[10 Steps] Sell E-commerce Business- Steps and Valuation Explained
Are you torn by the question, “How do I sell my e-commerce business?”
It’s a tough market out there. Countless new online businesses rise and shine overnight; many are put up for sale, making you feel that buyers have plenty of choices besides your online store. So, we get why you might hesitate about where to start.
The key to success lies in accurately valuing your business and taking a few critical steps in the correct order. And that’s what we’ll show you in this blog post.
TL;DR - How to Sell an E-commerce Business
Before we go through the entire process in detail, here’s a quick overview of how to sell an e-commerce business:
Prepare: Assess your business's financial health, growth potential, and unique selling points.
Valuate: Estimate the worth of your e-commerce business using appropriate sales multiples.
Improve: Enhance areas of your business to increase its value before the sale.
Gather the documentation: Compile all necessary financial records, legal documents, and operational details.
Decide where to sell: Choose between marketplaces, auction sites, direct sales, or consulting M&A experts.
Market your sale: Create a compelling listing highlighting your business’s strengths.
Screen buyers: Conduct due diligence on potential buyers to ensure they're serious and financially capable.
Negotiate: Work on getting the best possible sale price through effective negotiation strategies.
Close the sale: Finalize the sale with all necessary legal documentation and asset transfers.
Ensure the transition: Assist the new owner in ensuring a smooth takeover.
To put together a team of seasoned M&A experts and make the most of the sale, you might need a little help. At Exitwise, we have the resources to connect you with top-tier pros, from investment bankers to finance experts. Get in touch with us, and we’ll assist you in putting together a dream M&A team to achieve the best valuation and sell your e-commerce business strategically.
How Much Can I Sell My E-commerce Business For?
To estimate how much you can sell your e-commerce business for, multiply your average net monthly profit by a sales multiple (which can be 20 to 60+ for e-commerce businesses). This approach considers your business's profitability and the market's valuation standards.
For example, if you’re making $10,000/month in net profit, the least you could ask for is $10,000 x 20 = $200,000. If your business is really strong and has a great ROI potential, a high ask would be $10,000 x 60 = $600,000.
Many buyers are willing to pay higher rates for well-established e-commerce businesses for at least two significant reasons:
Acquiring a digital asset with years of profitability data has more chances of success than one starting from scratch.
The ROI may come in 2-3 years, sometimes as fast as one year.
NOTE: The actual price when selling e-commerce sites depends on what a buyer is willing to pay, which is influenced by market conditions, your business's unique attributes, and the negotiation process.
What Makes an E-commerce Business Attractive to Buyers?
When selling your e-commerce business, you'll want to make it as appealing as possible to potential buyers.
Here are some aspects that will make the business more attractive:
Demonstrable high financial performance: Buyers prefer a business with a commendable history of consistent revenue, good profit margins, and positive cash flow. They want to see if the business can sustain its growth, support its daily operations, and leave enough resources for future investments.
Customer loyalty and retention: Having a large and loyal customer base improves your business's value. Existing users can make repeat purchases, resulting in more revenue. Retaining more customers also shows you are providing good value and exceptional service.
Brand recognition: Customers usually prefer established brands, which increases the business’s chances for long-term success. Buyers are willing to pay more for a well-established business that has grown into a reputable brand.
Clear growth and scalability: If your business model is easy to scale, the buyer can expand operations, reach a wider audience, and increase revenue. You also want to have a well-defined plan for future growth based on your business's goals and changing markets.
Operational Efficiency: Buyers want to see that your business runs on well-defined systems and processes that they can easily learn when they buy it.
Valuing an E-commerce Business
When valuing an e-commerce business, you must gather financial data, analyze historical performances, and examine the business model and operations within the market landscape.
Then, you must review website traffic, engagement metrics, customer base, and loyalty to consider its growth and scalability potential.
Following this prep work, you can choose the right valuation method from multiple options, such as:
Discounted cash flow (DCF) analysis
Comparable company analysis
Precedent transactions method
Earnings multiplier or Price-to-Earnings (P/E) ratio
Revenue multiples method
EBITDA multiples method
Cost-to-duplicate approach
Asset-based valuation
Market capitalization (for public companies)
Venture capital method (for startups)
Of course, each method comes with its own particularities. So, how you value your e-commerce business depends on multiple factors, like revenue, growth potential, etc.
