Starting an ecommerce business can be tough. Building your expertise in sourcing products, branding, marketing, and website launch all take time and energy. Or perhaps you’re already a successful ecommerce business owner looking to expand your portfolio. Whichever the scenario, buying an ecommerce business is a way to forgo the complicated launch process and start running your business quickly.
Let’s not pretend it’s all rainbows and puppy dogs. There are some significant risks involved with purchasing an online store rather than starting one of your own from scratch.
- You may be purchasing a “damaged brand” whose reputation is beyond repair.
- The original owner may have fudged the numbers on the financial info.
- A manipulative deal could allow the original owner to collect a percentage of your sales.
Keep this in mind: starting your own ecommerce business has never been easier.
If you’re thinking of buying an ecommerce business just because you’re intimidated by starting your own, it’s important for you to know it’s not as difficult as it may seem. Launching a dropshipping business is so simple that many digital nomads swear by it, and Fulfillment By Amazon + an ecommerce automation system streamlines so much of your backend that it’s almost like your business runs itself.
But if you’ve really considered the risk and decided purchasing an ecommerce business is the best option for you, we’ve got the tips to help you do it wisely and safely. Following this guide makes for a great baseline for buying an ecommerce business in a safe and profitable way.
Steps by Step Guide to Purchasing an Online Store
Buying a functioning ecommerce website is easier than you might think, as long as you follow this process.
#1 Find a Business for Sale
The first step, the most obvious step, and perhaps the most difficult step.
You need to know where to look. My two most recommended platforms are the Shopify job board and Flippa. Shopify is a great choice because of the huge amount of Shopify integrations to help you run your new business. Flippa may have the edge here though, since their platform was built to facilitate these kinds of transactions. However, Flippa charges a listing fee for business sellers and takes a 15% cut of the sale price.
- The financial information should indicate a healthy business with growth potential (more on that later).
- The products should be in a niche that you’re familiar with. This will make marketing and branding much easier.
- The site should already have some momentum in its traffic. We can confirm this independently ourselves (read below for more details).
- If it looks to be too good to be true, it probably is. Consider why the owner might be wanting to sell.
#2 Thoroughly Research the Business You’d Like to Buy
As you saw in the screenshot above, business sellers will obviously try to paint the most positive view of the business possible. That’s why when you’re buying an ecommerce business it’s important you put in the research yourself to confirm the seller’s claims.
I recommend using the tool SimilarWeb to evaluate the website’s positioning. SimilarWeb provides fairly in-depth analytics for any site on the web. It’s a great way to objectively verify how popular the website is.
Pay close attention to the site’s traffic, referrals, and bounce rate to get a picture of the health of the site. You can always implement website redesign to improve these numbers, but the more information you have now, the better decision you can make when it comes to bidding time.
You should also Google reviews of the site. A damaged brand is difficult to recover. If shoppers within the site’s niche already recognize the brand as low quality and untrustworthy, it’s absolutely not worth buying unless you plan to completely rebrand it, which dramatically increases your first-year onboarding costs (continue to tip #3 for more on that).
When you come across a damaged brand, it’s almost always a better investment to start your own store or choose a different store to buy.
#3 Calculate the Cost of Onboarding the Site
The bid you’ll end up paying for the site is just one part of the overall cost. Before you submit a bid, be sure to calculate the cost of onboarding the site. Buying an ecommerce business may appear inexpensive on the surface, but when you calculate all the extra costs you’ll pay in your first year, you could end up way further in the hole than you originally thought.
Here are just a few of the potential costs you could end up paying.
- Redesigning the website to optimize the buying process
- Improving supply chain by adding warehouses or suppliers
- Expanding to new marketplaces to reach new customers
- Investing in software to automate or streamline fulfillment
- Implementing new marketing campaigns on search engines or social networks
You may not have to do each of these things. The ecommerce business you’re purchasing might already have some of this in place. No matter the cost, the number is important because you’ll use it later to help calculate the bid.
#4 Offer a Fair Bid for the Business You Want to Buy
Once you’ve picked a business, researched it, and calculated the full costs of the acquisition, it’s time for you to make a fair bid to the seller. Most sellers have an asking price, but feel free to make an offer below that. Negotiation is fine and expected.
I suggest using this formula for bidding:
(Yearly projected profit of the business) minus (your calculated onboarding costs) = A Fair Bid
For example, if the business currently makes $500 a month, but you anticipate spending $200 a month in advertising and paying $500 for a new website, a fair bid would be $6,000 minus $500 for the new site and $2,400 for the first year of advertising. That means you’d bid $3,100.
You should expect a counter offer higher than your original bid. How you negotiate all comes down to how valuable you believe the site is verses how risky of an acquisition it is. There’s no simple rule for negotiation, although some useful guides exist on the topic. The video below offers helpful tips.
Once the seller has agreed to the bid, I highly recommend getting an attorney to look over the purchase agreement. Make sure you’ve got full ownership of the site and all related intellectual property. You want to leave no room for the original owner to claim rights to your future profits.
Never written a legal document before? It’s okay. Most of us haven’t. Use a website like Law Depot to automatically generate the business purchase agreement for you.
And ta-da! That’s it. You’re now the owner of an awesome ecommerce business. This guide is by no means all-encompassing. Keep a wary eye out for scammers and red flags. Protect yourself and your assets.