Real value of an E-Commerce (dropshipping) business

Tommyturf

Hi folks,

In talks with a guy who is looking to sell on one of his E commerce ventures, started in Q1, figures look impressive etc. But how should it be valued accurately, any accountants one would recommend? its 100% dropshipping no stock, PPC as opposed to SEO with two virtual assistants.

thanks.

protelos

Hi there,

Firstly, I am not sure many accountants are too well versed in Ecommerce evaluations, I have yet to meet one you has any clue.

So I have been semi-obsessed with owning a few Ecommerce businesses for a few years and have been all over marketplace exchange and flippa for years and I thought buying a 5k site was the way to go. So after many conversations with sellers, talking to myself in the shower and some due diligence I am reside to the fact that anything under 30-50k for an e-commerce site is a scam at worst and a flip at best.

A lot of the site will be 3-4 months old with huge spikes in sales in one month and then a drop off of sales with a lame note from the owner claiming he is busy with his other ventures and needs to get rid of this one.... but there is huge potential!!!

Mostly I presume these guys are dropping tons of cash on paid for they period. Also you mentioned that it is mainly paid, and not SEO? I would way rather see a proven track record of SEO over a period rather than a blitz of paid.

To properly evaluate a site, Ecommerce runs at about 2x EDITA, with normal biz going for 3-7 x, so there is value in good Ecommerce stores. To do due diligence on a site I would be looking at a store being at least 2 years old (so you can see trends over Christmas etc), if this guy only has 3-4 months info, it’s likely a dud.

Also I would look at where the traffic source is coming from in analytics. Both source and location. You would want a good blend of SEO, social and paid. Any over reliant in n any would be dodge and worrying (like if it was a legit site but 80% if the traffic came from FB and they move the goal posts, your goosed).

My guess is if you ask for a Analytics screenshare he/she will tell you it’s not worth it for a 5k deal... dodgy AF!

Droop shipping from China with a 2-3 week shipping delay is not really a business, you might get some quick wins but I have come to the realization that it’s worth setting up something sustainable with an actual brand.

I am more that happy to give more info from what I have uncovered over the last 5 years.

JMR

protelos wrote: »

Hi there,
To properly evaluate a site, Ecommerce runs at about 2x EDITA, with normal biz going for 3-7 x, so there is value in good Ecommerce stores. T

Interested in the above and hadn't heard of EDITA previously so on a quick Google came up with EBITDA - "earnings before interest, taxes, depreciation and amortization."
Presume it's the same thing?
Where is the source for a standard 2 x EBITDA for eCommerce businesses?

Thanks

protelos

Exactly, a fancy word for net profit. Empire flippers podcast is basically where I get all my Ecomm valuation info. I would recommend binging on this for a few weeks and it will get you up to speed real quick with a lot about buying and selling sites.

Tommyturf

protelos wrote: »

Hi there,

"Firstly, I am not sure many accountants are too well versed in Ecommerce evaluations, I have yet to meet one you has any clue."
Agreed I'm struggling for professional advice, infact your points below best thus far!

"So I have been semi-obsessed with owning a few Ecommerce businesses for a few years and have been all over marketplace exchange and flippa for years and I thought buying a 5k site was the way to go. So after many conversations with sellers, talking to myself in the shower and some due diligence I am reside to the fact that anything under 30-50k for an e-commerce site is a scam at worst and a flip at best."

So the asking price is within range, his asking for 50k, excessive IMO, but trying to get help with my due diligence.

" A lot of the site will be 3-4 months old with huge spikes in sales in one month and then a drop off of sales with a lame note from the owner claiming he is busy with his other ventures and needs to get rid of this one.... but there is huge potential!!!"

"Says he can provide genuine analytical info, from Google but need to sign ND form first (far enough). His reasons for selling are due to other site commitments 🀔 plus his some IT development that he needs cash to patent his item!

"Mostly I presume these guys are dropping tons of cash on paid for they period. Also you mentioned that it is mainly paid, and not SEO? I would way rather see a proven track record of SEO over a period rather than a blitz of paid."

Correct paid only, he says SEO he tried as a method years ago when he first started out but found it took way too long time/effort to build up, to attain the desired traction.

"To properly evaluate a site, Ecommerce runs at about 2x EDITA, with normal biz going for 3-7 x, so there is value in good Ecommerce stores. To do due diligence on a site I would be looking at a store being at least 2 years old (so you can see trends over Christmas etc), if this guy only has 3-4 months info, it’s likely a dud."

Said, Nett Profit is between 25% and 28%, this store is 6months old with $5/6k per week sales.

" Also I would look at where the traffic source is coming from in analytics. Both source and location. You would want a good blend of SEO, social and paid. Any over reliant in n any would be dodge and worrying (like if it was a legit site but 80% if the traffic came from FB and they move the goal posts, your goosed)."

Fair point traffic source is not something I fully honed in on, but as mentioned above its all paid none SEO or social.



" My guess is if you ask for a Analytics screenshare he/she will tell you it’s not worth it for a 5k deal... dodgy AF!"

Expecting this to be emailed to me today but nothing yet, still time!