E-commerce Multiples Explained
A multiple is a coefficient (a number) you apply to a specific financial metric of the company to estimate its market value. Different multiples are used across different valuation methods to evaluate e-commerce businesses.
Here's a breakdown of the multiples commonly used:
EBITDA Multiples: This multiple is applied to the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of a business. For e-commerce businesses, it ranges from 5x to 12x based on industry benchmarks, growth rate, profitability, and market conditions.
Revenue Multiples: Applied to the business's total gross revenue, this multiple is especially relevant for startups or companies focusing on growth rather than profitability. The typical range for revenue multiples in e-commerce can vary between 2x and 4x, based on the business model, growth prospects, and industry vertical.
Price-to-Earnings (P/E) Ratio: The P/E ratio is calculated by dividing the market price per share of the business by its earnings per share (EPS). This ratio tells investors how much they pay for $1 of the company's earnings. In e-commerce, P/E ratios can vary widely, reflecting the company's growth expectations, profitability, and risk.
Where to Sell An E-commerce Business
So, you're ready to sell your business but don't know where to start to maximize the sale? Well, there are a few options, each with its unique advantages and potential limitations.
Here’s where you can turn to and what you should know:
1. Take Help from Mergers and Acquisitions Experts
Mergers and acquisitions (M&A) experts specialize in advising and managing the process of merger (combining two companies) or acquisition (one company buying another).
These professionals will:
Focus on strategic negotiations, valuation, and deal execution
Strategize to enhance your business's value and close deals that align with your goals
Leverage their industry contacts to find the right match for your e-commerce venture.
At Exitwise, we help sellers connect with M&A experts, and we can do the same for you. Discover how our process works and how easy it is to put together your M&A team with us by your side.
2. Sell Through a Marketplace
Marketplaces like BizBuySell, Shopify's Exchange marketplace, EmpireFlippers, and others are platforms where e-commerce businesses of all shapes and sizes find new owners.
Listing your business on these sites can put it in front of a vast audience actively seeking to buy. However, the competition is stiff, and standing out might require more than solid performance metrics.
3. Go for Auction Sites
Auction sites bring the thrill of the bid to the business sale process. Platforms like Flippa allow you to set a starting price to sell an e-commerce website and watch interested parties compete to make it theirs.
This process can sometimes lead to selling at a higher price than anticipated, especially if your business sparks a bidding war. It's an adrenaline-fueled option but requires transparency and readiness for a fast-paced sale.
4. Choose Direct Sales
Direct sales involve rolling up your sleeves and finding a buyer yourself. You can reach out to your network, tap into LinkedIn connections, or approach competitors who see value in acquiring your operation.
This option offers the most control and potentially higher net proceeds since no intermediary fees exist. However, finding and closing a deal demands significant effort and negotiation skills.
In conclusion, choosing where to sell your e-commerce business should depend on your specific needs, the complexity of the transaction, and how directly you want to be involved in the sale process.
Tip: No matter who you hire to sell your business, preparation is key. Understanding your business's value, organizing your financials, and being clear on your goals will set the stage for a successful sale.
Role of Due Diligence in Selling Your E-commerce Business
Both buy-side and reverse due diligence play the following important roles when you sell an e-commerce business:
Uncovering risks and opportunities: Sell-side or reverse due diligence helps identify risks, such as operational inefficiencies, that may deter buyers. You can also identify opportunities for maximizing value, such as introducing new products.
Verifying your claims: Due diligence ensures the accuracy and completeness of financial information, operational data, and the valuation report that helps buyers understand and verify your business's value, operational risks, and asking price. This information can help them decide sooner.
Preparation for successful integration and transition: By incorporating due diligence in the sale process, you can plan better for integration and transition. You can identify areas where the two may be difficult and develop tactics to mitigate these difficulties and improve your M&A success rate.
Protecting your interests as the seller: Sell-side due diligence and participating in buy-side due diligence help you get a clear picture of the valuation and business risks. Based on this understanding, you can negotiate a better sale price and more favorable purchase terms.
