With an expected 60 million e-commerce users in 2022, the UK has one of the most developed e-commerce markets in Europe with the majority of the population using online shops.
Spurred on further by the pandemic and consumers spending more time inside as a result, online businesses in the UK have been extremely successful and growth shows no signs of slowing.
With the market for e-commerce business mergers and acquisitions thriving, there’s never been a better time to sell your online business.
Read our latest blog post to find out more about how you can sell your online business for maximum profit in 2022, and how using a specialist e-commerce broker can help.
Valuing an E-Commerce Business
A variety of factors may be considered when valuing an e-commerce business which take into account far more than sales alone.
Understanding these allows you to make changes to increase the value of your business before sale. The most common include:
Like traditional brick-and-mortar businesses, one of the most important factors that will impact the valuation of an online business is financial health.
When analysing the financial history of the business, a broker or prospective buyer will consider valuation drivers such as:
- How long the business has been trading
- How sales and profits have been trending since inception
- Advertising and marketing costs including cost per acquisition
- Whether the businesses sales and profits are seasonal
- The impact of supplier costs on profit over time
- What percentage of profits are reliant on one or a few products
- What fees are being paid to external service providers such as marketing platforms and payment gateways and how these are trending over time
If you are looking to sell your business, having clear and organised financial records can help significantly with the amount a buyer is willing to pay.
Website & Traffic
As e-commerce businesses are reliant on their websites to generate sales, the design of your website and the amount of traffic that it receives will play a significant role in the valuation of the business.
Your website is the first impression customers have of your business and acts as your ‘shop window’ as well as playing a key role in driving sales. If your website is hard to use or has low visibility online, a prospective buyer will need to factor in the time and cost involved to improve these.
Investing time and allocating budgeting to your website and online presence can be hugely beneficial in increasing value before going to market.
Tracking website traffic through tools such as Google Analytics also enable you to show prospective buyers important data such as the most popular products, the conversion rate and which channels are driving the most traffic.
As many online businesses are reliant on selling products from third party manufacturers, arrangements with suppliers can have a huge impact on profitability.
If your business is reliant on a single supplier for products, a price change from their side would directly impact profitability.
Informing suppliers of your intent to sell the business and getting written confirmation that any current arrangements will be honoured under new ownership will make your business more desirable.
When selling products online, there are generally three ways of fulfilling orders and getting your product to customers, each of which has its advantages and disadvantages:
In-house fulfilment – Fulfilling your own orders on your own or as a team
No costs to external company or service provider
You have complete control over the process
Can be done on your own initially
Becomes more expensive as it scales with investment in staff and space required
Can be time consuming and may result in slower fulfilment times
Outsourced fulfilment – Fully outsource your orders to a third party company.
Benefit from industry expertise and experience
Eliminates the need for additional staff and space to fulfil orders
Cost to an external company
Less control over your supply chain
Some billing options mean you pay a fixed cost regardless of how many orders received
Dropshipping – Orders are sent directly to a third party supplier who fulfils the order.
Lower upfront investment required
You only pay when you sell a product
Allows you to sell a wide range of products
Less control over your supply chain
Less control over the quality of products being sold
Lower profit margin
When selling an online business, the type of fulfilment strategy you use will impact the valuation. If your business is reliant on a third party, reviewing contracts and ensuring they will respect the current arrangements under new ownership will help reassure buyers.
Customer data is extremely important to the success of any online business, with proper data collection and usage allowing businesses to maximise the lifetime value of their customers.
A business that has a large bank of customer details such as email addresses that have been collected and stored in a way that doesn’t breach GDPR will be more desirable to buyers than one that hasn’t.
Furthermore, giving your data a spring clean by performing tasks such as removing inactive customers, segmenting email addresses into relevant lists and removing duplicates will be a major selling point for the business.
Niche & Competitors
The niche your business operates in and the position it holds amongst competitors can have a massive impact on value.
For example, a business that sells products in a growing industry and is currently the market leader will be significantly more valuable in the eyes of a buyer compared to one in a dying industry that is not the market leader.
Understanding how your industry is performing can help understand whether the niche is growing or if your business should look to pivot into new areas.
Carrying out thorough competitor and industry research before putting your business on the market can help a new buyer understand the market and your competitors, giving them more confidence to buy.
Using an E-Commerce Business Broker
One of the best ways to get an accurate valuation of your business and get a great price when selling is to use a specialist e-commerce broker to help you. Using a broker offers several benefits including:
- Targeted marketing to help find prospective buyers
- Ensures that the correct legal process is followed
- Get a proper, accurate valuation which helps attract buyers
- Prepare your business for sale in a way that adds value
- Help with negotiations between prospective buyers and other brokers
- Maintain your confidentiality
- Gives you time to focus on continuing to run and add value to your business
To find out more, be sure to visit our dedicated page about our approach to selling a business.
Specialist E-Commerce Brokers
Are you looking to sell your e-commerce business and get the best possible price? At Bristol Business Brokers, we offer a specialist business brokering service for companies that sell products and services online.
With years of experience in buying and selling e-commerce businesses, we can help find interested buyers and ensure that the proper legal process is followed when selling the business.
To have a chat with one of our experts, call now on 0117 379 0117 or fill out a contact form and we will get back to you.