Ecommerce
Understanding the rise of ecommerce as an alternative asset class
Hey all, 👋🏼
A few years ago, I was responsible for running ecommerce for a major global media brand’s $25 million portfolio.
After getting inspired in my day job, I took the plunge and set up my own ecommerce business.
It was much harder than I had anticipated.
We built all of our products from scratch. And what’s worse - we chose a product that is notoriously difficult to ship internationally: perfumes.
Ultimately the business failed. And if I had my time again, I’d take the easy route.
What’s that? Buying someone else’s business.
In today’s asset guide, I’ll focus on ecommerce as an alternative asset opportunity to help you understand the opportunity and how to get started.
Topics covered:
- A 1,670% return success story
- The data - market, growth projections 📊
- Step-by-step guide to buying an ecommerce business
- Why people sell a profitable ecommerce business?
- Active vs passive consideration ⚖️
- ecommerce sales listings - red flags to watch out for before investing
- Shopping for an ecommerce biz
- Resources and tools
A 1,670% return - an ecommerce investment success story
Let’s start on a high…
Curd-nerd.com is a niche site that was listed on Flippa back in 2017 and publishes content about home cheesemaking – a very niche topic, built by experts in the field and with passionate followers.
These types of sites can be great buying targets because they usually have solid history and high quality content.
This site also had good traffic – around 9,000 uniques per month, but it hadn’t had new content for years and the owner was ready to move on - I’ll run through some reasons why owners sell up later in this guide.
Nathan, an electrician with no prior online experience, decided he wanted to take advantage of the opportunity. And he bought the site for $950.
Two years later Nathan sold the business for US$16,900, which was around 80-81x multiple of the monthly income.
That’s a 1670% return on his initial investment.
Now you might ask, yes, but how much work did Nathan have to do on the site to get that kind of profit? 🤔
Surprisingly, very little, according to Nathan:
“At the start, we did some work on the website. We built a shop on there, we tweaked some things, and lengthened some articles. But I think for the whole time we owned it, we only published four articles. That was about it”
I realise I am highlighting a success story here, and for every success there’s the inevitable failure, but it does demonstrate the opportunities for savvy investors in the ecommerce environment.
Continue Reading...
Let’s start on a high…
Curd-nerd.com is a niche site that was listed on Flippa back in 2017 and publishes content about home cheesemaking – a very niche topic, built by experts in the field and with passionate followers.
These types of sites can be great buying targets because they usually have solid history and high quality content.
This site also had good traffic – around 9,000 uniques per month, but it hadn’t had new content for years and the owner was ready to move on - I’ll run through some reasons why owners sell up later in this guide.
Nathan, an electrician with no prior online experience, decided he wanted to take advantage of the opportunity. And he bought the site for $950.
Two years later Nathan sold the business for US$16,900, which was around 80-81x multiple of the monthly income.
That’s a 1670% return on his initial investment.
Now you might ask, yes, but how much work did Nathan have to do on the site to get that kind of profit? 🤔
Surprisingly, very little, according to Nathan:
“At the start, we did some work on the website. We built a shop on there, we tweaked some things, and lengthened some articles. But I think for the whole time we owned it, we only published four articles. That was about it”
I realise I am highlighting a success story here, and for every success there’s the inevitable failure, but it does demonstrate the opportunities for savvy investors in the ecommerce environment.
Continue Reading...
Let’s start on a high…
Curd-nerd.com is a niche site that was listed on Flippa back in 2017 and publishes content about home cheesemaking – a very niche topic, built by experts in the field and with passionate followers.
These types of sites can be great buying targets because they usually have solid history and high quality content.
This site also had good traffic – around 9,000 uniques per month, but it hadn’t had new content for years and the owner was ready to move on - I’ll run through some reasons why owners sell up later in this guide.
Nathan, an electrician with no prior online experience, decided he wanted to take advantage of the opportunity. And he bought the site for $950.
Two years later Nathan sold the business for US$16,900, which was around 80-81x multiple of the monthly income.
That’s a 1670% return on his initial investment.
Now you might ask, yes, but how much work did Nathan have to do on the site to get that kind of profit? 🤔
Surprisingly, very little, according to Nathan:
“At the start, we did some work on the website. We built a shop on there, we tweaked some things, and lengthened some articles. But I think for the whole time we owned it, we only published four articles. That was about it”
I realise I am highlighting a success story here, and for every success there’s the inevitable failure, but it does demonstrate the opportunities for savvy investors in the ecommerce environment.
Continue Reading...
