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How to Buy an eCommerce Business? – 5 Tips for First-time Buyers

11/25/2022 12:07:06 +0000
The competition in the eCommerce space is fiercer than ever, considering that our digital transformation has accelerated by five to seven years since the COVID-19 pandemic. To stand out, you must have a rock-hard business plan, a unique marketing strategy, an efficient team, and funding.

However, there's an easier way to cut through the noise—and that is to buy an existing business.
 
But first, learn as much as you can on how to buy eCommerce business.
Why Invest in eCommerce?
According to the 2021 report from the US Department of Commerce Retail Indicator Division, eCommerce sales in the US alone reached $870 billion. Global online sales growth is expected to hit $8.1 trillion in 2026.

We can attribute the popularity of online transactions to convenience, competitive prices, and wider selections for the reason that sellers can get inventory from suppliers across the globe.

Creating a website has never been easier. Many platforms offer templates that can be customized easily. However, you still need to prepare inventory, set up payment gateways, arrange courier services, etc. On top of that, you need to find a way to get noticed by customers in a sea of options. If you've just started SEO, it's unlikely your business will appear on the first page of search engine results.

On the contrary, buying an eCommerce business means you don't have to build from the ground up. But, of course, there's still some work to do.
Get to Know the Players
Educate yourself about eCommerce through articles written by industry veterans, webinars, podcasts, conferences, etc.

To start off, get to know the five main types of eCommerce businesses.

Business-to-consumer (B2C): This is the most common business model. Examples include Amazon and Walmart

Business-to-business (B2B): Unlike B2C, the transaction happens between two businesses.

Consumer-to-consumer (C2C): Businesses under this category allow customers to trade with each other (e.g., eBay and Etsy).

Subscription: These businesses provide products or services for a recurring fee. Examples are Adobe, Dollar Shave Club, and Netflix
 
Digital Goods: These are businesses that offer digital products (e.g. software and eBooks).
 

You will also deal with various players in the eCommerce space. The key players are:

Merchants: These are entities selling products/services in exchange for a fee.

Platforms: These are online spaces that enable merchants to sell and consumers to buy (e.g., Shopify and WooCommerce).

Payment providers: These are companies that offer payment systems for eCommerce businesses (e.g., PayPal, Skrill).

Logistics providers: These companies collect products from the supplier and deliver them to the buyers (e.g. FedEx and DHL).

Technology providers: These companies provide technologies that streamline different tasks, such as payroll and email automation.

Marketplaces: These are spaces where consumers can find multiple merchants (e.g Amazon and eBay).

Affiliates: These are businesses that endorse products or services of eCommerce businesses for a commission (e.g Groupon and Rakuten).

Understanding eCommerce Business Valuation
When talking about how to buy eCommerce business, valuation is also included. You need to determine how long it would take to recover your investment and enjoy profits first.

Most eCommerce valuations consider the historical earnings or the net profit for the last 12 months multiplied by any number between 1.5 and 3.5. The multiplier is determined by several factors, which may include average revenue growth, traffic diversity, and scalability.

It's best to let a professional business appraiser conduct the valuation. You can use their report to decide if the price of the eCommerce business is reasonable or not.
Choose a Niche
While it's tempting to buy the first profitable business you find, it would be better to settle on your interests. When you have some background about what you're selling, a lot of things will be easier for you in the future.

In eCommerce, you'll feel the need to personally handle things regularly. So, might as well choose a niche. If you're genuinely interested in a particular thing, you tend to enjoy the work. You wouldn't mind long hours on research and development because you're also one of the consumers.
Choose a Business Model
The type of business model you choose will affect your level of involvement in the business.

Traditional eCommerce is demanding because you're handling storage, order fulfilment, packaging, logistics, and all other processes. If you're looking for flexibility and a bigger profit margin, find a traditional eCommerce business for sale.

Businesses that use the dropshipping model are more suitable for newbies. In this type of transaction, another company will provide the inventory and ensure delivery. You can focus on marketing and payments. However, the profit margin in drop shipping is thinner.
Define Your Business Goals
Why do you want to learn how to buy eCommerce business? Do you want to flip it and earn good money? Or are you looking for a long-term commitment? Maybe you're in between.

Different business goals require different approaches. If you simply want to flip the eCommerce business, focus on simplifying the processes and ensuring product quality.

A good candidate for flipping has:
  • A product or service that you can imagine yourself using
  • Unexciting website with minimal SEO
  • No active marketing campaigns
  • Stable sales metrics
It's a little different if you're buying an eCommerce business for a long-term commitment. You'll want to invest in its growth potential without the need for drastic changes every few years.
 

You might be interested in business with:

  • A strong brand identity
  • A solid customer base
  • A healthy work culture
  • An efficient team
Conclusion
Partnering with a professional broker can save you a lot of time and energy. They have access to high-quality listings that meet your conditions. On top of that, they can collate data, make a bargain, submit the necessary paperwork, and speed up the transaction. They can also find great deals that are usually elusive to first-time buyers.
About the Host
Sophie Howard is the founder of Aspiring Entrepreneurs, a community designed to help people develop the skills and confidence to build a business and a life that serves them. Sophie began online in 2013 with an Amazon firm, which she sold for more than $1 million in 2015.

Sophie has lectured on stages all around the world, encouraging and teaching other ambitious entrepreneurs. She has established instructional programs educating thousands of students how to sell online, in addition to releasing over 1000 products.

Sophie has also written a book titled "Aspiring Entrepreneurs: A Guide to Finding Your Best Path to Financial Freedom."
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