Just a toe in the water or dive straight in? Buying an eCommerce business

Just a toe in the water or dive straight in? Buying an eCommerce business

The new favoured investment of many busy professionals is the acquisition of online businesses, because of the generally higher yield than real estate or share portfolios. Additionally, in view of their own demanding time commitments, one of their key selection criteria when deciding on an e-commerce business for purchase is that once the deal is done the website on which the business is founded, along with the revenue stream it produces, can be largely self-managing.

On the other hand, many retired or semi-retired ‘baby boomer’ investors like me achieve a great sense of engagement from acquiring online businesses where they can see a potential for growth and improvement, drawing on their own active involvement in the development of the business.

So, fully understanding the level of ongoing time investment which will be needed over the long-term, whether minimal or fully actively engaged, is a critically important consideration in buying any online business.

We all understand the process of buying real estate for investment, or a conventional goods or services business. We have a good sense of the selection criteria to apply in choosing an investment, and the due diligence needed before making a final decision. However for many investors, e-commerce businesses are unknown territory so there is an understandable tendency to play safe and avoid risk by beginning with only a low-cost entry investment to test the waters.

Yet, an overly cautious entry is not necessarily the wisest strategy. The lowest prices are obviously attached to lower-performing and lower-yield businesses, which may or may not have strong growth potential. If the potential is genuinely there, then a corollary of the very modest financial investment will be the need for a high buyer engagement level and ongoing time commitment.

So let’s look at how it all works

Essentially the success of the online business you are considering purchasing depends on the traction gained by the website itself. Generally it is high quality, engaging content that drives regular and growing traffic to the site. Many highly successful e-commerce businesses largely outsource the content to paid freelance content writers. Good content writers are readily available in virtually any field and constitute a very affordable operating expense if the website is established and running effectively.  Of course, many business owners either write or edit the content themselves, and often find this direct involvement essential to their sense of engagement with the business. This discretionary control over the level of the buyer’s personal time investment is one of the most appealing aspects of online business acquisition.

There are different types of revenue streams which a successful web-based business can produce, assuming that it is not seeking to sell its own unique product inventory. (Inventory-based businesses which develop and sell their own products in an online environment, or hold the rights as a franchise or official reseller, are in a different category and are not considered in this article.)

The balance of content compared to product marketing varies, and it is important to understand how your potential e-commerce acquisition currently profiles itself. Most commonly the niche content area, just for example boating and fishing or health and wellbeing, is the ‘shopfront’ and the interest generated by high value and continually updated content is what draws the potential purchasers to the site. Encouraging visitors to subscribe to a regular email bulletin is a good strategy to build regular follower numbers. In this profile, the marketing of products is presented as a sideline service and it is essential that promoted products are tightly linked to the niche content, which is the drawcard.

At the other end of the spectrum are the e-commerce sites which directly foreground a vast range of products within an identified interest area, for example skin care products. Again, none of the inventory is owned or handled by the seller. Profits come from the margin between the price paid by the customer and the wholesale price charged to the seller. Alternatively, the profit may be in the form of a commission paid by the manufacturer or, more often, the wholesaler. It is important to understand that profit margins are characteristically small and this e-commerce model generally depends on large volumes of sales.

Using Dropshipping, the visitor/customer purchases directly from the website. The business then purchases the product from a third party (wholesaler or manufacturer) and has it shipped to the customer without ever handling the product itself. Customised product labelling, packaging and delivery branding enables the selling of items which are presented as part of an in-house brand with their own SKUs or Stock Keeping Unit numbers unique to the business.

Even in this model it is generally crucial to success that the customer experience is enhanced with substantial blog content, outsourced to freelance content writers, and often with other incentives such as online product advice when a customer submits a query. Commonly in this model the business will be competing with other sites selling the same products and because there is no viability in competing on price, success depends largely on competing on the basis of providing a highly positive customer experience. Search engine optimisation (SEO) is also crucial here for building customer traffic, but this again is a skill set which is outsourced and not particularly expensive to obtain. Cross-promotion is often established, whereby advertising material such as ‘gift cards’ for another business in an unrelated niche is included in your product packaging, on a reciprocal or even paid basis.

