We have analysed ecommerce businesses (including dropship and digital products) side by side in our 2016 ecommerce business valuation report.
Some interesting things we found:
- The average multiple (2.39) is slightly lower than the combined business model multiple of
- There where more transactions in the $200k-$500k range, this is reflective of the mode (most frequent) being higher for ecommerce businesses compared to all internet businesses
- Larger businesses ($5 million plus) still commanded the highest multiple
- Dropship sites commanded a lower multiple
- Seems that it’s harder to grow a dropship website over $1 million in sales
We Analyzed 281 Sales: Here’s What We Found
What Are The Market Trends?
What Has The Average Sales Multiple Been Per Year?
Are Small Or Larger Businesses Worth More?
Surprisingly there is a large portion of sales in the $200k-$500k range. In each report we have done we have seen a large proportion of sales pushed towards the lower end of the spectrum in the sub $200k range. A guess at why this is happening is because of the large transaction value of ecommerce stores. This graph represents gross sale price so that might mean it is easy to grow an ecommerce store a few hundred thousand dollars per year in gross sales.
What Size Store Is Worth More?
Where Were The Sales Distributed?
This graph represents the distribution of the sales.
What is the selling process?
The selling process if fairly straight forward but can be more complex and take more time depending on the size of the business. In general, most sales will be structured like this:
- You decide to sell
- You get a valuation of your business
- You develop a prospectus (all the facts and figures about your business)
- Find potential buyers for your business
- Negotiate a price with potential buyers (total price and also terms of the deal)
- Due Diligence – buyer verify’s all the financials of the business
- Transfer the assets & money
- Help train the new buyer to run your business
What is the value of your inventory?
How do you value my inventory?
Inventory is required to run your business. It is customary to include a normal inventory level in the purchase price of a business that can sustain current revenues being generated by the business. Therefore everything over that amount is to be purchased by the buyer in addition to the business valuation. The following will generally happen when considering inventory:
1) Prior to closing the sale, an inventory count is taken and the sale price is adjusted, up or down, from the amount included in the sale price.
2) Inventory is valued at cost. If the inventory is significantly higher than the normal level a price over that level will be negotiated?
3) A decision needs to be made whether the cost of the inventory be determined by using the original invoice, a percent of retail price, or a professional inventory firm.
4) Not all inventory is created equal. Aged, broken or obsolete inventory, will be determined if it is sellable and the price negotiated appropriately. This main comes as discounting a portion of the inventory but can also be seller financing a portion of the buyer paying for it only when it sells.
What if my business is all based off Amazon or Ebay sales?
Selling an Amazon or Ebay business is possible. It is just slightly harder to execute.
How do I increase the value of my business before selling
If you can achieve the following you will be able to increase the value of your business.
- Predictable key drivers of new sales
- Stable or growing traffic from diversified sources
- Established suppliers of inventory with backup suppliers in place
- Traffic stats (Google Analytics or other) with a long history
- High percentage of repeat sales
- High percentage of repeat visitors
- Clean legal history
- Brand with no trademark, copyright or legal concerns
- Documented systems and processes
- Growth potential
How will it cost to sell my business?
Generally a business broker will charge 10-12% of the sales price of an ecommerce business including inventory. Basil Peters from Exits.com has a great article here on the fees for M&A brokers.
How long will it take to sell my business?
What should I expect during due diligence?
Due diligence is one of the hardest phases of the selling process. Expect the deal to fall over 3-4 times before a deal closes. It is a roller coaster ride of emotions.
What are the tax implications of selling?
We have a podcast on this topic coming see. Watch this space!