Your eCommerce business is, in many ways, like your home. Many people purchase a home with their partner when they decide to settle down and build a life and family for themselves. Very rarely do you see couples choosing a home solely based on resale value. The same may be true of your eCommerce business, and more often than not, people start an online business either because they are passionate about something or they stumble into it while trying to do some spring cleaning. In any case, very few people go into eCommerce with the clear goal of selling a thriving business to another seller for a hefty profit. But at some point, many people do want to sell their starter house and upgrade, but what about:
– the old picket fence
– the paint peeling off the walls
– and the driveway which needs to be repaved?
Many times you can fix these things yourself, or hire a contractor for a very reasonable price and fix these flaws to sell a home that otherwise would have sold below market value for a very nice sum. The same can be said of an eCommerce business, the sale of which should be well thought out and planned for. Renovations are almost always in order before putting your business on the market. In this article, I will provide you with five ways that will help you increase the value of your eCommerce business in preparation for such a sale.
Take action and create additional value for your business
Here are five things you can do to increase your eCommerce business’s value in preparation of an imminent sale:
1. Know the value of your business – A future investor will most likely want to purchase a business that has been profitable for the past 12 months, which reflects on the potential for future profitability. You’ll want to determine your Free Cash Flow (FCF), which is basically your business’s earning minus expenditures. Once you have this, you will know how much income your business is bringing in every month and can price it based on the projected interest on investment. Consider the following example: Brad has an eCommerce store. He sells shoes which are hand-made in Milan. After import tax and overhead, he makes $25 per pair. On average, he sells 100 pairs of shoes a month, meaning his business’s net income is $2,500. In my professional opinion, especially if the business has a proven track record, Brad can easily ask for $150,000 for his business. The future buyer will be making $30,000 a year, meaning he will reclaim his initial investment in a mere five years at a rate of 20% Return On Investment (ROI). On the surface, it seems quite simple, but pricing eCommerce businesses does have its intricacies since, unlike brick and mortar businesses, many eCommerce stores have a shelf life, which can be hard to determine ahead of time.
Bottom line: Having these financials in place and a ballpark idea of what your eCommerce business is worth already puts you in a strategic position of power to begin negotiations for the sale of your business.
2. Increase conversion rates and revenue – Once you realize how closely linked the value of a company is to its monthly revenue, you may reach the following logical conclusion: In order to increase the value of your business, you need to increase your monthly revenue stream. There are a few tactics you can employ in order to improve conversions:
– Try to gather as many email addresses as possible. However, do not force email-based registration before checking out, as this can cause unwanted friction and actually increase bounce rates. Instead, consider using a ‘lead magnet,’ such as an eBook. When you provide value that customers actually want, they will willingly hand over their contact info. Create a pool of emails and use email marketing, which has been proven to be the single-most effective form of marketing out there.
– Try to isolate the top three reasons for cart abandonment on your site. Is shipping too expensive? Are there too many barriers to letting someone checkout? Is there not enough social proof, which makes buyers uneasy and lose trust in your brand before they pull out their credit card?
Bottom line: Identify the issues in your sales cycle and optimize them in order to increase your monthly revenue as well as the future value of your company when you decide to finalize a sale to a third-party.
3. Expand your brand – I was recently reading a book called Homo Deus, which I highly recommend. In any case, they were discussing how brands in modernity have taken on personas of their own. They have legal rights and can even file for bankruptcy. Brands are modern gods, and if they are successful, they can span over the course of many generations, even if the person who founded them has passed away. A prime example of this is Coca-Cola, which was incorporated in Atlanta, Georgia in 1892 by Asa Griggs Candler, who, honestly speaking, none of us has ever heard of.
Mr. Candler is gone, but his brand is still the leading beverage conglomerate on planet Earth and will be for the foreseeable future. When you have a strong brand that helps differentiate you from your competitors, this adds value to your business. Things you can do to help strengthen your brand identity:
– Brand narrative – All good brands have a strong brand narrative. Coca Cola’s narrative is ‘Coca Cola, the taste of life,’ even though their formula is toxic and extremely unhealthy (though I admittedly drink it regularly). But they have you believe that when you have a cold glass of Coca Cola next to your meal, everything tastes better. And it’s true that if a restaurant doesn’t carry Coca Cola, I am quite disappointed. Find your narrative and incorporate it wherever you can.
– Visual cohesion – A brand does not only have to sound like itself but should also look like ‘itself’. You need a logo, colors, and an aesthetic which markedly differentiates you so no matter where someone sees one of your products, they know it’s yours.
Bottom line: Established brands create value for their current and future owners, taking on an independent persona.
4. Business Automation – This is a term that is thrown around a lot with very little substance, but I truly believe that automating large parts of your business will increase the value of your eCommerce business. A classic example of this is using an eCommerce CRM, which can help you manage your entire customer service cycle in one convenient place, using automated responses and templates. Once you have automated such a large swath of your business, as in the case of customer support, you will be allowing a future owner enjoy the benefits of maximum profits with minimum effort. It won’t quite be considered ‘passive income,’ but it can definitely increase your business’s competitive edge when it hits the classifieds.
Bottom line: Consider automating your customer support or inventory management in order to attract future buyers who want a business that is comparatively more autonomous than its competitors.
5. Inventory revision – Every business needs a little spring cleaning every now and again, and what better time to do this than preparing for an imminent change of ownership? I recommend you review the numbers relating to each and every item you have in inventory and ask yourself the following:
– How long does this item sit on the shelf compared with others?
– Does this item generally net me positive or negative eBay feedback?
– What are my profit margins here?
– Is this a heavy or large item which I offer free shipping on, and am I therefore disproportionately investing in this item when I could be investing in an item with larger margins and lower shipping costs?
Once you identify the white elephants, and I guarantee you there will be some, as there always are, I recommend you get rid of the dead weight and replace those items which are similar to the ones that have historically been successful.
Bottom line: Get rid of products that are holding up your cash flow, items with low conversions and high associated costs. Stick to lightweight, high-converting items and their bedfellows.
A word about the author:
Nadav Roiter is a published writer and a Jerusalem Post freelance journalist. Formerly part of the CrazyLister content team, he is now the Marketing Manager for Subivi eCommerce CRM, which has developed a customer support tool uniquely built to help eCommerce sellers offer stellar customer support while simultaneously maximizing profits.