If your online business is geared up to sell items with your own branding, even though the same item is marketed by other e-commerce businesses, then each item will carry its own SKU or barcoded stock keeping unit unique to your own site. Often but not always, e-commerce businesses which use this model for branding and delivery still have an interest-based website which is heavily dependent on quality niche content. There are some highly profitable sites with only a small number of SKUs while others, for example in the apparel and accessories niche, may have hundreds of SKUs.

So how do I choose my investment business?

Clearly the current profitability, or the potential profitability you can see, is the Number 1 criterion. Revenue is not the issue. Net profit is. Ensure the seller is fully transparent about all costs, including all outsourced services. Accurately knowing absolutely all of the business costs which are entailed is crucially important. You can buy e-commerce websites even on eBay, but that would leave you completely exposed to unscrupulous sellers, of which there are many.

As a guide, expect to pay around 24-30 times the audited monthly profit (or 2+ times the annual profit) for most e-commerce businesses, although there are many variables affecting this figure. Check what expertise, for example experienced outsourced content writers, are coming with the business. Factor in a ‘passivity premium’. That is, if it’s unnecessary for you to invest an enormous amount of your own time managing the business in an ongoing way, then it’s worth more financially than if your own time and expertise is a major investment cost.

Generally, it is wise to consider only businesses with an established record of consistency and growth. Ideally, be assiduous in trying to understand why the seller is selling. There are many possible reasons for the sale, beyond profit-taking. Knowing the background to this may be important in your final decision. Has the business already ‘peaked’ perhaps? Having a precise task-matrix of the current owner’s involvement is a key to assessing the cost of replacing the owner’s time and expertise. If you don’t want to take this on yourself, is it outsourceable and if so at what cost?

It is vital to know what exactly is being transferred with the purchase. Will existing product supplier agreements and merchant processes transfer with the business or do they remain with the current owner personally? If so, that is a potential deal killer.

Approaching this whole investment evaluation process in a positive way, it’s actually pretty engaging and energising. It’s been kind of fun for me. In my case I’m looking for active involvement in a niche content-based e-commerce website where I can personally do much of the writing and editing, while outsourcing the website optimisation to others. Looking at the some of the offerings on Flippa and imagining their potential and their ‘fit’ with my personal interests is exciting. 

Survey the surroundings, but finally it’s best to dive straight in

Invest just a small amount too over-cautiously and the outcome isn’t likely to be all that spectacular. I’m going to be responsible with the investment amount I’ve set aside – but no toes in the water for me. I’m ready to jump in now. Good luck with your own investment journey!

 

There’s no such thing as money for nothing – but this one comes close!

There’s no such thing as money for nothing – but this one comes close!

If like me you’re interested in creating a rewarding website-based business, then this particular pathway can generate a lucrative income for relatively little investment of money or time, with the potential for eventual sale at a substantial profit.

Why this opportunity is so different

In a traditional commission arrangement, you sell something which isn’t yours and receive a commission from the owner of the goods or service. We all understand that. It goes without saying that you are actually working at some kind of job which provides the platform for this incentive-based remuneration.

But imagine if you had a set-up which produced automated online referrals to a seller, who then paid you a commission on anything that was sold as a result of your referral. You have no real costs entailed. You don’t own the inventory or pay the cost of the storage and delivery systems and you don’t have any accounting to manage. You just get paid for doing almost nothing.

The basic requirement is that you need to set up, or buy, an effectively functioning website that draws regular traffic. Once that’s been achieved, you’re well on your way to owning a potentially highly profitable ‘Affiliate Business’.

What is an Affiliate Business?

So what is an Affiliate (Advertising/Marketing) Business and how does it work? Well, Amazon Affiliate is only one of the many enterprises now operating in this space, but as it was one of the first and remains the largest let’s look at Amazon primarily.

Becoming an Amazon Affiliate business is as simple as registering with Amazon at no cost and then you begin promoting literally any of the products Amazon handles and you get paid a commission on all sales which emanate from your promotion.

How does it work?

The infrastructure for this is amazingly simple. You have a website which features products relevant to your audience. When a website visitor clicks on a product profile, created by Amazon with no work involved for you, this creates a 24-hour duration cookie. Now here’s the exciting part. You get a commission on anything at all that the visitor buys from Amazon in the next 24 hours, not only the items you were actually featuring.

