How Much Do Ecommerce Stores Sell For? Finding Your Business’s Worth
Ecommerce is the name of the game in current times, and you can find numerous online stores that are doing so well in this field. So, when you are making good business with your ecommerce store, and are planning to sell it, you would want to know how much do ecommerce stores sell for.
E-commerce businesses are now capturing an increasing share of retail sales as compared to the traditional methods of business. Year over year there is a steady increase in billions on ecommerce profit, sales, and the number of consumers who buy online.
When you have decided to sell your ecommerce business or store, to prepare your business for sale and to correctly determine your store’s true total value, you must consider working with an experienced business broker who knows the online market well and can help you close a great deal for your e-store.
How Much Do Ecommerce Stores Sell For?
Ecommerce online businesses can sell for as little as a few thousand dollars, to millions of dollars, this majorly depends on a few factors. The general rule that the larger the e-commerce business is in terms of scale, the more it is worth in the market. The selling price for a website can be calculated according to its annual profit and an average multiple for that business or store size.
The Ecommerce Company Selling Process
Selling your online business store can be an easy and fairly straightforward process. The process may differ depending on the scale of your e commerce stores and the sale structure.
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The first step in this process is deciding to sell your ecommerce store and decide to list it in a marketplace.
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Next, you should apply and get an e commerce business valuation done for your store. You need to gather all the necessary facts and various stats about your business or website.
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Then you need to find potential buyers for your business. You can do this by searching online, through various search engines, and forums, or can hire a professional to do this.
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Once you find a few potential buyers for your business, you need to negotiate a deal with them and discuss the various terms and conditions as well as price negotiations.
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Once you have finalized a buyer, the buyer needs to validate and verify all the necessary financial details of the business, like average monthly revenue, operating expenses, profit, etc.
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When the deal is done, you need to transfer all the store assets and other formalities to the buyer, and the buyer, in turn, makes the money transactions.
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You can also offer to guide the new business owner on the workings and details that he needs to know to run the successful e commerce businesses.
Various Methods To Determine The Value Of Your Online Store
When it comes to determining the net worth of your ecommerce business or store, you can choose from a variety of methods. Each unique method has its own advantages and disadvantages, and there is no one-size-fits-all approach when it comes to choosing an appropriate method.
You can choose a certain method to calculate the net worth of your website, whereas the buyer may resort to a different calculation, and a professional appraiser may choose a different approach. Thus it is always better to go through an e commerce store specialist to help appraise your store’s value. He will evaluate your store according to the competitive ecommerce businesses, and also take into consideration the current market conditions.
The most effective ways to evaluate your ecommerce store is to make use of valuation multipliers. They can be considered as a ratio of comparison between two entities. When comparing one or more financial metrics, these evaluation methods provide a comprehensive idea of how much your ecommerce store is worth.
Hiring a valuation expert can help you get a clear understanding of the value of your store, and provide you with useful insights on the selling process.
Let us see the best valuation methods that you can use to calculate your website or store worth efficiently.
SDE
This is an industry multiplier, that is a number that you multiply your SDE by to get the fair market value of your business. To find your store’s SDE number, a valuation specialist will consider many parameters such as the earnings of your ecommerce store before income tax, devaluation, interest, repayment, recurring expenses, and your (owner) salary.
It is a metric for calculating the verifiable documented cash flow of a business. It can be calculated from your store’s the year-end income statement or tax return. The multiplier here is the store’s implied total value.
EBITDA
The EBITDA multiple is a financial correlation that compares a company’s total enterprise value to its yearly estimate. This value is mainly used to discern the value of a company and then use it to compare it to the value of its competitors or other, similar businesses.
The name is an abbreviation for Earnings Before Interest, Taxes, Depreciation, and Amortization and is majorly used to derive a possible market price for a particular business. This method calculates the rough estimate for the cash flows that are annually generated by the ecommerce store, which forms the basis for a valuation calculation.
Earnings and profit are always considered key to any business valuation. These multiples may vary from niche to niche and could be in the range of 3-5 times EBITDA for a small or medium-sized business, depending on the current market conditions. In a general rule of thumb, the EBITDA values that are below 10 are considered progressive.
The general formula to calculate EBITDA is a sum of the following, Taxes, Net Income, Depreciation & Amortization, and Expense Interest.
Discounted Cash Flow Analysis
DCF is a type of monetary business model that calculates to check if an investment is worth investing in, based on the future cash flows. The model calculates the ecommerce store value depending on the fact of how well the store can generate cash flows for its potential investors in the future.
The well-known discounted cash flow method is used by professional venture capitalists and analysts at financial or funding banks to calculate how much a business is worth, whether it’s for purchasing the whole company or shares of stocks.
One of the main advantages of using the discounted cash flow analysis method is that it makes use of error-free numbers and also that it is more objective in nature than other alternative methods in valuing the investment in the business.
Revenue Multiple
The Revenue Multiple technique is a valuation barometer that is used to evaluate a business by dividing its enterprise value by its annual earnings. The enterprise value to revenue multiple is commonly used in the initial stages or in some categories of high-growth stores that don’t have any log of positive earnings yet.
The revenue multiple for ecommerce businesses is usually 2-3 times the revenue. For new or non-established businesses it can also be calculated as 10-20 times their EBITDA. Generally used during acquisitions, this method helps compare a company’s earnings/revenue to its enterprise value.
It is majorly a relative valuation technique that is estimated by emulating and contrasting it to the competitor’s pricing of proportional assets. The formula is calculated by multiplying the revenue multiplier by the ecommerce store’s total sales annually. This is one of the simplest way to calculate the value of your ecommerce store.
