Your ecommerce business is flourishing, but you simply don’t want the headache of maintaining it anymore. Maybe you are ready to move onto a new project or you just need a little extra money in the bank for your next venture. Selling your ecommerce business can free you up to spend more of your time pursuing new interests and give you the funds that you require.
If you have been considering the sale of your business, you need to know how to go about it the smart way. How do you value your business and what are the steps required to list it for sale?
No matter what your questions may be, this comprehensive guide to selling an ecommerce business is sure to help you along the way!
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How Do I Value an Ecommerce Business?
Selling an ecommerce business can be an exciting endeavor. This is especially true if you are anticipating a large sum of money to put in the bank at the end of the transaction. How can you determine how much money your ecommerce business is actually worth?
Determining the value of a website is a two-pronged process. You must first determine the earnings of the business and then figure out what multiple might be appropriate. Take a closer look at how these figures are calculated.
Determining Seller’s Discretionary Earnings (SDE)
Ecommerce websites worth under $10 million most frequently use the seller’s discretionary earnings or SDE to determine value. The formula is simple to use and understand. Gather up all your financial documents and sit down to calculate your net revenue with this equation:
Total revenue – Cost of Goods Sold and Operating Expenses + Owner Compensation
SDE gives you an overall look at how well your business is doing. Calculating your total revenue should be a piece of cake for you. How much money have you brought in over the past year?
From here, you need to account for the cost of goods sold and all of your operating expenses. Operating expenses can include things like:
- Domain prices
- Web hosting fees
- Software for your website or accounting
- Outsourcing labor costs for a blog or web design
- Employee salaries
Last but not least, you are allowed to add your own salary back into the equation. This gives the new buyer the most accurate picture of the profit that the business is currently getting.
The new owner can choose to lower, increase, or forego this payment to self altogether. This is why it is important to add it back into your SDE calculation.
Determining the Earnings Multiple
When selling an ecommerce business, it is important to understand your SDE because it influences the sale price of your business heavily. However, your earnings multiple is also an important figure that you should be aware of.
Most online businesses will net earnings multiples of two to four times their annual SDE. For example, if your SDE is $40,000 then your valuation might be anywhere from $80,000 to $160,000.
As you can see, this is quite a spread. What determines which earnings multiple you should use when valuing your ecommerce business?
There are a few different factors that can influence the sale of your business including:
- Time spent working on the site
- Business trends
- Cost of inventory
First and foremost, the age of your business will influence the potential sale price of your site. Most buyers prefer to see older and more established businesses to minimize the risk they expose themselves to. Businesses that are older than three years are preferable, but you can still sell a business that has been open for less time.
The older your business is, the more money you are likely to pocket in the sale.
Buyers also like to see whether the site brings in plenty of passive income or whether it requires active maintenance. If you spend less than ten hours per week maintaining your site, then it may be worth a higher multiple.
The overall trend of your ecommerce business should be a modest upward trend. Businesses that have flat growth are typically worth less than those that are on a steady incline.
Last but not least, you must evaluate how much your inventory costs to maintain. If you spend a lot of money upfront on your inventory, the ecommerce business is probably worth a lower multiple. Low overhead and inventory costs are a benefit that can lead to a higher sale price for your business.
What is the Most that an Ecommerce Business Sold For?
It is hard to pin down exact numbers on the most money that an ecommerce business sold for. The overall cost of the business is heavily dependent upon the revenue that your site brings in. It can be more helpful to look at the average earnings multiple instead.
Years ago, the average earnings multiple was just over two times the SDE of the business. Now, business is really booming when it comes to the sale of ecommerce sites. The average earnings multiple is now closer to the three mark.
The average sales price for an ecommerce business is now over $2 million based on a survey from 2019.
Keep in mind that this average number can be heavily influenced by outliers. There are still many businesses that are sold for less than this average. In fact, the median sale price is closer to $600,000.
Instead of focusing on the average cost of the ecommerce business sold, it makes more sense to focus on the earnings multiple that buyers are willing to pay. This is more tailored to your unique business and can give you better insight into what you can reasonably charge for your business.
If you want to boost the sales price of your ecommerce business, then it might be time to consider some of the factors we already discussed. Wait for your business to age more before selling, lower your inventory costs, and reduce the amount of time that you spend working on the page.
(Read this case study of Death Wish Coffee to show you how much an ecommerce business can be worth.)