Simply to illustrate, let’s say you have created or acquired a website that features boating and fishing tips, news and stories. On a current post, you have an engaging and informative article on how to choose the best fishing reel, having regard to the fact that these vary in price from around $40 to well over $1000.

Using an extremely simple process you embed Amazon’s own seller descriptions for some of these items, enabling your visitors to click through the links. That’s all there is to it. Tracked by the 24-hour cookie if they then buy anything at all on Amazon over the next 24 hours, including download services, you get the commission. This includes expensive high-end items totally unrelated to the direct content of your website.

Think of it as being paid by a business for your online version of a ‘word of mouth’ recommendation. The actual commission structure is quite complex and strongly rewards higher volume sales, with a peak commission of 8.5%. But even a single sale will earn you 4%.

Is Amazon Affiliate the only option?

No, not at all. There are numerous providers of Affiliate Marketing programs. It’s important to do the research and decide which will work best for you and your website niche. Whether you decide to hook up as an Amazon Affiliate or commit yourself to an alternative targeted ads partner like Google’s AdSense, it is obviously important to understand the commission structures and to do the due diligence so you don’t get caught not understanding the Terms of Service (ToS) arrangements.

For a beginner in this space, Amazon is a very safe place to start because it has massive inventory in virtually every market niche and has a very high level of customer trust when it comes to making an online purchase. You can always migrate to an alternative program later.

Some things to consider

Always carefully check and observe the Terms of Service provisions. While Amazon, for example, makes the setting up of the Affiliate Business arrangement pretty simple, they don’t hesitate to embargo you if you breach a condition, such as making sure to never state a product price or specification within your own website content. And once embargoed, it is close to impossible to be reinstated!

Setting up the relationship and commission payment arrangements is fairly straightforward, but because of stringent identity checking requirements, it takes a bit of effort – more than setting up an Airbnb host account, for example.

The real challenge is to have a website which will attract traffic of the right kind and in sufficient volumes. Amazon will require the details of your website/s as part of the initial registration, but there is no stringent website quality checking on their part. At the end of the day if your website doesn’t attract sufficient traffic to re-direct to Amazon products or services in any great numbers, then all that means for them is that they won’t be paying out much commission.

Naturally, you want your website to be of the highest possible quality anyway and to feature regular posts of interest to engage your target audience. The more clearly you can define this niche and then concentrate on developing quality content for that audience, the better.

Personally, I like this Affiliate Business model because it genuinely rewards the creation of high-quality websites, including blog/vlog sites, and provides monetisation rewarding the level of audience traction gained. All of this at no additional cost to you and with the potential for very substantial commission payments.

Initially, you may be covering only your website hosting costs, but once you create and sustain good quality content with precisely targeted affiliate ‘advertising’ you may be earning enough to pay freelance writers for a great range of engaging content. Eventually, there’s a real potential to earn more than a good salary and start paying off the mortgage at a stellar rate!

Producing high traffic to make your affiliate advertising take off

It’s essential to have a website in an area of genuine interest for you. Authenticity of interest will enable you to work effectively with commitment and enthusiasm and will provide sustainable motivation for the long-term, or until you sell your website at a good profit!

High traffic can be produced if your website is in an area of interest to a large number of people, for example, a site on pet welfare and nutrition. Think of the enormous range of relevant products you could be ‘advertising’ in this context. While more narrow interest areas may produce lower traffic, there may still be a very high level of potential buyer interest in higher-cost products that you have sourced and can promote.

If you have your website up and running already, then linking it in as an Affiliate Business with Amazon or another partner is a prospect really worth considering. Alternatively, you can plan and create a website in an area of authentic interest for you but intended from the outset to be pitched as an Affiliate Business.

Would I consider buying an existing website and turning it into an Affiliate Business?

Yes, this is an intriguing and genuinely exciting opportunity which I’m currently exploring for myself right now. It’s also worth considering the acquisition of an already existing Affiliate Business which is up for sale, if it’s currently operating profitably or better still if you can see it’s got high potential yet to be realised.

It’s true, there’s never money to be made without any effort at all. The trickiest part of the Affiliate Business model is choosing a website niche that genuinely suits your interests and developing it as an affiliate advertising platform. Generating high-quality content and managing your SEO is the key to high visitor traffic and conversion to the click-based commission revenue. Ultimately the yield will make the website profitable and self-sufficient enough to support paid content writing. That will free you up to start your next website in a different niche, working towards your ultimate goal of building an Affiliate Businesses portfolio.