Let’s start on a high…
Curd-nerd.com is a niche site that was listed on Flippa back in 2017 and publishes content about home cheesemaking – a very niche topic, built by experts in the field and with passionate followers.
These types of sites can be great buying targets because they usually have solid history and high quality content.
This site also had good traffic – around 9,000 uniques per month, but it hadn’t had new content for years and the owner was ready to move on - I’ll run through some reasons why owners sell up later in this guide.
Nathan, an electrician with no prior online experience, decided he wanted to take advantage of the opportunity. And he bought the site for $950.
Two years later Nathan sold the business for US$16,900, which was around 80-81x multiple of the monthly income.
That’s a 1670% return on his initial investment.
Now you might ask, yes, but how much work did Nathan have to do on the site to get that kind of profit? 🤔
Surprisingly, very little, according to Nathan:
“At the start, we did some work on the website. We built a shop on there, we tweaked some things, and lengthened some articles. But I think for the whole time we owned it, we only published four articles. That was about it”
I realise I am highlighting a success story here, and for every success there’s the inevitable failure, but it does demonstrate the opportunities for savvy investors in the ecommerce environment.
What is ecommerce?
A quick definition:
ecommerce businesses refer to online shops, like an Amazon business, that sell items over the internet.
Selling online has fewer overheads than a traditional brick-and-mortar shop.
Over the last few years, e-commerce has grown over 50%, making it an extremely profitable business.
Data
The market size:
The global e-commerce market is expected to total $6.3 trillion in 2023, whilst projected to be over $8 trillion in just another 3 years.
Explosive growth.
% of purchases online
20.8% of retail purchases are expected to take place online in 2023.
In today’s world, most of us already can sense and see the decline (which I personally find a little sad) of the local mall and retail districts.
Almost always now the first touchpoint a customer has with a product or brand is online, and specifically social media.
And there’s no stopping this trend it seems…
By 2026, 24% of retail purchases are expected to take place online
Customers will likely continue to turn to the internet every time they want to make a retail purchase.
How to buy an ecommerce business: a step by step guide
Buying an ecommerce business isn’t something most people do. If you speak with friends or colleagues about investments, the conversation will likely turn to stocks and real estate pretty quickly.
Here’s some criteria for you to use when you’re thinking about taking the plunge and buying an ecommerce business:
1. Private sale vs broker 💭
Think about where to buy it first.
You have two main options: private sale or broker.
In a private sale, you negotiate directly with the current owner. Be cautious though, as there may be lower quality businesses for sale, especially on some marketplaces where the vetting might be sub optimal.
A broker on the other hand acts as a middleman, helping both sides find the right deal.
2. Scrutinise the financial accounts 🤓
When you're considering an ecommerce business, it's crucial to examine its financials, even though it may not be the most thrilling aspect of the purchase.
Reviewing the profit and loss statement is essential as it reveals the business's revenue and expenses. To gain an accurate understanding of its actual earnings, make sure to analyze the statement in the following sections:
- Total units sold and over what time period
- Average cost of an order
- Gross income
- Gross profit
- Expenses
- Net income
3. Understanding the supply chain ⛓️
Before you buy an ecommerce store, you’ll want to understand how it gets the products to the customer.
This is a critical point of any business and will help ensure orders continue to be fulfilled after you are handed the keys to the business.
Confirm with the seller that any supplier relationships and contracts they have negotiated will transfer over to you. You don’t want to find out that a seller negotiated a great rate with a supplier only for them to raise the rates after the point of sale.
Also - speak to the key manufacturers and suppliers before you sign anything. It’ll give you a real flavor of the business.
Digital vs. Physical
And don’t necessarily make the assumption that buying an ecommerce business means buying a physical products business, either. Digital ecommerce stores which sell books, website themes, design files, pdfs and more are all big business.
Try browsing a marketplace like Gumroad to identify opportunities for digital ecommerce products, too.
4. Marketing channels 📣
How is the business getting customers? You’ll need to know:
- Marketing channels - what are the key drivers to get customers e.g. Google search, Facebook ads, social media etc.?
- Costs - how much does it cost to acquire a customer? Let's say they acquire customers through Facebook, how much does it cost and what is the ROI? Ad costs can be prohibitively expensive and eat into margins quickly - and this is one of the most important metrics of all.
- Effort - what kind of ongoing maintenance do the marketing channels require, e.g. if a business gets most of its customers from its blog, where it has long-form content every week, you need to consider who will take that on in the future
5. Technology and design 🧑🏻💻
The way it's built, whether using a platform like Shopify, Wix or a custom design, will greatly impact the operations.
