Valuing e-commerce site

[squeezywheezy]

Hi there

I would like some advice about valuing and hopefully selling my e-commerce site. The site is handbagfairy.co.uk and has been active since Sep 2009 and been run by me on a part time basis.

The site gets anywhere between 4500 - 5000 unique visitors per month with over 20,000 page views per month.
The revenue generated each month fluctuates between £2000 to £5500 depending on the season.
We also have an active blog with anywhere between 4000 - 7000 visitors per month - this is all via organic seo with no ppc
We have around 1800 subscribers to our newsletter
Over 1000 fans on FB
There are three revenue streams,
1, e-commerce
2, wholesale - we sell to local boutiques in our area but there is potential to expand this and we have just added a form to our site and already had some interest
3, home party reps - we do this in our local area with a few active repls but could easily be expanded in another location as all the templates and promotional info and packs for reps are all set up. We have a database of over 200 ppl interested in becoming reps.
There is also potential for adsense/affilaite marketing something which we have just started to dabble in.

In year one the revenue came mostly offline, in year two the e-commerce business really took off and we trebled the online income to £22,429.20, the offline income was £12,000. Profit in year two was approx £10000. There were expenses such as website development at a cost of £1200, renting an office (which was not necessary as business can be run entirely from home- £600), outsourcing SEO and PR to a poor company which ended up costing us £850, and part time wages of £700 which could easily be done by someone working on a full time basis.

We spend approx £135 per month on adwords and I know that sales would significantly increase if more was spent.
We are on page 1 of google for red handbags and birkin style bag (both at time of writing).

We have dropshipping agreements in place with a major brand and have excellent relationships with suppliers of designer inspired bags.

Most of our traffic comes from organic google. There is definitely scope for optimising or website SEO.

The reason I am selling is that I work full time and this is too getting too big to manage in the evenings. I have put my heart and soul into it and have built up quite a good brand and would like to get something back. Can anyone give me an idea of what you think the site is worth if anything at all?

Many thanks in advance

[golles]

Nice looking site.

I think you will need to provide a few more figures to value an ecommerce business and you will need to be clear on the sale terms e.g. company sale vs. asset sale and the liabilities associated with the business - e.g. debt.

I notice you have not taken your time into the net profit consideration of £10K. As you state the site is getting too big for you to manage on a part time basis it would therfore mean either someone taking it on on a more 'full time' or semi full time basis or employing someone to manage it. This would make your profit figure very low / non existent. Also is the £10K actually net profit? - after all expenses ?

There are a range of factors to take into consideration, but most of the valuation will come from the business figures (turnover, expenses, net profit), supply agreements, customer base, scope, etc.

If I were you I would do everything I can to have a MASSIVE christmas this year with the site and really build some nice numbers over the festive season and then produce more detailed brakdown of the numbers, the products, the suppliers, the scope and the site.

It depends on the margin of the product range you are selling but to give you a quick indication - we have helped a couple of ecommerce owners buy existing sites at between 25% and 50% of 1 years net profit. Historically this has been a little higher (again dependant on the product range) if the site has great potential or has some very quick wins associated with it.

There are a lot of small ecommerce retailers bailing right now purely beacuse their businesses are not profitable and the harder economic climate has hit home. Many have limped along on increasing turnover and cashflow not focusing on net profit and as soon as the turnover and cashflow starts to decline the lack of profitablilty really hits hard. Therefore you will need to ensure your business is profitable and has scope to grow to get the best possible price.

You could get lucky and get a quick sale on a marketplace like Flippa for a higher multiple, but if it were me I would do the most I could to extract the best value from it and leverage the christmas period to the fullest extent.

I wish you all the best and hope this helps a little.

[Denny]

I notice you have not taken your time into the net profit consideration of £10K.
If I were you I would do everything I can to have a MASSIVE christmas this year with the site and really build some nice numbers over the festive season and then produce more detailed brakdown of the numbers, the products, the suppliers, the scope and the site.