Where Can I Sell My Ecommerce Business?
Selling an ecommerce business can be a bit tricky, even under the best circumstances. We will dive deeper into how to sell an ecommerce business in a minute. However, it is a good idea to start considering your options for where you can sell an ecommerce business.
You do have the option to sell your business on your own. This could be the preferred option because it means that you don’t have to pay the fees associated with brokers. However, it is a lot more labor involved on your part:
- Advertising or word of mouth that you are selling the business
- Legal contracts for the sale of the business
- Handling the funds and negotiating financing deals
- Fielding all buyer inquiries
On the other hand, popular brokers might be the better solution. They handle most of the heavy lifting for you. While you may still be called upon to submit documents and answer buyer questions, the rest of the transaction is handled by a skilled professional.
For more details on where you can sell your business, the section below will give the advantages of each approach.
Selling an Ecommerce Business Step by Step
When you think that you are prepared to sell your business, it is time to prepare for the process that lies ahead of you. Each of these steps is equally important and can help you to net top dollar for your ecommerce business.
Consider the minor changes that you might need to make now to best prepare for the eventual sale of your business.
Remember that some of these steps take time. If you are in a hurry to sell your business so that you can move onto new and more exciting projects, you might want to slow down. Skipping these steps could cost you in the long run.
Optimize Your Website for Sale
Before selling an ecommerce business, the most important thing you can do is optimize your website. Buyers want to see a site that is clean, uncluttered, and well organized. If this does not currently describe your ecommerce website, it might be time to make some updates.
You want to create a site that gives a great user experience. Your products should be located close to the home page for easy access. Navigation should be simple to understand for every user.
Site design can be complicated, so you may even want to consider hiring a website designer to help with this stage.
Take off some of the more personal details and make the site more generalized. Buyers want to start with a clean slate. They want a blank canvas so that they can easily make their own changes.
An ecommerce business website that feels too cluttered means a lot of initial work for a buyer. This could turn them off from the sale or cause them to offer you less than the business is truly worth.
Keep Working on Sales
Selling an ecommerce business can be time-consuming. You might be tempted to let your business slack during this sales process as you focus on closing the deal. Unfortunately, this could cost you the sale.
Keep finding new ways to bring more traffic to your page and make more sales. This might mean running a sale to help you deplete old inventory. It might mean that you send out more frequent email newsletters to your subscribers.
No matter what you decide to do, continual growth is important for the sale of your ecommerce business.
Most buyers will take a look at your current sales trends before making an offer. They want to see a modest upward trend if you want to get top dollar.
If you take a break from running your ecommerce website, then you might have a sharp decrease in sales. That could easily throw up a red flag for buyers that your business requires too much effort or is too volatile to purchase.
Ideally, you should have an upward trend for the last several months before listing your ecommerce business for sale.
Gather Financial Documents
Many ecommerce business owners have been managing their own finances since the beginning. Unfortunately, you likely are not an accountant or a certified bookkeeper. Before you sell, you may want to consider outsourcing some of this work to a local accountant.
Buyers are going to want to take a closer look at your financials before they fork over thousands of dollars for your business. Not only will they be scrutinizing your finances, but so will their lawyers, lenders, and other team members.
Before you sell, make sure that you have all of the following documents prepared for your new buyer:
- Two to three years of tax returns
- Income statement
- Cash flow statement
- Profit and loss summary
Of course, buyers may still request other details but these documents should give you a solid start. Make sure that each page is completely accurate. Minor mistakes can spell trouble for a deal that is in the works.
If a buyer encounters an error, they may walk away from the deal. It could be a signal that you are lying about the profitability of the business. Alternatively, it could show an inattention to detail and make buyers question your organization in other areas.
Prepare Your Training Documents
Handing over an ecommerce business to a new owner can be a challenging process. They need to have all of the information on how your business operates. Even before listing your site, it can be helpful to begin preparing your training documents.
Create a set of standard operating procedures that generalizes how you spend your time working on the business. This isn’t necessarily the time to go into great detail. That can be done once they have made an offer on the business.
Instead, this is designed just to give them an overview of how much time is involved in keeping your ecommerce business afloat.
How many hours do you spend each week working on your site? Many buyers want something that will help them to earn passive income. In other words, they want to do the bare minimum to keep things running while still maintaining a steady profit.