How does Broker Matching work on Flippa?

How does Broker Matching work on Flippa?

Flippa’s business broker network

Flippa partners with a world-leading network of business brokers. Each of these brokers has been reviewed by Flippa and hand-picked to represent our ecosystem of high-value business owners. We’ve chosen them because we believe they can help you better prepare your business for a sale, liaise with buyers and ensure you get the most out of the Flippa platform. When you join and choose to list your business for sale on Flippa we offer two options; either ‘Self Service’ or ‘Broker Matching’. The big difference between the two relates to the value of your business. Businesses over a certain value will tend to require a little more time and effort to sell and a broker is there to help. They’ll take on the process. They will work review your valuation, work with potential buyers, help prepare critical paperwork including the necessary prospectus, field offers and manage the DD process which can often be time-consuming and cumbersome.

So how does Broker Matching work? 

If you choose Broker Matching Flippa will:

1. Review and categorise your business Flippa will ensure your business meets the relevant criteria, request some additional detail including a current accountant verified P&L and ultimately categorise your business by size.

2. Match you up with up to three business broker This part of the process involves us reviewing our broker profiles and ultimately picking the most relevant broker for you. We’ll tell them a little bit about the business and review their fit.

3. Invite brokers to review your business and register their interest Once they’ve been assessed for fit we’ll invite them to formally review your business. They’ll sign an NDA and be given access to some key data.

4. Set up a ‘Meet the broker’ call Finally, it’s your chance. Talk with up to three brokers and make your decision. Once you have decided your listing will be converted to a ‘Broker Managed’ listing. Your success fees are fixed unless they have otherwise been negotiated, and from there, brokers will handle the Flippa marketplace and associated services.

If at anytime prior to your listing being converted you wish to opt for self-service instead simply contact [email protected]. Good luck. It’s a big decision to sell your business and regardless of the service you select Flippa will be with you every step of the way.

Flippa adjusts pricing and adds key services as it evolves to service high value digital businesses

Flippa adjusts pricing and adds key services as it evolves to service high value digital businesses

At Flippa, we are always looking for ways to add value and we will always add new features to support our growing ecosystem of business owners, buyers and the brokers who often support them.

 

Over the last few months we’ve been working on several ways to improve our seller and buyer experience. This has included the introduction of Flippa Escrow, high value business sales, dedicated account management for both sellers and buyers and the introduction of a broker program. Moving forward, we’ll also be investing for efficiency and to protect the integrity of the marketplace. This will include:

  • ID verification to assure buyers and sellers
  • Seller declarations to pre-qualify business inclusions
  • In-platform buyer / seller messaging services
  • An easy to use profile creator

And today, we are announcing new pricing plans designed to better suit our three core services. The new plans take effect effective immediately – Monday 5th November 2018 and are as follows:

  • Asset Sales including the sale of a domain, app or starter site, i.e. something not generating any revenue, can be sold for a listing fee of $25 and success fee of 10%.
  • Self Service Business Sales  is best suited to profitable businesses with a minimum six month trading history. Sell for a listing fee of $200 and a success fee of 10%.
  • Broker Supported Business Sales will match you with a specialist broker. Best for those with annual profits of 200k+. Sell for a listing fee of $200 and a success fee of 15%.

The 10% success fee on Asset Sales and Self Service Business Sales is a reduction. This was previously 15% for Credit Card payments and 12% when using Flippa’s escrow service. Flippa still absorbs the escrow transaction cost.  

 

Note: Pricing and fees are in USD. Your sell price should always be in USD.

New Services – Buyer and Seller Management

We’re pleased to announce that Flippa has introduced Buyer and Seller Management services. These services are free and designed to streamline the sales process for you.

  • Buyer Management takes the hard work out of the search. If you are looking to buy a business over $50k, simply schedule a call with one of our buyer managers here. They’ll learn about your needs and explain the matching process. They’ll then search for businesses on your behalf and will act as matchmakers.
  • Seller Management takes the hard work out of the matching process. This service is designed for businesses priced over $50k. You’ll be matched to an account manager post listing and your account manager will ensure your profile is optimised and that buyers are verified before they are put in touch. They’ll be by your side every step of the way.  

