We are living in a time when being a successful business owner is as easy as knowing how to use the internet. We have seen loads of ventures start small and within a short while blow up into businesses worth millions, thanks to the internet. This is also the time when you can skip the exhausting labor of building a business from scratch and simply purchase an already established, profitable online business. Yes, you heard that right; you can buy a profitable ecommerce business.
When we embarked on our mission, we never forgot we were not just looking for a beautiful ecommerce website. We wanted a completely established business that already had operational structures, working business technology, good products, active customers, proven marketing methods, a vibrant online presence, ongoing campaigns, and a team of workers. The aim was to buy a business whereby if we managed it as well as the previous owner did, we would still get the profits rolling in. Granted, once we purchased the business, we could tweak a few things to boost the sales. But the sales record must be present and appealing from the start.
The good thing about online businesses is that there is a variety of ways to prove the numbers; you need not rely wholly on the seller’s version of the story. Keep in mind that a genuinely profitable ecommerce business is likely to be pricey. Here are some of the features we looked at that show whether the purchase was worth the price tag.
• A recognizable brand with a good domain name
• Large numbers of high quality site traffic from varying sources
• A sizeable email list of responsive customers
• The site has multiple income streams
• Responsive and consistent marketing systems
• Consistent monthly revenues over time
There are some businesses that follow a fad, which is only seasonal. Before you get too excited about the numbers of any online business for sale, be sure to ascertain the sustainability of the business idea. We looked at the long term sustainability of the business. Will the products or services stay in demand or will the business collapse once people move on to the next big thing? We wanted to invest only in a business with a proven concept and ability to grow.
When we were looking for a profitable ecommerce business to buy, we searched for a niche we thought was interesting as much as it was profitable. It also helped that the business was in an industry we were well familiar with and were committed to learn the aspects we did not already know. As much as the business is online, we understood that it would still be affected by the industry rules.
This may come as a shock, but high revenues do not always translate to high profits. We understood that every business has its costs, which include licencing and permits, taxes, operational costs, financing among many others. Therefore, we wanted to know all the costs of running the business in order to determine profitability. Here are the main factors of profitability that we looked at.
This is the amount that you are left with when you take away the cost of the goods sold from the revenue. In most cases, the cost of goods sold (COGS) refers to the cost of acquiring the product without deducting other expenses of running the business, and taxes. In order to get a more accurate figure of the profits we were looking at, we decided to add up the variable costs of the products such as shipping to the COGS.
This refers to the average costs of converting a lead to a paying customer. This cost can be quickly calculated by dividing the total marketing expenditure with the number of customers acquired within that period. We decided to add up paid social media campaigns and marketing software costs to the sum as these can be easily overlooked.
What is a successful online business without periodic discounts? Well, we realized that there is a cost associated with giving out these discounts. The cost also includes the amounts used to promote the discounts so that they are visible to the target customers. Here is the thing; if the discount is larger than the profit margin and the cost of customer acquisition, the business makes a loss. The discount should always be smaller than profit margins, yet attractive enough to lower the costs of customer acquisition. A chartered accountant comes in handy to help with the calculations.
We found out that this was extremely important in the daily operations of the business. Free cash flow I usually a result of efficient business operation structures. This means that the business has a good financial standing with suppliers, all payments are made on time to avoid hiccups and lose out on sales.
There are some strategies that we have proved have quite a big impact in the overall profitability of an ecommerce business.
• Master the art of upselling at the right time, usually just before a customer makes a payment. We achieved this by strategically placing related items, upgrades or accessories that went well with the item the customer was buying.
• What is the lifetime value you are giving your customers? Work on increasing it. We looked at a different marketing strategy. We wanted to know how much a customer has spent over time and adjusted our marketing campaigns accordingly. Remarketing to engaged users increased conversion and reduced the efforts put towards people who would not take any actions.
• Focus on your core KPIs, especially if there is no budget to experiment with other strategies that may result into unprofitable conversions even though they lead to lifetime clients. We realized that when it comes to growing an online business, it is important to keep experimenting with different marketing strategies depending on the niche.
When it comes to investing in a profitable online business, you need to be an expert in interpreting numbers. If you are not well versed in valuating ecommerce businesses, we’d advice that you get an experienced professional to value it for you. You don’t want to pour in your money into a seemingly profitable venture only to close down before you break-even.
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