How Much To Pay For An Established Ecommerce Website?

Dropshipping products from your own ecommerce website has massive benefits compared to selling at auction sites. Higher profit margins, clear branding, a valuable business asset, higher customer trust and basic sales management are just some of the benefits of having your own website.

If you don’t want to or haven’t got the knowledge/skills of how to start a new ecommerce website then your only option is to buy an established one, however it does come at a price. Reading across various business and webmaster forums (UK) many people don’t appear that confident at valuing websites, and whether the asking price is too high, or even too good to be true!

This post outlines some of the factors to consider when looking to buy a website.

FIRST – before you even go looking for websites to buy you need to work out how much money you have to spend on the website in total. Work out the exact amount you can spend, not “oh I think about £900″, you need to be certain so you don’t miss an opportunity or end up agreeing on a deal you can’t pay for!

Now visit your favourite forums, blogs, domain brokers, auction sites etc and start hunting down ecommerce websites for sale. So you’ve found one but the owner just says ‘all offers considered’, so now you have no idea how much to offer! So here are the main factors to consider:

• Website Domain - the better the domain the more valuable it is. For example; paperback.co.uk would be considerably more valuable than buycheappaperbackbooksnow.co.uk. What makes a domain good? How long is the domain, is it hyphenated, how many words, is it brandable, is it memorable – all these need to be considered. To see how much domains alone (without established websites) are selling for visit DomainPrices.co.uk
• Website Revenue – how much revenue is the website generating in it’s current state?
• Website Costs (overheads) - try and find out how much hosting the website requires, from this you can work out your future hosting costs. How much is the owner spending on all forms of advertising to achieve the current levels of traffic?
• Cost Of Sale – ask the owner what % his profit margins are.
• Work Out Profit – With the information on the last three points you can work out how much profit is being made. When trying to sell an ecommerce site owners often don’t state the exact profit, they will just say something like ‘generating £400 per month’, when this is revenue and profit will be considerably lower.
• Number Of Sales Being Made - a website may be making £100 profit per month, but if it is selling high value goods and only has two customers per month it is signifcantly risker than a business also making £100 profit per month but has 50 customers per month. The more customers the better.
• Customer Database – the bigger the better. A customer database is very valuable and something you can instantly take advantage of when you take over the site. Be prepared to pay a lot of money for an ecommerce website with a database of thousands of past customers.
• Website Age – the shorter the riskier. If a website has been trading solidly for 2 years then the risk is much lower, a new website may have had one good month but could easily bomb the next. Pay more money for longer established websites.
• Design/Script – Be prepared to pay more for a website which has a unique design (as long as it is good of course) or has unique coding which can separate the website from competitors.
• Traffic Levels – the more targetted traffic the better (region & niche). A good opportunity is a website which has good traffic but doesn’t convert well. In my experience getting the visitors is harder then tweaking the website/products to convert better.
• Traffic Sources – avoid websites which use autosurfers and similar programs as the traffic is useless. You want to buy a website which gets the vast majority of its traffic from targetted search engine keyterms and repeat visitors. If the rankings are stable then expect to pay more, if they are up and down like a yoyo it is a lot riskier. Also look at the SEO techniques used to achieve rankings (avoid blackhat SEO techniques!).

Other Things To Watch Out For

• Sellers will often say ‘ generating £200 per month’, but only £20 may be profit which they won’t say. Don’t be fooled into thinking the £200 is profit, do all the maths yourself to work out the true website profit.
• Make sure the seller is trustworthy, if you can’t get any feedback from other members/people (wherever you see the site for sale) then ask for a phone number and see if they want a chat about the site.
• Don’t listen to ‘potential’. So many sellers bang on about great potential, if it has great potential you have to question why they are selling - actually ask them why they are selling!! Very rarely should you pay for potential (exceptions include investors in facebook and websites like it). The nature of the web means the majority of ecommerce websites have great potential, it is down to the webmaster to turn the site into something big.

Coming To Your Final Valuation
At the end of the day, to you, the website is worth what you are willing to pay for it. You may see a website for sale, and some people would only give a couple of hundred for it, but if it operates perfectly in your niche and has existing qualities you can’t get yourself (a unique simplified checkout system maybe) then pay what you have to. Some people just go with ‘12x monthly revenue’, and then if a site is priced a lot higher they go mad, regardless of the sites quality/sustainability (look at the bigger picture!). If that is what the site is worth to them then great, it opens opportunites for you. Ignore people like this and those who don’t have the balls/brain to invest (ive seen them on digitalpoint many times!) and pay what the site is worth to you.

Don’t Be Scared! 
A lot of people online seem scared to put in their money in (yet they expect to make loads back?), many settle for a crappy domain with a free ugly looking design, suprise suprise their business doesn’t prosper. Get hunting for websites for sale and if all the figures add up and you have a good plan to expand the site then go for it!