"Droop shipping from China with a 2-3 week shipping delay is not really a business, you might get some quick wins but I have come to the realization that it’s worth setting up something sustainable with an actual brand."

Products sourced via an agent, who has a fulfillment warehouse in Europe, 80% sales go to USA and rest EU/Britain etc.

" I am more that happy to give more info from what I have uncovered over the last 5 years.

"

Thanks a mill Protelos, very informative thus far.... will take you up on this offer, I'm playing into the unknown a bit, but risk = reward as they say... (well sometimesðŸ˜)

protelos

Sounds good, I would talk about e-commerce and business all day! Happy to help as much as I can.

There is huge opportunity for sure and the when e-commerce comes mainstream it will be even more opportunities, but some parts of it is still the Wild West.

Tommyturf

protelos wrote: »

Sounds good, I would talk about e-commerce and business all day! Happy to help as much as I can.

There is huge opportunity for sure and the when e-commerce comes mainstream it will be even more opportunities, but some parts of it is still the Wild West.

Do you have an ecomm business yourself at the moment? If so would like to reach out over weekend to chat in general terms about pitfalls and learnings from your perspective... Cheers

protelos

I work in an e-commerce agency and we build on Shopify and big commerce and I built up a small agency on the side but I am also building one brand on the side too. Shopify site is built, product is nearly ready, so looking for an early Jan live date.

Defo, happy to help. I will send you my email later.

tacofries

Go onto Thrasio and you can input details to get a rough valuation of what they would pay for the site. Normal ecomm busines is 2 to 3.5 times. If you have IP it might be a bit higher.

Due diligence is keyyyy, more so on the marketing side of the business rather than the website side imo.

Tommyturf

tacofries wrote: »

Go onto Thrasio and you can input details to get a rough valuation of what they would pay for the site. Normal ecomm busines is 2 to 3.5 times. If you have IP it might be a bit higher.

Due diligence is keyyyy, more so on the marketing side of the business rather than the website side imo.

Thanks for the Thrasio recommendation Tacofries. The guy sold the shopify and IP site today, to another customer, deposit taken...missed opportunity or lucky escape?! 🀔 When you say more important to do due diligence on marketing side rather than website side what do you mean, can you be more specific? Because I will move forward with something, just this deal was moving too fast.

tacofries

The way i look at ecomm is it is easy to build a good website. It is basically a once off thing that you to do. What actually brings in the revenue is the marketing. You need to understand where customers are learning about the website, is the marketing which leads customers to the website profitable, is it scalable, is it reliant on one main marketing platform or are marketing efforts spread across a few platforms, are there risks associated with it e.g. account bans. There are more questions that should be asked but you need to research it imo.

Marketing is absolutely key when is comes to ecomm as anyone can build a great website themselves for under a thousand quid.

Maybe I'm being pendantic but I doubt this is the case.

jimmii

Totally agree so much depends on the marketing. A shop with 200k turnover and no paid advertising is very impressive but pretty much anyone can make a breakeven site with a load of paid ads. If theres a really good marketing plan in place thats already working thats probably the most valuable part of the site.

Tommyturf

Didn't buy the business in the end figured going to start my own.

What I've learned so far on my journey, don't spend endless hours sourcing and deciding on a product, no one can actually say 100% a product is a winner without careful consideration and testing!
For the consideration side good trends is your friend, view the time frame over a 5 year period so you get a feel for demand.... Ideally a product should be light and small for faster and cheaper shipping..... Check out the competition, is it saturated?.... Is there enough margin in it? Will people pay the price u need to make a profit, is there enough perceived value by ur customers..... There just a few of my criteria before moving forward on any product.

As for the market testing.... its proving more difficult. .. All comments welcome?

kik4444

Hi guys,

Sorry for going off-topic maybe, i am involved in ecommerce and marketing for couple of years now, failed couple of times with Amazon FBA, dropshipping and POD stores, but learned a ton along the way.

I came to realization when looking at some small Irish brands that people absolutely love and support local businesses here. As i am a foreigner living here for 5.5 years now that was not the case where i came from. So, decided to take a different approach.

What i am doing now is instead of pushing some shady products from dropshipping suppliers, or doing print on demand that relies hugely on marketing and advertising spend + again delays in making on demand products is doing it all at home by myself. That gives me hands on experience, i can control process of making and shipping and will use Tiktok's organic reach through their platform for zero advertising spend. I might run some advertising once i gather some data and have better insight what my audience is.

I've seen it alot lately young guys/girls with no business experience in their 20-ies going from 0 to 50k subs and 15-20+ orders per day just from Tiktok in span of a month or two.

Just and idea for everyone to focus not so much on shipping worldwide and spending hard earned cash on cold traffic through social media but focus on your own market, there's so much value here in this country i think. People like to spend and support local businesses in Ireland, that's a fact.

If the rumors are true and Amazon opens up fulfillment centre here in Ireland i will go all in on that as nothing can beat same day or 2 day prime delivery from Amazon, that's when the fun starts and you can get tons of organic Amazon traffic on your listings.

just my two cents, would like to hear others opinions on this subject. Maybe instead of spending 5k for dropshipping business, try and build your own with way less than that