Ecommerce websites can be quite lucrative when organized efficiently. This is a great time to refine your procedures and simplify things.
Where To Sell An Ecommerce Business
Below we discuss the options for actually selling your business and finding a buyer. There are several options and you will need to decide which works best for you.
Find Your Own Buyer
Once your website is prepped and ready for sale, it’s time to locate a new buyer. Maybe you already have someone in mind who has expressed interest in the business. A friend or family member may be eager to take over your role.
If you don’t know anyone in real life who would want to purchase your ecommerce business, you might want to consider reaching out to competitors.
A competitor might be extremely motivated to take over your customer base. This would allow them an even greater percentage of the market share. There would be one fewer competitor angling for their customers’ dollars.
Selling an ecommerce business on your own is the most cost-effective way to sell a business. You won’t have any of the commissions or listing fees that are associated with brokers. One hundred percent of the profits go straight into your pocket.
Unfortunately, this also means that you will have to do a lot more work:
- Preparing legal documents for the transfer of the business
- Fielding inquiries and buyer offers
- Providing your own due diligence to prove income and traffic
- Escrowing the funds for the sale
- Preparing the site for the handover to a new owner
- Providing support for the website for a set period of time following the sale
Selling your business on your own can equal a lot of hard work. This is why many people choose to connect with buyers on marketplaces or brokerage websites.
Sell Through a Broker
Your ecommerce business is flourishing and you have all the documentation to prove it. Once you reach this critical step, it might be time to enlist the help of a professional. Brokers can help facilitate the sale of your ecommerce business.
Brokers and marketplaces for the sale of websites are easy to use. They cut back on the amount of work that you must do as the owner of the site. Buyers flock to these websites to see all of the available businesses for sale.
Most importantly, they help to handle all of the legal and financial aspects of the sale of your business.
While you still must cooperate with their due diligence practices, the burden is lifted off of you and placed on their shoulders. They will tell you what documents they need from you, and all you need to do is submit them.
When the time comes for a buyer to make you an offer, they can help you make counteroffers and negotiate a deal that works for both parties. They even escrow the funds and ensure a smooth payment.
It sounds too good to be true. You can sell your ecommerce business without doing most of the heavy lifting. Keep in mind that while their services are valuable, they are not free.
Working with a broker means that you are going to be responsible for paying their fees. Some will charge a listing fee just to put your ecommerce business on their website. They could upcharge you for advertising and boosted status on their webpage.
All of them will charge you a commission upon the sale of your website. The exact percentage may vary, so be sure to do your homework before selecting a broker. Look for brokers with low fees and high success rates to get the best chance of success for the sale of your business.
Finding the Right Broker or Marketplace
There are a lot of websites out there competing for your attention. Marketplaces and full-service brokers can help to smooth the path for your transition out of your online business. However, you have to have a detailed understanding of what each service provider can offer.
If you are ready to list your business for sale, then here are some of the top places that you might want to consider.
If you want a user-friendly experience that can connect you with thousands of potential buyers, Flippa might be the right choice for you. Their platform is designed to help walk you through every step of the process from valuation to the final sale.
The first step to working with Flippa is to make use of their free valuation tool. They help you to understand the potential list price of your website by evaluating the type of site you have, its historical performance, and more. After careful review, they give you an estimated amount that your business could be worth for you to consider.
This tool is designed to help you, but you can always disregard it if you feel that your website is worth more. Keep in mind that buyers can also submit offers that come in beneath your asking price, so be sure to account for that when listing it for sale.
Flippa does charge slightly more in fees than some of the other sites that offer similar services. For example, they charge a flat-rate listing fee for established websites and online businesses. Each listing will cost you $49.
If you want to increase the visibility of your page, you can also pay them to advertise your site. Boosting it in the listings and placing it in front of more buyers could cost you handsomely. Marketing tools like these range in price from $65 to $545.
Last but not least, there is also a commission charged based on the price of the website:
Websites up to $50,000: 10 percent success fee
Websites between $50,001 and $100,000: 7.5 percent success fee
Website greater than $100,001: 5 percent success fee
Similar to Flippa, Empire Flippers is another marketplace that helps to connect buyers and sellers. They have a high success rate, closing roughly 76 percent of all sales.