Coming Soon

We’re excited to announce that we will soon introduce two new services designed to improve the integrity of the Flippa platform – we take the security of our customers very seriously:

  • ID Verification. Flippa has partnered with the award-winning Jumio to ensure that both buyers and sellers are verified before listing or making an offer for a business. This service will be released in November 2018.
  • Platform Messaging / Negotiation. Flippa is working on improvements to the existing messaging functionality. This will enable in-platform messaging and negotiation to ensure buyers and seller private contact details remain confidential and that all communications are confidentially and securely stored. This service will be released in January 2018.

Helping to support the thriving business sales ecosystem

We’re excited by the progress we’ve made in recent months. We are proud of our history as an asset marketplace but we have evolved. Our vision is now to service buyers and sellers of businesses globally by connecting all parties, key services, and facilitating the end-to-end business exchange in a trusted and efficient environment.

 

Tips for first time buyers: You’re about to acquire your next business…so, move everything to the cloud (and take advantage of the migration to SaaS)

Tips for first time buyers: You’re about to acquire your next business…so, move everything to the cloud (and take advantage of the migration to SaaS)

If you and your business are already big users of SaaS based tech then you’ll know exactly what that means and how you’re using it. If so, then you certainly won’t need to read this article. If at the other extreme you think you’re not using Software as a Service at all yet, you’re almost certainly wrong about that. At the moment Dropbox, just for example, is rapidly heading towards a billion individual active users globally, with most of them still on ‘freemium’ access. STOP STORING FILES ON YOUR DESKTOP. Given the stellar SaaS advantages, small business and corporate-based paid premium Dropbox usage is sky-rocketing. So the odds are that you are already, at the very least, using this particular iteration of SaaS very regularly. If your business or start-up enterprise is to prosper, then one key essential is to understand the benefits and costs of the numerous SaaS offerings and lever these to your best advantage.

How much time should you be sending on this?

Chances are that regardless of whether you are selling products, services or personal experiences, your business is based largely on your own and your team’s communication and people skills. So the question is, what proportion of your time should you be spending on managing your IT structures when this isn’t your core business, your passion or your skill set? The answer is obviously, as little as possible. And this is where SaaS comes in.

If you decide to go largely stand-alone or ‘on-premises’ with your IT management then you are committing a significant proportion of your available time and resources to maintaining the currency of applications; creating adequate, retrievable and shareable data; and ultimately taking on the burden of servers, storage and network sharing capabilities. That means you won’t have the time you need to develop your real business – or else you’ll need to hire a specialist in-house IT person or small team, which even if viable isn’t cost effective.

There are intermediate options such as Infrastructure as a Service (IaaS) which comes in at the network sharing stage and provides the external servers and storage. However, it is generally much better to commit from the outset to fuller scale SaaS, which externalises all applications and data management. This enables you to concentrate on core business and to be free of software access constraints so that with no downloaded applications to manage and keep updated you can work from virtually any computer or device in the world, along with other members of your team. The cloud application services, managed by a third-party provider, are run directly through the internet web browser and don’t rely on any downloads or installations by you at all. That means that ‘on the road’ functionality becomes exactly the same as ‘on premises’ functionality for you and every team member.

What are the main advantages?

So, the major advantage of using SaaS is that it frees you to devote your time to what you are really passionate about and trying to achieve in your venture. It’s a great way to launch e-commerce with no software or server issues, no need to buy expensive downloaded software programs, no problems with access from mobile devices, and unlimited capacity for real-time data and document sharing with team members.

SaaS takes on the management of virtualization, in which a local workstation operates exactly as if it was using an installed application without this actually being the case. Additionally it enables users to remotely access their own personalised desktops from any device in virtually any location. Hardware virtualization ultimately enables an off-site third party processor to behave as if was many different individual processors working on the same hardware from team members’ own locations. The advantages include greater efficiency and lower costs as team members can access the company’s networked information from anywhere, embracing the increasingly expected (because cost minimising) BYOD approach.

What about the cost?

