Tips for Determining the Value of your eCommerce Business
You have worked incredibly hard to build and develop your eCommerce business, and now you’re considering putting it up for sale. However, before you can sell, you’ll have to assess the value of your business. This will give you a good idea of what it will ultimately sell for. Read on to find out our top tips for determining the true value of your eCommerce business and preparing to sell.
When it comes to selling a business, there aren’t really any shortcuts. It’s time to roll up your sleeves and get started. You’ll be considering a lot of aspects of your business in order to ultimately discover its net worth. There will also be factors like the nature of the market, your company’s track record, what buyers will pay, sales, and more. Once you know what to evaluate, you’ll be able to determine your business’s value and estimate what it will sell for.
Things to Consider
Here are some important aspects of your eCommerce business that you may want to consider, such as:
- What channels you get new customers through
- Your market position
- Any structures that are in place for running the business
- The ROI (return on investment) and risk for buyers
- Drivers of new sales
- Your traffic numbers and stats
- Number of repeat sales
- Legal history
- Aspects of the brand (trademark, legal, etc.)
- Potential for growth
- The 2.39 to 2.45 average multiple– divide how much a business sells for by 2.39 to 2.45 to get their average yearly profit
Figuring Out What Your ECommerce Business is Worth
So, what is your e-commerce business really worth? Well, that depends on a number of factors. These variables can be the difference between a company selling for thousands, millions, and even billions. How well your business does and how well it is projected to do in the future is directly relevant to how much a buyer will be willing to pay for it. Don’t forget that even if you estimate your company to be worth so and so figure, it may be worth less (or more) because of the market.
Determining Net Profit
As any entrepreneur knows, the backbone of any successful e-commerce business is what it makes in profit. The same is true for a great sale. Profit is huge for sellers and for buyers. The more profitable a business is, the more a buyer will likely be willing to pay for it. It becomes more desirable. Profit also plays into the value of your business because how the business is valued will be determined by its overall profit.
You can count on buyers to pay up to three times the earnings of your business, sometimes double. If your e-commerce business is pulling in a million dollars a year in net profit, you can expect it to be sold for $2 to $3 million– perhaps even more. Go through the books with your accountant and get a detailed, to the dollar understanding of what your business’s net profit is and you will have a good idea of what it will sell for.
Risks and ROI: Variables That Play Into E-Commerce Value
At the end of the day, a business’s profit is a key factor to its value, and value is a key factor to a big sale.
What a buyer wants to pay for an e-commerce business depends on a business’s risks and its ROI (return on investment). More risks equal a lower price tag. A lower ROI cannot translate to a buyer paying top dollar. Evaluate the risks and ROI of your business to understand its attractiveness on the market, its value, and ultimately
If your business doesn’t really have that many risks and you’re confident (once reviewing the numbers) in your business’s ability to not only grow but be a relatively safe buy, your business may be valued higher than another business with the same features but greater risks would.
The Higher the Value, The Greater the Sale
Remember: the higher the value, the higher you’ll be able to sell. Buyers may be intrigued by younger companies, but an established business with great numbers, loyal customers, and great value is tough to beat. You’ll get a good idea of whether your business is going to fetch by looking at your repeat sales and visitors, traffic stats, inventory, drivers of sales, growth potential, history, brand, and more. If you’re correct about your company’s value, you’ll know what you’re selling it for before the negotiations even begin.
Generally, the larger an e-commerce business is, the more it will sell for. An established online business with the right numbers and great profit can really do well, especially in a thriving market. If it’s a good time to sell, and your company is doing well and valued high, it might be the right moment to consider unloading your business. You can always start another company, but as many a successful entrepreneur knows, it’s an amazing feeling to grow and sell a business. It’s the culminating moment of a long journey.
At the end of the day, knowing what your business is worth and sell it for its true value is priceless. Thanks for reading, and good luck!