8 Steps To Maximize The Sale Price Of Your Drop Ship Store
We all love the Ka-ching sound and feeling when you get sales through your Shopify store. After thousands of sales, I still love it. It’s addictive.
There is, however, a better feeling (although unfortunately no associated sound) and that’s the big pay day when you sell your site. There’s nothing better than seeing a great listing price as recognition for your hard work and then getting that big payout arrive in your bank account.
In my opinion, there aren’t many investments that can pay out as well on a percentage return basis than a DSL store. The investment in dollar terms is small and the payout can be huge.
I’ve recently listed one of my stores for $195,000. I’ve spent roughly $5000 of my own money on the site. That’s not to mention over $120,000 in profits that I have taken out of the business over the 2 years that it’s been open. Find me a better Return On Investment (ROI) than that.
So, you’ve put the handwork in, have built a profitable site and now you want to sell it. Apply the 8 steps below and you will be able to get the highest sale price possible for your site.
How eCommerce sites are valued
Before we go into the 8 steps it’s important to understand how eCommerce stores are valued.
Online business is generally valued by applying a multiplier to the businesses net profits generated over a set period of time.
Online businesses are not valued based on the potential that the site has to make sales in the future. This is a mistake that a lot of people make, no one cares what your site could make, they only care what it has made. It is up to the buyer to realize potential and that is their risk, therefore you should not expect to be directly compensated for this.
Net profit is the important bit to pay attention to here. Total sales or revenue has nothing to do with your sale price.
You could have a business that generates $1,000,000 in sales but if it only produces $1000 in net profit from those sales then only $1000 plus the multiplier will form the basis for the sale price.
Depending on which platform or through which broker you are selling your site’s multiplier will be applied differently.
For example, some brokers will take the total net profits from the previous 12 months and apply a multiplier to that while others will take an average of the last 6 months net profits and apply a multiplier to that.
Here is a couple of examples of what this looks like for a store that has made $100,000 net profit over 12 months;
Total annual net profit x 2.2 multipliers = Sale price
100,000 x 2.2 = $220,000
Average monthly net profit over 12 months x 24 multipliers = Sale price
100,000/12 x 24 = $200,000
So you can see that either method results in a similar price. Drop Ship stores that are valued using the total annual net profit usually have a multiplier of between 1.8 and 2.6 applied to them while those that are valued using average monthly net profits can usually expect a multiplier of between 20 and 26 being applied. As always, there are exceptions to these rules.
You will notice that the multiplier can vary, this usually occurs based on a range of factors which include;
- Age of the business (older businesses are deemed less risky)
- Growth of net profit over time
- Amount of time required by the owner to run the business
- History of traffic to the site
- SEO efforts and results
- Email list size and social following
So you can see that there are a number of levers that we can pull to increase our websites’ valuation. Either increase monthly net profits or find ways to have a higher multiplier applied to our site or both.
If you are planning on selling a profitable Drop Ship store follow these 8 steps to maximize your sale price.
1. Don’t rush
So you woke up this morning and decided to list your site for sale today. Bad move.
If you do this you will most certainly not have a website this is optimized for sale and you will not get the best price.
Of course, there are circumstances where we need quick money and if you find yourself in that situation then ignore this point.
For the rest of us, though, time should be taken to optimize your site for sale. I would generally recommend that you sell your business between 3 and 6 months from when you make a decision to sell it. This period of time will allow you to make a significant difference to the sale price of your site.
Make a sales plan and then stick to it. If you plan to sell your business in 6 months, plan what you will do in each of those 6 months to increase your net profits and potential multiplier. Base everything you do on data (see step 4) and your website's analytics. Focus on what works and avoid experiments.
This plan will look different to what a normal business plan would look like as we are solely focussing on improving a few aspects of what is working. We don’t need as much of a wholistic plan when preparing a site for sale.
Use whatever format or tool works best for you. Set milestones and targets and review regularly.
3.Use a reputable broker
You have 2 choices when selling an online business. Sell it yourself or sell through a specialist online business broker.
If you are looking to sell below the $10,000 mark you should be able to sell by yourself through online marketplaces like www.flippa.com or the Shopify Forum or of course by offering your site to other DSL members.
If you are aiming for a higher price you will almost certainly get a higher sale price and an easier sales process if you sell your site through a specialist online business broker.
Yes, you will have to pay the broker a commission but in my experience, this is well worth it to get a quick and usually painless sale.
A good broker will have a large list of interested buyers that they will push your site out to and when interest is generated a good broker will weed out the tire kickers (of which there are many online) and make sure that you are only dealing with genuine buyers.
A good broker should also act as an intermediary between you and the buyer and work to iron out any kinks in the sales negotiation and hand over the process.
4. Get your accounts and analytics straight
This seems like a no-brainer. You should have a good handle on your finances and website analytics. If you don’t get it sorted asap.
To plan for sale you need to have a clear picture of what your revenue is, what your cost of sales is, how much net profit you are generating and an idea of how these have been changing over time.
You need to be able to analyze these figures to know where the levers are that you can pull to maximize your net profits.
The same goes for your website analytics. If you haven’t got your Google Analytics set properly and tracking conversions accurately then now is the time. You need to know what traffic is converting at the right price and what is dead wood.
