From time to time, I get emails from customers saying that they have decided to move on from having an online business and they are wondering if I can tell them how much their online business is worth.
Business valuation is a tough one and we certainly are no experts in that arena. But we do have some insights on the topic. Here are some of the factors that a prospective buyer will likely consider in determining what they will pay.
1. Customer Base
There is no question that a large and active customer base is a great asset. If you have 30,000 account holds on your website, that would likely have value to a prospective buyer. Building a customer base and continually communicating with them is an important practice on many levels.
You need to consider whether you want to sell just your website or all the product inventory that goes along with it. Some buyers will be quite interested in your inventory and others will just want access to your customers.
As you know, investing the money in a professional website as well as the time to build out all the content is significant. Buyers who are knowledgeable about what it involves to build a full-featured site will understand the value.
4. Domain Name
A great domain name could be worth as much as anything else you have to offer. Of course, you need to have a really awesome name. The market for domain names has declined from the fervor in the early 2000s, but a solid name still has value.
5. Brand Recognition
If you have been successful in building some recognition for your brand and business that will be worth a lot. If you have done nothing to contribute online and establish your brand in your industry, you likely won’t get much of a bump.
6. Revenue and Financials
As with any business transaction, the value often comes down to your financial statements. That is no different with an online business. Be prepared to show sales data and financials to prospective buyers. Here is a blog post from our friends at Practical Ecommerce that gets more into the financial valuation side of things:
7. Traffic and Search Placement
A buyer not only wants to understand your current financial position, but they are going to do their best to determine whether a business acquisition is going to grow and prosper in the future. A strong signal (assuming they are wanting to take over your website) is your site traffic trends. If your traffic is consistently trending upwards, that is an important factor.
Related to your traffic is your current search engine placement for important phrases. If you can show that you have established your website in the search engines, that can be worth quite a bit to a buyer. We all know that strong organic placement is not an overnight process!
One of the key elements for any successful business is a clearly defined exit strategy. Although it is very hard to determine exactly what someone else might pay for your business, we encourage you to start thinking about the factors we have listed so you have a compelling package to offer when the day comes for you to test the waters with putting your business on the market.
If you have sold or purchased an ecommerce business, I would be quite interested to hear your thoughts.