To handle the technical and design side of owning an online store, you'll either need the necessary (coding or designing) skills or consider hiring someone who does (note: you can find awesome people on platforms like Upwork who can do improvements and changes to your site).
Have a friendly conversation with the previous owner and ask about their methods and whether they had any employees or freelancers involved.
As a general rule, running an ecommerce store on a more modern platform like Shopify is far easier than trying to handle it all yourself.
Why would someone sell a profitable ecommerce business? 🧐
OK, so being the cynic I sometimes am, this question puzzled me a lot when I began researching this opportunity space.
Goes without saying perhaps, but there are many scam artists out there who are looking to make a quick buck, but there’s also a huge proportion of ecommerce biz owners who have valid and sincere reasons for selling up:
1. They’re retiring 👴🏼
Not sure why, but I completely overlooked the data related to this point. Think about it - there are an estimated 12 million – 24 million ecommerce sites across the entire globe, with more and more being created every single day.
Many of them are owned by the boomer generation (currently between 57-75 years old) and so are in or moving into retirement and want to sell up.
2. They don’t have the time ⏳
Some sellers are either short on time or prefer investing it elsewhere.
Everyone desires a self-sustaining site that consistently grows and prospers. But let's be real, it's just a wishful thinking. There's no genuinely passive online business.
While some content sites demand minimal effort, all sites carry maintenance risks.
3. They want (or need) to raise cash 🏦
Common scenario on Flippa: "I need the money for another project."
Reasons vary from housing, education, family, medical bills, and life's unexpected challenges.
But there's a distinction between those wanting cash and those truly needing it. Former can negotiate better, while the latter demands sensitivity.
Be cautious in both cases. Sellers may use this as a decoy when there's more to the story. During due diligence, dig deep to confirm the genuine motive behind the sale, not just a cover-up.
4. They’re capitalizing on a spike 💵
Home fitness equipment during Covid soared. If you were selling an ecommerce store in this vertical during this period of time, it’s fair to say it would have been in demand, and as the seller, you might have wanted to sell whilst the iron was hot.
While this is optimal for the seller, as a buyer you can’t assume the good times will continue forever. The key when negotiating a sale on a site like this is to:
- Estimate the normalized revenue based on the expected life of the spike, and
- Calculate a discount factor based on the risk of traffic loss over the next few years.
5. Too much competition 🥊
Selling under such circumstances is a valid choice.
Those who no longer want to compete with new or existing players in the market are content to pass the asset to someone willing to fight for it. This makes it a less attractive investment opportunity, though.
6. They hit a roadblock 🧱
Possible reasons for a business hitting a wall include rising production costs, not having the right skillsets etc.
As a potential buyer, your responsibility is to determine if the obstacle is significant or easily overcome.
If you believe you can overcome the roadblock they faced, that's great, but only you can analyse that.
Active vs passive investing ⚖️
A key investment consideration is always going to be how active you need or want to be in the upkeep, monitoring etc of your asset.
e.g. if you’re selling slippers and you have a fully automated, super slick order and disptach process set-up with high converting Facebook ad campaigns, that could well be a very passive investment.
On the other hand, if Facebook ads become prohibitively expensive to run, you might need alternative marketing channels, which will need planning, executing etc. All of a sudden it’s not so passive.
Hopefully you catch my drift. That’s why, depending on the structure of the business and the products sold, ecommerce can be a fairly active investment. The hope though, as was the case with Curd-Nerd, within a year or so, you may be able to flip your investment and sell to the next buyer.
Question to ponder…
Where would you want an ecommerce business in your portfolio to sit on this matrix?
❗️Caution - red flags to look out for on a ecommerce sales listing:
Legitimate sellers tackle the tough questions head-on, while shady ones swiftly delete and dodge. If you notice a flurry of vanished inquiries, run—no time to walk away.
Red flags in listings you should heed:
- 🚩Failure to include Cost of Goods Sold (COGS) in expenses. some marketplaces have been well aware of this for ages, yet conveniently forget to mention that COGS must be accounted for. So, that "Dropship site making $5,000 per month!"? It's likely $5k before deducting $4,500 for COGS. Same goes for shipping, licenses, advertising, hosting, and taxes—expenses that mysteriously disappear from the equation.
- 🚩Watch out for the pump and dump schemes targeting niche audiences. Don't fall for the "Corgi Sweater Site making $5k, 2 months old" trap, which won't sell a single item beyond month three.
