If you’re an eCommerce store owner then it probably goes without saying you’re familiar with the trials and tribulations of growing an online business.
Whilst those skills are useful for building a business from scratch, they’re also coming in handy for a new wave of online entrepreneurs looking to buy a website instead.
Should You Buy or Build an eCommerce Business?
The returns of buying can be very strong. The average expected annual return on buying an eCommerce business is around 33-50%, which is a great financial incentive for buyers.
There are many other strategic reasons to buy instead of building when it comes to growing your eCommerce portfolio. Many buyers acquire to add to their existing business and cross-sell products or use their skills to grow an under-monetized business for example.
FE International asked a number of eCommerce storeowners why they’ve gone down the route of buying existing stores. Here is what we found:
1. Buy a Proven eCommerce Business Model
A common reason for acquiring is to purchase a store with a proven business model.
When buying an aged and successful business, the store has established itself as a going concern. It has traffic, suppliers and customers already and it has also benefited from the owner taking all the startup risk.
The focus should lie in whether it is in fact a ‘proven’ model. Be sure when vetting an online business that you assess its traffic and financial history as well as the operating metrics. Ideally you should look for businesses aged 2-3 years or older.
2. The Strategic Upside of an eCommerce Business
ECommerce is a broad space and there can be a variety of ways to improve the money making potential of a business.
It’s not unusual then to see businesses on the market with a truly unique selling point, which can be acquired by a buyer for strategic purposes.
At FE International, we’ve witnessed buyers purchase eCommerce businesses to gain supplier relationships, specific customers, and warehousing contracts. All of which were later used for improving profit in their existing businesses.
The benefits are not necessarily constrained to just the assets of the business. Business sales usually come with training time with the seller to help the purchaser understand the business. Oftentimes buyers have used this period to gain the knowledge, experience and contacts of the seller for use in their other businesses.
3. Leverage Your Assets by Buying an eCommerce Business
Many eCommerce business buyers are already storeowners themselves. As such a popular reason for acquiring an eCommerce business is to buy additional traffic and customers for cross-selling products and services to.
If you own an eCommerce store in the same or related space it can mean potential cross-sell capability. Many investors have enjoyed strong returns early on from cross promotion between email lists and targeted pages.
Evaluating cross-sell capability lies in the operations of the business. Using Google Analytics as well as shopping cart data, helps to analyze the underlying customer behavior and see if they are a good fit for your existing products.
4. Save Time by buying an eCommerce Business
Often it is said in business that there is only one thing more valuable than money, and that is time. Entrepreneurs and corporate types are often heavily engaged in their existing business activities but still have ideas and ambitions to grow their empires.
Buying an eCommerce business versus building one saves huge amounts of time and helps many entrepreneurs reach their goals faster. This brings another compelling reason to mind also…
5. Leaping Ahead by Buying an eCommerce Business
For those new to eCommerce, buying a store can be the best way to leap frog the hard technical work in building a business such as keyword research, designing the website and finding suppliers etc.
It’s true also that under-monetized eCommerce businesses can be purchased for a small sum, meaning a buyer can acquire a business with a lot of sunk effort already in. This can mean buying a cheap launching pad for growth right away.
Closing the Deal
Buying an eCommerce business can be a very profitable, exciting and now much easier experience with the establishment of website brokers.
With the increasing size of the online business-for-sale industry, it’s worth the time for eCommerce entrepreneurs to think about buying an eCommerce business either for the standalone profit opportunity or the cross-sell potential.
About the author:
David is Brokerage Director at FE International. Starting out as an investment banker, he moved online to use his transaction experience for website brokerage. At FEI, he spends his time speaking with buyers, executing deals and working on raising industry standards to encourage more investments. In 2014, he closed more than $6M in sales and wrote a book on buying internet businesses for investors new to the space. Follow him on Twitter at @davidsnewell