Standard exemplar sales
The precedent sales model of valuation takes into consideration, how much worth the particular business is in the current similar marketplace. This also depends on the particular product or service they are selling. It considered their time in business, yearly revenue, etc. In this valuation model, the price paid for similar businesses is considered an indicator of the company’s value.
Precedent sales analysis can provide you with an estimate of what stock shares would be worth in the case of the acquisition of your ecommerce business. The advantages of this historic valuation method are that it helps assist in calculating the premium values as well as multiples that are payable in the particular niche.
Multiple historical earnings
This as the name suggests takes into consideration the company’s historic earnings over the years. It is calculated by considering the store’s net profit for the past few months, then multiplying it by a certain number depending on the market. It can be considered as a value or an expression of the market value of assets that are relative to a key demography related to that value.
These values are obtained by dividing a business’s present earnings value by its historical earnings/revenue. It also provides predictability and growth potential for your future earnings in the business. The formulation goes like this, price per share/earnings per share.
The Various Valuation Factors For Ecommerce Businesses
No matter the valuation methodology you choose to obtain your business worth, certain valuation factors play an important role when determining your store’s value when selling. The following factors can make or break your deal and bring you better results when you want to sell your ecommerce business.
Brand recognition
It’s always considered more profitable to buy a recognizable ecommerce brand. Identifiable and popular brands tend to have a larger customer base and in turn, can prove to be more profitable for the buyer of that ecommerce business. The buyer does not have to put in the initial effort to lure large numbers of customers to the site and can look into building it further.
When it comes to any ecommerce business branding is absolutely crucial to compete in the market, build a well-established web presence via various social media platforms and grow a loyal and growing customer base.
Already well-established brands also usually rank higher on search engines due to their accreditation and reaping the benefits of much important organic exposure. This may turn out to be very invaluable for a buyer.
Active customer base and positive market outlook
When an ecommerce store has an active customer base that is growing, it shows that it is building trust and doing well in the current market. This is driven by the number of active customers who are the business’s recurring customers and make repeat purchases from your ecommerce store.
This can be achieved by improving your churn rate, having an optimized email list, the number of competitors in the same market, etc. The market outlook is influenced by your competitor analysis and how they are doing when compared to your business.
Inventory management and business age
Your total cost of inventory management should be optimized, which will lead to better sales as well as bring profits to your store. To run a profitable and thriving store, it is essential to implement a comprehensive inventory control system that can help strategize your inventory needs and help you manage them well.
How long your store has been running and doing business also matters. The longer the store has existed in the market, the more profit-bearing capabilities it has, and thus the more attractive it gets to buyers.
Overall comparison to your competitors
No matter the niche of business, every buyer will try to gauge how your business is doing in comparison to your competitors. This is a subtle way to check if your business is doing well in terms of market share, profit earned, and marketing strategies that are implemented. This may help buyers understand an estimate of your value by comparing businesses that earn similar revenues.
Scalability
This is also one of the most important valuation factors that drive your business sales. Your ecommerce business should be scalable in nature, or you must be able to prove how you have helped your business scale to the current level.
The more scalable your store is, the more opportunities it presents to the customers as well as the buyer, thus improving your valuation factor.
Operating Costs
This is one of the major drivers for buyers to check when estimating your business worth. The way you handle your operating costs tells them a lot about how you manage inventory, and handle fulfillment. The better and more efficiently you are handling your inventory and operating costs, and be able to show the buyer that they’re as low and well-managed as possible, the more chances that you will get a better selling rate for your store.
Steps To Increase The Value Of Your Store Before Selling
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You need to have an established single or group of dedicated suppliers that provide you with inventory regularly. Having a few backup suppliers in place can also help secure your inflow of products and services on your website.
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Your website or business needs to have a clean and spotless legal history. Any speculations or legal discrepancies can negatively affect your brand reputation and website sale.
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When your store has a stable and constantly growing traffic from various sources such as social media, email marketing, or other paid advertising, it is easier to showcase your website’s growth in terms of the customers visiting as well as buying from your website.
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When you have growing traffic coming to your website, you need to have the various website traffic stats such as Google Analytics, website stats, and analytics from a reputed source, that depicts a long history of regular traffic to your website,
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Your website or brand should be void of any trademark or copyright legal violations.
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The products showcased on your website should have a consistently high percentage of repeat customers as well as sales. This means that your website should make a profit in terms of the customers that are visiting your website and then buying your products.
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You should make sure that all your websites processes as well as systems are well documented and stored.
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And last but certainly not the least, your website should portray an upward growth potential in the long run. The buyer should be convinced that your website is a great investment opportunity.
FAQS – How Much Do Ecommerce Stores Sell For?
1. How much is my ecommerce store worth?
To answer this question you need to check the historical earnings, and your business’s net profit for the past ten-plus months, and multiply it by a given valuation factor according to your business. This way you can calculate your store’s worth.
2. Can I sell my ecommerce business?
Yes, you can decide to see your ecommerce business for whatever reasons possible, both personal and/or professional. Many investors and buyers are interested in investing a large amount of money on sites that are flourishing and making a profit.
3. What multiple do ecommerce stores sell for?
Traditionally, ecommerce stores sell at a multiple of 3.5-6 times their annual earnings. This fairly depends on a lot of factors, but in general, you can make a lot of profit by deciding to sell your ecommerce store.
How Much Do E commerce Businesses Sell For? Final Word
Deciding to sell your ecommerce store can be an intimidating task, but it doesn’t have to. Make sure to hire a professional that knows the market well and can help you get a good deal on your store sale. You sure can make a lot of money by selling your ecommerce store, so definitely go for it.