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Buying an ecommerce website involves much more than just checking out the domain name and your bank balance. You’re buying a whole business model here – from suppliers and logistics, to existing brand assets and SEO. In fact, you need to do a whole set of due diligence checks before you even start thinking about buying an online business. Here are some key considerations you need to take into account before you rush off and buy your next ecommerce side hustle.
Profitability: stock and sales
One of your most important considerations will be the long-term profitability and value of the business. Even if you’re just planning on buying a site and then ‘flipping it’ yourself – keep in mind that you are going to have to prove profitability to the next buyer who comes along.
- Analyze sales data from all angles. Look at average sale per customer, customer lifetime value, monthly sales, conversion rates etc. If you aren’t so good with number-crunching, get someone else to review the data for you. Charts and graphs can really help you visualize information, and get your hands on a set of accounts if you can.
- Keeping in mind that most ecommerce sites sell for circa 2-3x of their annual (net) profit, you’re looking at an annual ROI of between 33-50%. (Date from here). Is that something you can live with?
- What stock are you inheriting from the previous owner? Make sure you have access to a proper stock inventory and go check out the stock PHYSICALLY before signing any paperwork. (Video is the next best thing – pictures can be misleading).
- Why are they selling their business, and why now? This can be a touchy subject, but getting an honest answer can really help you decide whether you’re ready to take on the challenge next. (People have loads of legitimate reasons for moving on, and they might have nothing to do with business profitability or viability).
- How experienced are you? Think realistically about how quickly you are going to be able to have an impact on the business.
What current supplier arrangements are in place? How easily are you going to be able to slot in? Without a reliable supplier, your whole business will collapse, so do your supplier homework!
- Look at the current supplier terms, the length of the relationship, and any recent correspondence. How well have any issues been handled by the supplier? Could you cut a better deal if you tried? Here are some handy supplier management tips if you’re new to ecommerce.
- Try to get in touch with the supplier yourself if you can – can you see yourself doing business with them? Is their business on a strong footing?
Existing search assets
SEO and PPC are the two things that ecommerce merchants struggle with the most. A poorly-performing store often has poor optimization (or over-optimization) to blame for its lack of SEO success. Make sure that you audit the site before you sign on the dotted line to get a clear picture of what you’re getting yourself into…
- An SEO audit tool like Screamingfrog will help you determine how many pages are being indexed by search engines or picked up by crawler bots. Use the audit as an opportunity to survey site wide metadata like page titles and meta descriptions, and have a peak at page headings whilst you’re at it. Look for signs of over-optimization. Have a plan in place for potential on-page SEO improvements.
- Check the store’s backlinks and make a note of anything that seems manufactured or potentially risky. You don’t want to inherit someone else’s bad SEO habits, so spend time delving into the site’s backlinks.
- Try to gauge how well search engines have responded to the site so far: look at metrics like domain/page authority, trust/citation flow, and most importantly, keywords in Google (you can use a tool like SEMrush for this). The number of keywords in Google is secondary to the relevance of those keywords to what you’re selling, and the current rankings for those relevant keywords. If this metric is surprisingly low, it could be a sign that search engines haven’t reacted well to the site or that it’s a penalty-risk.
- Are they currently paying for any PPC? How much are they spending, and how well is it converting? PPC can easily inflate sales figures – be careful and check that there aren’t any expensive campaigns running in the background.
- According to yeah-local.com, “Try to get full disclosure on what SEO has been done on the store. Get the names of any previous SEO providers and clarify whether there’s an ongoing agreement, and what access they have had to the site. It’s important to know what’s been done to the site so far.”
Brand equity and customer awareness
When you’re buying an ecommerce business, you’re buying a lot more than just some server space and stock. Try to evaluate how much brand equity and value you will be getting as part of the deal. If the business has no existing customer base and a dozen copycat sites are already on the market – are you going to be able to build a viable income?
- Look across the site’s social accounts for the number of followers, average post engagement, and post reach. Powerful social media accounts can be a big asset for an ecommerce business – helping drive brand awareness and sales. If you’re starting from zero social media visibility, don’t underestimate the time and effort that will be needed to rectify the issue. Existing social proof like online reviews and testimonials are also important – has the brand got a trusted online footprint?As stated by Digital Marketing Agency Absolute Summit, “You will want to manage your social media sites professionally and deliberately to ensure you are reaching as many people as possible.”
- Products will only sell if people have already found the brand and trust it. Most ecommerce stores sell a lifestyle as much as they do their physical products.
- How unique are the products? Are there any trademarks or agreements in place to protect the uniqueness of what you’re selling?
- Aesthetics: how much effort has gone into things like the design of the site? Are the design assets readily available & accessible for any further design work?
- Read support tickets, emails and tweets to start to build a picture of the impression that customers have of the brand so far. Are there customer service nightmares lurking in the undergrowth? Be careful of acquiring a business that hasn’t got a good reputation with its audience – that type of PR can be permanently damaging.
Affordability: time and money
Can you really afford this purchase right now? Be realistic about the time and money that you have available for the project. Be careful about spending money now that you don’t have in the hope of future profit.
- How many staff members are running the business right now? How many ‘hidden’ hours are founders putting in to make the venture profitable? Be wary of entrepreneurs doing 100-hour weeks to keep the lights on – do you want to be doing the same?
- Make a list of all the investments you will have to make to get things off the ground, including purchasing any additional tools, social accounts, staffing, rebranding etc.
- If something happened and you weren’t able to hit the ground running – could you still afford the site? How many other commitments have you got on right now?
Transfer of web assets
Depending on the web environment, asset transfer can be easy or complex. Make sure you cover asset transfer in detail and be clear on turnaround time in any agreements.
- Be wary of involved third parties like web design agencies who may have access to the site or own its hosting agreements. Be clear on who owns what and make contact with anyone involved well in advance to ensure a smooth transition.
- If it’s a self-hosted site built in Magento or WordPress, make sure that there’s adequate hosting in place and try to keep things as smooth as possible during the transition. A transfer of a hosted sales environment like Shopify can be simple, but watch out for any original subscriber terms. Hosted platform costs always start out small, but are quickly bumped up by payments for extra apps: make sure you have an the accurate monthly fee in mind. Watch out for any extra payment portal costs – they can quickly add up depending on arrangements. (If you’re keen on investing in a specific type of ecommerce technology, spend time on user forums and groups to get a feel for the platform and its day-to-day management).
Progression and futureproofing
Is there a future for the business beyond what you can see right now?
- Accessories are very lucrative products – can you start offering these to customers to increase the average spend?
- Consider the SEO growth potential of the site: is there a wide variety of keywords that could be potentially worked on? Be wary of stores that ride on the strength of one product only. What does Google Trends say about the growth potential of your keywords?
- Is this a good niche to get in on right now? Think about what’s happening around you and what’s popular (apps, politics, tastes, habits – they all have an impact).
- Is there a new channel you think the business would do well out of that hasn’t been explored yet? Videos, Snapchat, Instagram, email – if you have an awesome promotional idea, test it out and see what happens.
Buying an ecommerce business that’s already profitable is a lot easier than setting something up from scratch. As well as the points mentioned above, think about why the person selling the business is moving on. It might be best to go through a trusted website brokerage service to help you clarify whether someone selling is ‘for real’. With something like this, there’s not a lot of insurance in place, so it’s best to check with the experts before diving in. Happy hunting!
Patrick Foster, ecommerce writer & marketer
Ecommerce marketer with 10+ years in the industry. I’m currently writing as a side hustle – I love to create content for entrepreneurs and business owners that helps them hustle and succeed.