I agree with most of golles post with a couple of exceptions and comments: Net profit would not include the owners time in my opinion. You should however explain how many hours per day, week or month you're spending and what tasks your are performing. Of course you would include any wages or outside contracting expenses.
Regarding the "massive Christmas" comment: this makes sense to try to increase the value of your site, but if you're already having problems maintaining it, I question whether you would have the time to devote to such an undertaking. With the Christmas holdidays approaching, this could possibly work in your favor for a quicker sale right now.
My suggestions would be:
1. Hire someone to help you and follow golles "massive Christmas" advice OR
2. Create a good, verifyable P&L statment with an accuate net profit figure. Then, you'll have to decide on a multiple that you're looking for and try to sell it.

Most of the multiples I've seen over the past 2 years for decent sites are anywhere from 10x and up (10x meaning 10 months).

One last comment: if you're really getting strapped for time and don't want to hire help, I personally would sell it now as opposed to involuntarily neglecting the site as that will surely hurt your selling price. Hope this helps.

[Clinton]

Net profit would not include the owners time in my opinion. You should however explain how many hours per day, week or month you're spending and what tasks your are performing.

That seems to be a common impression among sellers at places like Flippa.

I disagree. I have a page about it here.

What you're suggesting is neither the accepted way by any accounting standards nor does it take into account the value of the time input which could vary depending on the skill required to run the site. Saying, "I do one hour of SEO every week" doesn't give any indication as to the monetary value of that SEO work - it could be some pretty worthless comment spamming or exploiting some little known and highly effective SEO technique.

[KenW3]

I agree with most of golles post with a couple of exceptions and comments: Net profit would not include the owners time in my opinion. You should however explain how many hours per day, week or month you're spending and what tasks your are performing. Of course you would include any wages or outside contracting expenses.

Denny, I hope you don't mind, but I am going to take your post as an opportunity to explain differences between buying a company as a business and buying a company as a job I have not clicked through to read the above link from Clinton yet, as he is quoting a similar part of your post, so my post will either agree or contradict. (It is likely the former, though, and odds are I've likely read it at some point before.)

Everyone has a limited amount of time, so time has a cost and a value. When I am working for income, I fully expect to be paid for my time. I am not going to spend my work days running the HandbagFairy Company for free, so my wages are an expense to that business. If I, as the owner, decide to concentrate on a different business, then someone else must be paid to do my job, which would be the same expense (but perhaps a different amount). If I cannot hire someone to do my work, pay them appropriately, and still have net profit, then I do not have a profitable business, I have a job with a company. My name listed as the owner does not change the fact that I have to do the job or there is no company. (That type of company can also cause burn-out for an owner, as there is nobody to replace you to take a vacation or allow a break if you're sick.) Net profit is what is left after all expenses, including every single job required for the business to function.

HandbagFairy sounds like an excellent opportunity for someone out of work to buy a job, as the owner is filling one of the business' positions as an employee. These companies do have value, but are not as attractive to business buyers because their purchase will cause an unknown risk due to the loss of a key employee, the current owner. If this key employee cannot be replaced upon completion of the purchase, the business fails. This is probably better as a local sale, the way it sounds, where the owner stays on for a while and trains someone to fill this job. Also, as this is a job being sold, the company's new owner must be willing to work for the amount of wages available.

My perception of a business is an entity that can function on its own without me, and a company can be either a job or a business. Please be aware: This post is subject to each reader's personal interpretation of the semantics, as a business can be defined as a job or a company. I hope the differences between the two structures, one that requires you to work (as a job) and one that does not (as an investment) is clear.

@squeezywheezy, I think you have a nice solid company there, and have done a great job growing it. My opinion is that your best price will be derived by selling it locally, due to the local wholesale and home party revenue. There is no reason to delay selling it, if you're over it and cannot continue the same focus. If it is getting to be too much, then you are better off selling sooner than later.

