How much are Ecommerce stores worth?

This was pretty key for me to understand when buying an eCommerce business. The prices vary wildly from $500 to Millions, and I had a budget.

I bought mine for the price of a good holiday excluding the stock. Stock is normally on top of the cost of purchase.

The critical thing to understand about price is what the buyer (us) is willing to pay. That is true of all transactions, buying a coffee, a house or a business.

Therefore you have to determine what you’re buying for. I wanted proof that there is a market for the product.

I worked out to set up and try an eCommerce product idea was $15k ago and would probably take 2-3 goes to find a market.

Therefore I was willing to pay less than that for something that already was selling and had cash flow.

We also have to consider the multiples of profit the store makes. If the store has been making a profit for a few years, ideally three years, the value is a multiple of the annual profit. This can range from 2-5x depending on the growth opportunity. The lower the opportunity the lower the multiple.

You’ll notice lots of sellers think the store could be a “million-dollar” store. The trend of sales more often tells you something else!

The other catch is that owners don’t factor in their time as a cost, and when you do, the store can be unprofitable.

Sellers also think because they spent a lot setting it up (website design etc) it is worth what they paid. I personally didn’t value this as it’s easy to overpay for web design, and I can make them myself.

When you find a store you’re interested in, see what multiples of net profit they’re asking for.

I found two types of stores, really over or undervalued. You want the latter!

It took me two months to find the right store to manage your expectations. Consistently looking on the same day each week was key here.