How to Prepare an E-commerce Store Business for Sale
Here's how to get your e-commerce store ready for sale:
Gather all relevant information: Collect all the necessary information and data, such as website traffic, user metrics, cart abandonment details, customer base, and conversion rates. Both you and the buyer will use this information during the valuation and negotiations.
Conduct a formal valuation: You may already have an idea of how much your e-commerce business is worth. You might also have used a valuation calculator to get an estimate. However, it's best to use business valuation services for a formal valuation and help with selling the business.
Maximize value: Use the recommendations from the formal e-commerce valuation to quickly maximize the value of your business before the sale. For example, you can explore e-commerce business opportunities in new markets or introduce new product lines.
Determine where you want to sell: Explore different options and list the best places to market your business. You can use your M&A team's pool of potential buyers, direct sales, or online marketplaces that feature e-commerce businesses for sale.
Develop a clear business plan: If you don't have a business plan already, you should make one. You can also polish the existing one if it's available. Ensure the plan captures your business goals, success projections, and actualization strategies.
Develop a smooth transition plan: Create a clear plan for transferring ownership, including providing access to the website, legal documents, and customer data. The buyer may also appreciate it if you offer support and training to help them settle into their new acquisition sooner.
How to Choose the Right Buyer for Your E-commerce Business
The right buyer can mean selling your business for more, ensuring its continuity, and preserving your legacy.
You'll want to find the best buyer using the strategies below:
Assess the buyer's financial capability: Ensure the buyer can pay your asking price for the business and has the monetary resources to run it well after the deal. You can check their past M&A success rate or ask for proof of funds.
Consider strategic fit: Ensure the buyer's vision aligns with your business's goals. Do they see a long-term opportunity for innovation, growth, and scalability?
Work with experts: Selling a business on your own can be hectic. Consider using e-commerce brokers and M&A professionals to help you find and choose the best buyer. They usually have extensive networks of prospective buyers and the knowledge to sell a business sooner.
How to Sell Your E-commerce Business in 10 Steps
Although you don’t want to stall, you can’t rush a successful transaction either. So here are the steps you need to follow to get the transaction right in time, with maximum benefits:
1. Preparation
This stage involves compiling financial statements, analyzing performance metrics and traffic data, and clearly understanding your customer base.
Analyze your e-commerce platform's performance, including cart abandonment rate, conversion rate, and customer lifetime value. Then, examine your web analytics to understand traffic sources and user behavior.
Do a thorough evaluation of your online business, emphasizing its financial health, growth trajectory, and unique selling points.
2. Valuation
Determine the value of your business. Consider hiring a professional appraiser who will factor in the scalability of your e-commerce technology, how diverse your digital audience is, and how effective your online marketing campaigns are.
Revenue, profit margins, customer acquisition costs, and growth potential will also significantly affect your e-commerce business’s valuation.
Tip: You can also use our online valuation tool to get an estimate of your business’s valuation.
3. Improvement
Identify areas where you can quickly improve the business's value.
This process could include mobile optimization, improving SEO rankings, developing user interface improvements, and implementing advanced data analytics for personalized marketing.
The main intent is to streamline the customer journey to reduce friction points that could impact sales.
4. Documentation
Gather and organize all necessary documentation — financial records, legal documents, contracts with suppliers, intellectual property documentation, and data on your search engine rankings and digital marketing strategies.
Include details on cybersecurity measures, data compliance records like GDPR, and any e-commerce platform licenses or third-party tools in use.
5. Where to Sell
Decide whether to sell through an online marketplace or hire an M&A expert.
Each option has pros and cons, depending on your business's size and your desired involvement in the sale process.
Another important aspect is to assess if a niche marketplace (that focuses on your e-commerce industry sector) might attract more qualified buyers.
6. Marketing Your Sale
Create a compelling listing for your business. Highlight its strengths, unique value propositions, and growth potential. Be honest about any challenges as well.
Creating a video walkthrough of your e-commerce dashboard to show its features and ease of use might also be a good idea.
7. Screening Buyers
Conduct due diligence on potential buyers, including business competitors who show interest. Ensure they have the necessary funds and are serious about purchasing. Screening may involve initial discussions and signing non-disclosure agreements (NDAs).
If you care deeply about how your business will evolve post-sale, prioritize buyers with experience in e-commerce or related digital fields.