As you have three revenue streams, and only one is online, this could be split for sale unless the parts are interdependent. The structure also enables you to split responsibility to part time employees, each overseeing a part of your company. What you have built has value, but a sale price must account for your time. If you are spending 2 hours a night, 5 nights a week, for 50 weeks a year, working on this business, and earn £10K, the company pays you £20 an hour. If you can hire someone to do what you are doing for half that, your business net is £5K, and would be valued accordingly.

Your best selling price would come from someone needing a job, both able to make the investment and able to learn how to do what you are doing.

[Edit: I just read Clinton's linked page, and it's not one I've seen before. It's very good, but the semantics used are a bit different. It's amazing how more there is to explore here on EP to still keep running across new useful material.]

[benitez17]

I agree that the best offer for the site would come from a local buyer due to the offline portion of the business, as someone like me who couldn't manage that would have to value it at 0, despite the revenue you've generated there. I think you'd probably leave a decent amount of money on the table if you sold it someplace like Flippa.

Would any of the people running home parties be willing and able to buy you out?

Also, I feel that you do need to put a fair valuation on your portion of the labor needed to operate the site, and list it just like any other expense.

[grynge]

If I was a potential buyer I would be asking questions about your training for the party throwers? Do you have a set training method? Who wrote the training manuals? What time frame do you expect it takes for a party thrower to become "profitable"

How do they order is it part of the website, is it on paper, do you have an app for them? If it's paper do they have to hand deliver the orders, fax them or phone them through? If it's on paper then it takes up more time either to migrate it to a less manual way or to handle the paper work by hand.

As with any type of "franchise" party plans also require a lot of time to train people for the parties, train people for the products and train people for sales. Having dealt with franchisee's (not in party form but people are people) I know without a doubt that 1 person would take to it like a duck to water with barely any training and then the next would need to be explained every little detail and take up vast quantities of time with questions and phone calls.

I could go on but I think you might get the point most serious buyers will be asking serious questions especially about the financials and hours they would need to run the business.

[Denny]

That seems to be a common impression among sellers at places like Flippa.

What you're suggesting is neither the accepted way by any accounting standards nor does it take into account the value of the time input which could vary depending on the skill required to run the site. Saying, "I do one hour of SEO every week" doesn't give any indication as to the monetary value of that SEO work - it could be some pretty worthless comment spamming or exploiting some little known and highly effective SEO technique.

I respectfully disagree. First, what if I'm not taking any money out of the business? Secondly, what monetary value do you put on your hour of SEO? You're right, an SEO expert may be charging 150 per hour. Somone else may be charging 20 per hour. That's my point as a prospective buyer. That's why I would want to know what tasks are being performed and what skill level is required to complete those tasks. To me, that's more important than knowing that the owner paid himself 10K last year and thus showed a zero net profit.

[benitez17]

I respectfully disagree. First, what if I'm not taking any money out of the business? Secondly, what monetary value do you put on your hour of SEO? You're right, an SEO expert may be charging 150 per hour. Somone else may be charging 20 per hour. That's my point as a prospective buyer. That's why I would want to know what tasks are being performed and what skill level is required to complete those tasks. To me, that's more important than knowing that the owner paid himself 10K last year and thus showed a zero net profit.

It doesn't matter if you're taking money out of the business or not. Are you willing to continue to do that work without receiving payment after you don't own the site any more? If not, it does have some monetary value, and that value should be taken into consideration.

Valuing the work done can be difficult, but that's why you should list it as any other expense (i.e. I spend 5 hours a week on SEO, for which I would charge $150).

The monetary value placed on the labor should be an indication of the skill level required.

If the owner paid himself 10K last year for work that no one else will do for less than 50K, then I have a problem as a potential buyer.

[Clinton]

I respectfully disagree.

I like people disagreeing with me. Too often they are reluctant to challenge the admin. But if I'm never challenged I'll never know where I've made a mistake.

OK, you want to know what tasks are being performed and what skill level is required. Why do you want to know this? Given two identical sites with identical profits etc., one requiring 10 hours/wk of low skill ($5 an hour) and the other requiring 10 hours/wk of more expensive skills (say $100 an hour), you'd prefer the former, wouldn't you? Why?