The costs of using SaaS are generally very manageable with the key advantage that levels of service access, data storage limits and the like, can be adjusted at any time. SaaS is commonly used to deliver business applications such as accounting programs, customer records software including management of orders or bookings and, for larger businesses, HR management software. Automated multilingual versions of documents can be included. There is obviously much lower up-front cost, as you are essentially renting rather than owning the asset, virtually immediate set-up and access as the applications are already fully configured in the cloud, and there are automatic updates and easily managed scalability, with plan upgrades (or capacity downgrades) adjustable on demand. This flexibility is a great advantage and there is essentially no significant hardware, software or server depreciation to be factored in.

Are there any disadvantages?

There are really very few disadvantages of SaaS. The initially understandable concerns around data security breaches are not really well-founded, as the enormous success of cloud-based accountancy provision such as Xero attests. However, the dependency of SaaS on uninterrupted fast internet connectivity, plus the potentially lower speeds compared to on-premise user applications can cause some occasional headaches.

When you are ready to choose your SaaS provider, then as with any contract it’s a case of ‘buyer beware’. As with everything, it’s easy to enter into a provision agreement but it can be much harder to exit it. In particular, carefully check the provisions for exporting your data to another destination of your direction if you leave that provider – and ensure that the export will be in a standard format which will enable it to port over to another SaaS provider.

Migrating data can be very costly in terms of time and money. That’s why it’s a good idea to move your own business data to a SaaS provider from the very outset or as early as possible. There is no definitive list of pre-eminent SaaS providers, partly because most of them specialise in a particular market segment. Request Service Level Agreements (SLAs) from a few providers and carefully cross-reference them, as well as verifying the vendors’ reputations and their customer reviews. Try to make contact with a couple of their clients directly and find out what they have to say about their experience of service reliability and technical assistance. Compare pricing plans and remember that if a provider’s prices and the promises seem too good to be true – then they almost certainly are!

Influencer Series: Matt Raad eBusiness Institute – How to start out on Flippa

Influencer Series: Matt Raad eBusiness Institute – How to start out on Flippa

This week, Flippa CEO Blake Hutchison sat down with Matt Raad as part of our Influencer Series to discuss buying online businesses.

 

Matt is the CEO and Co Founder of eBusiness Institute and with wife Liz, they have been recognised as Australian experts in buying online businesses. Their courses help students to look for businesses that they can buy and build and their platform of choice is Flippa.

In this video interview (see below) he reveals some key insights. In referring to their live events Matt remarked about the ease of using Flippa. “When we run a live event, we love getting onto Flippa and we do it unscripted. We are pretty much guaranteed to find a good deal” (2m:34s).

What are your favourite types of businesses?

“We like sites that sell advertising and the next level (up from here) would be affiliate sites, so sites where we promote a product and then (earn money) get a commission if someone buys it.” (3m.40s). Matt also discusses Ad Sense websites and the success he’s had with those. “It’s where we started and we have made a lot of money. What we are seeing now is that where those Ad Sense sites are in good niches, there is a lot of opportunity.” (3m:15s).

Should you be interested in the subject matter?

“It’s nice to start out in your passion but the reality is you don’t need to once you know how the system works” (5m.00s).

When it comes to website audiences Matt mentions that he loves finding sites that he can drive traffic towards. “On Flippa if we can find someone that’s owned a website for years and they were really passionate about it (but couldn’t figure out how to make money out of it) and they have a bit of an audience following, that’s gold. That is what we want” (4m:28s).

Blake and Matt spoke a little about Amazon and the various business models.

Matt remarks that he’s less familiar with ecommerce but that doesn’t detract from his ability to make money from Amazon. He likes affiliate businesses. Matt gives the example of a dog products reviews website. He notes that an Amazon affiliate revenue stream, in this example, is where reviews of a particular product might convert to an interested customer. In this case, interested customers click off and buy. Where they do buy, the website owner is paid a commission. “A reviewer might do a review of a dog bed and (on that basis) say to customers, ‘BTW if you are interested in this dog bed here is where you can buy it on Amazon’” (9m.38s).” If the customer then clicks this link it is tracked and Matt is paid a commission on the sale of between 4-8%.

For more information around how Matt buys websites on Flippa and monetizes them, watch the full interview below.

Matt Raad is the CEO and Co Founder of EBusiness Institute Australia, a digital training organisation and is passionate about helping others to buy online businesses. Check Matt’s website to learn more or you can connect directly with him via Linkedin.