelerate your return on investment and create a more valuable asset by improving net profit, which means you’ll be able to resell it later for a profit.
This checklist should help you find the finest business for your needs by not only distinguishing successful firms from those that aren’t but also finding the ideal firm.
The goal of this guide was to explain the difference between must-haves and possibilities for development. Once you know what you want, it’s simpler to apply this approach to determining the sort of company you’re looking for.
Optimum7 gives consultation services to potential eCommerce business owners for maximum profits and efficiency. Contact us for further information or read the eCommerce Mergers and Acquisitions: Consulting and Due Diligence article.