- 🚩Don't overlook the time commitment required from the owner. Beware of claims like "Hands-off/autopilot site making $9k/month" while casually admitting to spending 25 hours a week on it. Say what now?! I think it’s best to do a best, medium and worst case of the time you’ll have to spend on the business, so there’s no shocks down the line
- 🚩Enough with the overused phrase "site with massive potential." Seriously, every darn listing seems to feature it. Newsflash: nearly all sites have potential. Stop acting like it's some revolutionary marketing strategy.
- 🚩Sellers without basic commercial liability insurance. call me paranoid, but if your product ever causes harm, your entire net worth could be wiped out. It may be rare, but do you really want to take that risk?
Where can you buy an ecommerce business?
Here you’ll find a list of marketplaces and brokers that will help you discover ecommerce businesses for sale.
For me the biggest watch -out is how much vetting (or not) is done by the listing site.
Flippa
A leading marketplace for buying and selling web businesses and digital assets.
Pros ✅
- Wide range of ecommerce stores and digital assets
- Offers professional assistance in acquisition
- Generates due diligence reports
- User-friendly
- Features options at every price range
Cons ❌
- Doesn’t adequately screen sellers
- You must sign up to view business information
- Business details are withheld across private listings
BuySellEmpire
The BuySellEmpire marketplace connects you to (in their words) high-quality ecommerce businesses.
The options here are not as many as Flippa’s because the marketplace focuses on profitable online businesses that have been: a) generating revenue and traffic for at least 12 months, b) making a monthly revenue of $1,500 and above c) posting their content in English.
Pros ✅
- High-quality web businesses
- 5+ types of ecommerce businesses
- Post-acquisition training
- Lists small to medium-sized businesses
Cons ❌
- A limited number of ecommerce websites for sale
- English-based businesses only
- Limited filtering capabilities
Empire Flippers is a curated online business marketplace that has processed web business sales amounting to $400+ million.
Every single web business that you see listed has been vetted by the platform. Empire Flippers analyzes essential business acquisition criteria such as revenue and traffic data, business expenses, customer base demographics, and company legitimacy.
Pros ✅
- 9+ types of online businesses for sale
- Rigorous vetting of businesses
- Profitable businesses only
- Businesses valued at up to $15 million
- Detailed seller’s notes
- Easy to use
Cons ❌
- Sign up to access all the seller’s notes
- Rarely features options valued at less than $100k
- Lots of competition from high capital investors
FE International is a global merger-and-acquisitions advisor for ecommerce, SaaS, and content-based online businesses.
FE International has a very rigorous vetting process. Acquisition accounting professionals usually scrutinize financial performance, website traffic, market trends, growth opportunities, business operations, and continuing obligations, among other attributes.
This said, their listing seems to make a start at a minimum of $20k or so.
Pros ✅
- ecommerce, SaaS, and content-based online businesses
- Rigorous vetting of businesses.
- End-to-end professional assistance.
- Business brokerage.
- Post-sales assistance.
Cons ❌
- Limited seller’s notes.
- No custom asset purchase agreement
- Buyer fees
Acquire.com itself takes various precautions to ensure that only profitable startups are listed on its marketplace.
Every single business is taken through a rigorous vetting process, in which over 20 KPIs are examined.
Pros ✅
- Startup acquisition marketplace
- Rigorous vetting process
- Private and public listings
- Reviews ARR and MRR
- Wide range of businesses on sale
- Low-budget business options
- Easy to use
Cons ❌
- Screens buyers
- Focuses on startups alone
- Membership fees for buyers
- Listings are only accessible to registered buyers
- No end-to-end professional support
- Doesn’t support businesses worth over $100k
- Low due diligence
Fractional Ownership 🧩
If you are keen to have investments in the ecommerce sector, but you’re also v. sold on the idea of it being a passive investment, then fractional ownership could be for you, through the likes of Webstreet - which has portfolio managers (like any fund) to figure out which businesses to buy and maintain.
Note: this company is pretty new(ish) and I struggled to find any reviews, commentary etc.
I’ll continue to update as I find other players in this space and/or get more detail on Webstreet.
Resources & Tools 🧰
- Metrics: It’s SUPER important to know what metrics to be looking for ahead of investing in an ecommerce business. This piece, from Department of Product, is a great starting point for what to look out for (scroll down to the e-Commerce section of the article)
- Trend analysis: if you’re trying to figure out how popular an ecommerce biz might be, Google Trends can be your friend. Enter the relevant search term(s) and see what the volumes are of people searching.
- Profit margin calculator: as I said, this should be a key driving factor of any decision you make to purchase an e-Commerce biz. This helpful calculator from Shopify will give you a helping hand:
Thanks so much for reading! ❤️
Jason
DISCLAIMER: None of this is financial advice. Finbrain is strictly for educational purposes.