Important: Don’t Buy an E-commerce Business before Reading This
Thousands of entrepreneurs worldwide are finding great successes with e-commerce. There are numerous success stories of how ordinary people who have started home-based online businesses that sell anything from handmade stitched pillowcases, shoes for amputees and just about anything that can cross your mind. Most of these businesses grow from selling a few products a month to generating thousands of dollars in only a few months.
Is e-commerce profitable in 2018?
Is the e-commerce industry crowded? What are the chances of setting up an online store and turning it into a highly profitable and successful business?
There is no better time to start an online e-commerce store than today! Even though more and more online entrepreneurs are setting up and scaling their e-stores, E-commerce still accounts for just 10.1% of retail stores online, but is gradually growing every day. As internet and mobile penetration continues to expand globally, it makes the perfect sense to start an online business today targeting the ever-growing traffic and building a brand that will become an industry leader.
Should I start an online business from scratch or buy an established online store?
Many entrepreneurs struggle with deciding whether to build or buy a business. Starting from scratch and building an e-commerce store from the ground up can be exciting, but only if you have the time to set up a site, add content for marketing, build an email list, create or list products and possibly dropship depending on the industry..
Buying an already existing online store is a much faster way of seeing success. You are buying an established business complete with products, customers, a social media community, incoming traffic, ongoing advertising campaigns and an email list for targeted leads and sales. In some cases, the e-commerce store will also come with a team of virtual assistants for daily operations.
What to look for when buying a profitable online business
Once you have decided to purchase an online store, you should focus on scaling the business. Purchasing a pre-built e-commerce store can be expensive; typically, you want to target 2X to 3X yearly net profits so you can achieve between 33%-50% return on investment annually.
With that in mind, here are key things to look for when buying an e-commerce business:
No traffic, no leads, which means no business! Understand where the traffic is coming from and the trends for at least the past year. Using popular services like Google Analytics, you can break down the traffic according to source and dig further to see weekly monthly and yearly trends. You can also use Google Search Console to look at the backlink profile and determine if any cleanup needs to happen here.
Once you know how much traffic and the quality of the audience the website attracts, you can start to figure out how to build on those numbers to generate more business leads and ultimately convert them into paying customers.
2. Suppliers and deals
Mostly, e-commerce stores get into select distribution agreements with suppliers and since the business is changing ownership, don’t assume that the supplier will automatically continue to distribute the products. It is vital that you get acquainted with the suppliers and ensure they’ll stock your business at all times.
Do your due diligence and verify revenue and other figures that have been presented to you by the seller or through their broker. Dig dip into the expenses of running the businesses. Ideally, you want to check at least the last 12 months but if possible check even further back while taking a deep look at inventory purchases, hosting and website maintenance fees, as well as recurring expenses like software subscriptions, employees wages and advertising costs. Avoid buying a business based on the face value only to find out later that there is a monthly $1,000 SEO contract you need to pay for.
Arguably, the most important thing to consider when buying an established online business is ensuring that the existing customers regularly engage with the business and are well cared for.
Asses how many customers visit your store more than once, check the reviews the store has generated and how many repeat customers the business is having. This is why buying a business in a local area, such as a business for sale in Houston, is so important, as it means you will have a more loyal customer base.
Remember, happy and engaged customers mean a sustainable business.