In my experience as a DSL coach, many DSL students have Analytics set up but they miss properly setting up their conversion tracking and eCommerce goals. You can find a great guide to setup conversion tracking here.
Use your accounting and analytics data to make sound decisions when planning for a sale. You will also need to give accounts and analytics data to both your broker and potential buyers for due diligence so getting a handle on it now will make things easy when you need it most. If you make any claims about your business that can’t be backed up with data then you will most likely get negotiated down.
5. Automate & Outsource your business
So you’ve been hustling hard for 12 months, juggling lots of balls, customer service has been growing along with your business and before you know it you’ve created yourself a job.
When you are setting up and running a business solo you need to be a lot of things and this can take up time. You need to manage your ads, deal with suppliers, provide customer service, maintain your catalog, add new products, find new traffic sources and so on.
The reality is that most buyers of online businesses don’t want to do this. They want an income stream that they can add to a portfolio or use to support their lifestyle rather than another job that they have to work in.
Automation and outsourcing will not only make your business more attractive to more buyers but it will also often lead to a higher multiplier being applied to your net profits.
In my view, this is particularly important for sites that are making more than $40,000 per month in sales but really it’s good practice to get started anytime!
Start by documenting how much time you actually spend per week on anything related to running your business and what those tasks are. Get forensic with it, right down to the minute.
Once you’ve got a list, break it into tasks that could be done by someone else. Here’s a list of some of the things that can and should be outsourced;
- Image resizing
- Product description writing
- Product uploads to Shopify
- Customer service including answering the phone, email and online chat
- Content creation (blog posts, social media posts, lead magnets)
- Managing your social media accounts
- Managing your pay per click campaigns
- Order processing
- Payment processing
In fact, there is very little that can’t be outsourced on a drop shipping store. Remember though that good outsourcing takes time to put in place. Take the time and do it right. Don’t leave the buyer with a mess that they can use to back out of the deal.
Before you go rushing off to automate and outsource you need to consider the price of doing so. Keep in mind that our aim here is to increase net profit, spend too much on automation and outsourcing and you may negate the benefit derived from doing it in the first place.
Check out Anton’s Top 5 Tips for Outsourcing Customer Service.
6. Grow your Audience
Email lists and social followings carry a value. A large email list will add value to your business and make it a more attractive prospect to potential buyers.
If you’re planning ahead make sure that you have a think about how you can grow your audience through the period to listing your site for sale.
Maximize the effect of doing this by tying it into activities that are also going to result in more sales.
For example grow your email list and Facebook following by running targeted paid traffic to a landing page offering a lead magnet in return for the prospects email address. Follow the delivery of the lead magnet up with an automated email sales sequence to turn some of these prospects into paying customers. As a side benefit, many of these people will also follow your Facebook page.
7. Maximize Net Profits
This step is another that you should be doing anyway in the normal course of business but now that you are planning to sell your site you really need to focus in on maximizing your net profits.
Even adding an extra $1000 per month to your net profit in the 3 months before the sale will increase your sale price by a significant amount.
We often have the goal of increasing total sales and revenue which in turn should lead to higher profits but improving net profits can be a bit more nuanced than this. Here are some actions you could consider to improve your net profits;
- Fine tune your Adwords spend. If you don’t pay regular attention to this start checking in every couple of days. Trim your CPCs down to the lowest amount you can without affecting performance. Eliminate underperforming products from your shopping feeds and underperforming keywords from text campaigns.
- If you are running any paid advertising aimed at branding or increasing awareness, cut it out. It isn’t going to help you now.
- Focus on marketing that you know delivers a solid ROI, slowly increase spend here while resisting the temptation to experiment with new paid traffic sources. Or better yet just don’t experiment, you are rolling the dice if you do.
- Increase your efforts to find free or extremely cheap sources of traffic. This could be organic social traffic, blogger outreach or running a viral contest. Even if the conversion rate is lower the profit margin on sales from this traffic will be higher.
- Cut any unnecessary costs out of the business. Review all of your paid apps, if they don’t deliver a direct benefit hit delete.
- Negotiate with all of your suppliers for a lower rate. You would be surprised how often this works particularly when you have a good track record with them. Even a 5 % - 10% reduction here can have huge benefits over 3 months.
- Pump your email list. Don’t be afraid of a few unsubscribes here, you’ve got the resource so make sure you use it to drive an increase in sales.
The above isn’t an exhaustive list but will definitely get you well on the way to boosting your net profits.
8. Be flexible and supportive
Lastly, when it comes to the actual sales process and dealing with potential suppliers try to be as flexible and accommodating as you can.
This means that if possible you should offer comprehensive training in how to run the business followed by ongoing phone or email support to the buyer for a period following the sale. I would suggest that you offer support for at least 30 days following the sale.
What this suggests to potential buyers is that you are comfortable with the success of the business and it will make them feel like there is less risk that things will go wrong and they will be left with a mess.
This, in turn, will reduce the amount that buyers try to negotiate your sale price down by. Always remember that just because you list a business for a certain price there is no guarantee that is the price that buyers are willing to pay.
There is usually some form of negotiation around the sale.
Enjoy the Process!
At the end of the day selling a profitable drop shipping store can be one of the most exciting and nerve-wracking things you can do. If you are planning a sale in the near future enjoy the process and best of luck!
Have you sold a Drop Ship store lately? Leave a comment and tell us what you did to maximize your sale price.