aproxaday

Thinking of buying an established eCommerce business, but wondering what a fair evaluation of this type of business would be.
Here are some specs:
- It's about 6 years old
- It has $500,000 yearly sales
- After expenses, it nets about $250,000
- There's good amount of costumers that are recurring

I was thinking a fair evaluation would be $500,000. Would I be overpaying for this?

Crunk

I'd say 24-36 months of net profit. So you're looking at 500k-750k. But be very, very careful. You could just learn more about the business and replicate.

minsco

You have to look at historical sales. If they have been netting $250,000 consistently, $500,000 would be a bargain IMO.
You have to take in other risk factors in, but I would never sell a business safely netting $250,000 to anyone for $500,000, thats just plain ludicrous. The real question is are they in risk of losing sales, if they were I wouldn't buy them, if they weren't I wouldn't sell them.

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Hitch

Man, that is soooo risky. I would rather invest in something offline. But if the site it's already a brand known and you're not depending on search engines, go buy it.

500k it's bargain.

Yuckystuff

I have a car with 30,000 miles on it. How much is it worth?

wickedDUDE

If it sounds too good to be true, it probably is.

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aproxaday

There are some things that this company has done, including branding and longevity that I can not replicate easy. If I could, I would totally agree with you.

I think that this year is the first year they netted $250,000, previously it was about half. I will obviously look at the books closely when I get a hold of them.

There's quite a bit of repeat business, that's why I'm considering the acquisition. And there is a known brand included in the company.

What are you trying to get at? A rolls-royce with 30K miles is different than a VW with 30K. All eCommerce websites are similar.

I would agree with you, but I know the seller and he's an honest man. But I will obviously look at the books myself and trust no one.

Yuckystuff

Uh...no. And that's what I was trying to get at.

aproxaday

I mean what else do you need to know to give an approximate evaluation?

jeffrey

$4.19

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adamx12m

Go spend a few thousand $ and hire a valuation expert who will tell you what it's worth, then make an offer.

aproxaday

Where do I go to find one? Do you recommend one?

thelorax

You need to look around the stables before you follow someone's advice on which horse to bet on.

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AustinP

The biggest mistake that most ecommerce stores do is underestimate their clients. I have always recommended most of my clients to spend more money in understanding the market they wish to target rather than on design and interface in the preliminary stages. If you are in the market for ecommerce, get your basics right and you cant go wrong.

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aproxaday

This is very good advice +rep

guerilla

Past performance is no indicator of future performance. The tendency to assume persistent and linear relationships is a cognitive bias.

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CharliePinglass

Typically an e-commerce site will sell for either a multiple of net profit or multiple of revenue. Multiple of profit is common when it is established, relatively stable, and experiencing organic but not rapid growth. Multiple of revenue is more common when it is fast growing and has obvious scale / resource issues (to the point the purchaser knows the margin can be much higher than the current owner is getting). Profit multiples are typically 2x to 3x (and as high as 5x-7x if the business is very fast growing and profitable), and revenue multiples anywhere from 1x to 2x depending on future growth potential (although usually closer to 1x). These would be multiples of trailing twelve months profit or revenue, respectively.

The other things you really want to understand are sources of traffic (ideally it's a relatively even mix of direct, organic, paid, and other sources), strength of email list (not just size but CTR, etc.), size of customer list, % of sales to repeat customers, vendor relationships and if there are supplier contracts can those be assigned and when do they expire, and you really need access to analytics to dig deep on conversion rate, top performing products, etc.

So, do your diligence. Also consider it may not need to be cash upfront - think about proposing an earn out to the seller, or asking them to carry financing (such financing secured only by the assets of the business and not personally).

Anyway if you're looking at a business in this price range you've probably already thought of most of this stuff.

tspesh

I may know a guy for you, up until recently he had been a partner at a large merger/acquisition consulting firm.

aproxaday

This is really useful. Thank you. +rep