Everyone talks about starting an online business. But what about purchasing an online business?
Lately, there has been a surge of online businesses coming for sale. Many of them being Fulfillment by Amazon (FBA) based businesses. The marketplace of buying and selling internet companies has grown more mature in that banks are now willing to give loans on intangible assets, internet brokers are being more aggressive to serve this marketplace, and more tools have become available for due diligence and growing a business exponentially after purchase.
I’ve bought seven Internet companies in the last 18 months in the six- and seven-figure range, and each business has grown since I took them over. In the majority of my acquisitions, the seller was burnt out, wanted to try a new sector or just wanted to retire.
For me, buying websites was a way to bypass all of the tedious work that website builders do to design a product, find a manufacturer, build a customer base and learn from failed strategies.
It is much easier to grow a business by utilizing your traffic of 100 people verses starting a business and building traffic of zero people. And many are taking note of this.
An ecommerce business is usually valued at a multiple times the net profit. This multiple has been slowly increasing in the last five years. This should not be alarming, but rather reassuring as it shows the ecommerce marketplace is maturing.
If you are in the market to buy an online business, but unsure of how to grow it, read the steps below that have helped me be able to grow my acquisitions.
Improve Conversions
If you have a 1,000 visitors to your site and one customer makes a $10 purchase, that is $10 in revenue. What if you can convert one more person out of the 1,000, or two more people? This can essentially double or triple your revenue.
But how do you improve conversions? How do you grow profits fast to recoup your investment quicker?
Give the Website a Facelift
Redesigning my websites has lead to better conversions. You have a few seconds to showcase your value proposition before a customer “bounces.” So it is important to show the products you offer (banner), validation of your products (reviews) and value proposition (the “why should I buy from you?”) right away. Conversionxl is a great company to improve conversions.
Tap the Customer Base
Most businesses come with a customer base that have bought from the brand or shown interest in buying. These are fans of your brand who would be willing to purchase again or be happy to refer your brand to their friends and family.
Using software, such as Klaviyo or Mailchimp, is a good way to utilize your mailing list to upsell them on new or existing products.
Employ the 80/20 Rule
Usually a small portion of the products will make up the bulk of the revenue. I look at the historical data and push for variations and improvements of that particular product.
If a red t-shirt is selling well, I would add more options such as a blue t-shirt or black t-shirt while adding sizes not being offered and read customer reviews on how to improve the product. I would then market these top-selling products heavily.
Add Products
Just by looking at your competitors, you can add new products in different categories or simply ask your manufacturer what is selling well. Usually the manufacturer is more than happy to help out. I will also subscribe to competitor newsletters to see new products they are launching.
Utilize Marketing
Ah, one of the best tools to drive traffic. Marketing can be a daunting task, and expensive if you don’t know what you’re doing. Marketing comes in different forms, including Facebook ads, Google ads and retargeting. The best way to master is to fail, repeat, revise and improve. It’s not easy, but can lead to huge gains with persistence. There are reputable marketing agencies who can help.
Add Marketplaces
Amazon is the Holy Grail of marketplaces. I’ve bought several businesses that did not utilize any third party marketplaces simply because the previous owners did not want to learn or deal with a new set of rules. This was an easy win for me by utilizing third party marketplaces.
Just like Jet.com launched in 2015 and is gaining popularity, I think there will be new marketplaces that continue to launch and help spread out your marketing channels.
Automate
There are a lot of opportunities to automate your business using third party fulfillment, software and people. If you sell worldwide, then why not hire worldwide? I train my outsourced employees hands on for about a month on certain tasks, and that usually frees me from that task for the next 12 months. I try to automate on low value, high frequency such as return processing, reporting, customer service, product research, etc. Hubspot has been helpful in tracking my employees work progress.
Bonus: When you ready to sell your business, you are more likely to get a higher valuation when a seller is working 10-20 hours a week verses a seller working more than 40 hours a week.
Create Freedom
With automation comes freedom. Imagine working from anywhere in the world and still making money in your sleep. This was my dream and for the past 12 months my wife and I have been traveling around the world and I’ve still made more money this year than I did last year. This all starts with strategizing the automation and outsourcing any repetitive tasks.
Learn Daily
Being in ecommerce means you must be willing to learn everyday. Everyday there can be changes to Amazon rankings, google algorithms, new softwares development or your competition strategizing, Listen to ecommerce podcasts(such as freedom fast lane) or be part of ecommerce groups where you can learn from one another(such as ecommerce fuel)
I purchase a business with the end in end, meaning I buy a business with the mindset that I will sell the business in the future. Every extra $1 in profit I make today, is adding an extra $3 in valuation of my company.
Finding the right business will take time, so be patient in finding a good business you are passionate about and see a roadmap for growth. There are several brokers who list online businesses for sale, but usually you will be able to find them all congregated on buybizsell. What’s great about acquisitions is that with the Internet growing so quickly, banks are willing to finance up to 85 percent of the purchase price.
Now is the best time to buy an online business. There are numerous opportunities to grow an existing brand and automate it so the business works itself. With the existing brand comes refined strategies, products selling well, customer lists, supplier relationships and data you can use to improve the business. Go ahead and leverage all the successful attempts and failed mistakes to buy a cash generating business.