8. Negotiation
Engage in negotiations with interested parties. Focus on achieving a sale price that reflects your business's value while being as flexible as possible.
Negotiate not just on price but also post-sale support and transition services, which can be critical in e-commerce.
9. Closing the Sale
Once you agree on a price, move forward with closing the sale.
Provide legal documentation (work with a legal professional to ensure all paperwork is in order), transfer the digital assets (domains, hosting accounts, associated cloud services, etc.), and receive your payment.
10. Transition
Work with the buyer to ensure a smooth transition. You might have to do the following:
Train the new owner on the e-commerce platform, digital marketing tools, and customer service protocols
Transition supplier relationships
Transfer customer data and business analytics safely and legally.
Tips to Leverage Trends in E-commerce Selling to Maximize Value
You've come a long way in selling your beloved business. But you can do even more.
Consider the following e-commerce selling trends to increase the value of your business:
Embrace social commerce: Connect your e-commerce website with the business’s official social media accounts to sell your products on social marketplaces and diversify your revenue sources.
Go for sustainability: Become a sustainability champion by using eco-friendly packaging, carbon-neutral shipping, and sustainable product sourcing to appeal to environmentally conscious customers.
Practice omnichannel and cross-channel selling: Using different selling channels can diversify income streams and spread business risks. However, ensure a seamless shipping experience across desktop, mobile, and social media platforms.
Use a mobile-first system: Adapt your marketing strategy and e-commerce website for mobile users, who make up the majority of online customers.
Use content marketing: Create innovative, brand-specific content, such as blog posts and social media videos, to attract, inspire, and retain loyal customers.
Embrace AI-driven personalization: utilize AI systems for product recommendations, targeted marketing, and remarketing to boost customer engagement and conversion rates.
Mistakes to Avoid When Selling an E-commerce Business
There’s nothing worse than the feeling that you sold your online business short.
To seal the deal smoothly and profitably, try to avoid the following mistakes:
Inadequate preparation: Jumping into the sale unprepared can mean failing to organize financial records, not understanding your business's true valuation, or neglecting to clean up operational inefficiencies. Any of these could significantly decrease your business’s value.
Overvaluing or undervaluing the business: Incorrectly pricing your business can lead to a stagnant listing, scare off potential buyers, or leave money on the table.
Ignoring the importance of a good fit: Selling to someone who’s not fully committed or doesn’t understand your business model can lead to complications during the sales process and transition period.
Neglecting confidentiality: Failing to maintain confidentiality about the sale can lead to disruptions in operations. Your employees, customers, and suppliers could all become unrest.
Handling the sale alone: Navigating the sale of an e-commerce business without professional help from brokers, accountants, and lawyers is hard. Doing so could expose you to even more mistakes.
Frequently Asked Questions
Be more prepared to sell your e-commerce business by finding the answers to these frequently asked questions:
What Documents Are Needed to Sell an E-commerce Business?
To sell your e-commerce business, you'll need a mix of financial statements, operational records, legal documents, and proof of ownership. Balance sheets, tax returns, and evidence of domain ownership are mandatory.
Should I Use a Broker to Sell an Online Business?
Brokers can be a great option when selling a small online business. They will handle everything from listing your sale to negotiating with potential buyers. But if you’re looking at a more complex transaction, consider discussing it with dedicated M&A experts instead.
How Long Does It Typically Take to Sell an E-commerce Business?
Selling an e-commerce business could take a few months to over a year. It all depends on how prepared you are, the business's attractiveness, and finding the right buyer.
What Are the Tax Implications of Selling My E-commerce Business?
Tax implications vary widely based on where you're located, your business structure, and the sale's structure. Expect to discuss capital gains tax with your accountant.
How Do I Negotiate the Sale Price of My E-commerce Company?
When negotiating, knowledge is power. Understand your business's value, keep emotions in check, and be clear about your non-negotiables. Flexibility can help close the deal, but know your limits.
Conclusion
In e-commerce, a strategic exit can be just as important as a strategic launch. You’ve seen what it takes to get it right, but that doesn’t make this process any easier, does it?
Exitwise can guide you to find the professionals who will help you sell your online business without hitches. Reach out to our experts, and together, we’ll form an M&A team that will make all the difference in your successful sale.