Empire Flippers is well known for doing their homework in regards to the websites that they list for sale. They have strict requirements that your business must meet if you want to list it through their platform, including:
- Monthly net profit of $1,000 or more on average
- A steady stream of revenue for at least one year
- Google Analytics for a minimum of three months
- All affiliate marketing and similar content must be listed on the same domain for at least one year
- More than half of your income must come from multiple clients
If your ecommerce business meets these stringent standards, they will help you to value your website appropriately. They have a very thorough vetting process that looks at your monetization, traffic, revenue channels, and even important indicators like your social media following.
Once you list with Empire Flippers, you are making a commitment to using their platform. They will have exclusive rights to sell your business for at least two months. After this time period, you are free to take down the listing and post it elsewhere if you would like.
When a buyer makes an offer on your business, they will help you to ensure that you are getting top dollar. They can help you to submit counteroffers and negotiate a financing plan with any and all prospective buyers.
After an offer is agreed upon, they will walk you through the rest of the steps until you receive payment for the business. At this point, you will owe them their success fee. They charge a range starting with 2 percent for sales over $10 million all the way up to 15 percent for sales under $1 million.
Is your ecommerce business worth more than $25,000? If so, then you may want to consider using a full-service broker like Website Properties. They have a high closure rate at 85 percent with more than 30,000 active buyers at their disposal. With more than twenty years of experience, you can rest assured that you are in capable hands.
As with Flippa and Empire Flippers, you will start off with their free valuation process. Website Properties works hard to examine your domain, financial history, website traffic, and more to give you the most realistic figure that you can expect to sell your business for.
After passing through this process, they create advertisements that get sent directly to their list of buyers. Unlike Flippa, they do not charge extra for advertising your business. It automatically can be posted to their social media, partner websites, and in their email newsletter.
They provide very little information to buyers up front. If a buyer wants more information on a particular ecommerce business, then they need to sign a non-disclosure agreement to receive a prospectus.
Once you have reviewed the details of the sale with the buyer, then the due diligence process begins. This is a standard part of selling your website through their brokerage. They want to ensure that your income and traffic are exactly what you promised the buyer in your conversations and advertisements.
Upon the closure of the sale, you will owe Website Properties their commission fee. This can be as low as six percent depending on the sale price of the website.
The advantage of using a full service broker such as Website Properties is that they do most of the heavily lifting for you. Unlike Empire Flippers or Flippa, you get complete one on one attention, phone call support at any time, and not just a marketplace situation with very little help.
If you want a full-service broker that specializes in ecommerce, Quiet Light might be the right fit for you. They provide a highly personalized experience for sellers, starting with a full consultation and valuation with one of their experienced professionals.
Every staff member that they hire has either built, bought, or sold their own online business. They know exactly what the process feels like from both the buyer’s perspective and the seller’s perspective. This gives them the advantage of anticipating your needs as they arise and allows them to offer sage wisdom.
Once you decide to list with Quiet Light, you must sign an exclusive contract with them. You will not be able to post the listing to any other sites. This is a fairly common detail among all of the top marketplaces and brokers.
If you are in a hurry to sell your business, you might want to pump the brakes. A finalized transaction from listing to the close of the sale can take anywhere from one to five months.
They do charge a commission based on the successful sale of your business. Consider how much these fees could cost you:
- Sites under $1 million: 10 percent of the sale price
- Sites between $1 million and $2 million: 9 percent of the sale price
- Sites between $2 million and $3 million: 8 percent of the sale price
- Sites between $3 million and $4 million: 7 percent of the sale price
- Sites between $4 million and $5 million: 6 percent of the sale price
- Sites between $5 million and $6 million: 5 percent of the sale price
- Sites between $6 million and $7 million: 4 percent of the sale price
- Sites over $7 million: 3 percent of the sale price
Finding the Right Steps to Success for Selling Your Business
Preparing to sell your business can often be the hardest part. Once you get all of your ducks in a row, you can easily list your business for sale and wait for the offers to come rolling in. Make sure that you follow all of these steps to optimize your site and help you receive the best offer possible.
Whether you decide to list with a broker or sell it on your own, you can be sure that your hard work did not go to waste. Determine how to value your website today so that you can reap the benefits in the months to come!
What To Do Next?
If you’re ready to sell your ecommerce business, we recommend getting a free business valuation. We suggest using Website Properties to get a free business valuation because they are by far our top top pick for website brokers. They have actually helped us sell six businesses and each one sold for more than we anticipated. Their process is so easy and the staff is amazing. Get your free valuation here.