Do you know how much your dropshipping store is worth?
I’m not just talking about how much net profit you’re generating month-to-month, but also, how much would buyers on the open market be willing to purchase it for.
To answer these questions, it first helps to understand what goes into valuing a dropshipping store. From there, we’ll tell you all the tips that you can start implementing right away to increase your valuation and maximise your exit.
Whether you’re thinking about selling now or you’re still getting to grips with the tools, running your store as if you’re planning to sell it down the road can help make your business more profitable. This is because a business’s valuation rewards more than just net profit.
The formula for valuing a dropshipping store is as follows:
12 months average net profit x multiple (typically 20–60+)
The average net profit should be something you can calculate pretty easily. If you haven’t created a profit and loss statement, then this will be an important first step to get your financials in order.
The second part of the formula is the valuation multiple. This is where you can look to improve the value of your dropshipping business. There are many factors that go into determining this valuation multiple, but here are some key areas that you should focus on.
A one-product store is the starting point for many drop shippers, but there is a lot you can do to multiply your success after that starting point.
Diversifying operations to include multiple products will improve your store in more ways than one. The first and most obvious is that it brings in more profit. The knock-on effect of that is it spreads the risk out so you aren’t reliant on the success of a single product.
Buyers of dropshipping stores are aware of the competition that comes with the business model. To alleviate this fear, build on the success of your store by adding additional products and diversifying your sales.
An easy way to begin this is to add colour and style variations of existing products, where possible, to get some quick wins. While this is a good starting point, different but complementary products should be added to make your store even more appealing. Keeping the products in the same niche allows for cross-sells, which makes it easier to sell more products.
A similar line of thinking can be used for channels you use to drive traffic to your store. Paid advertising is the main one that’s usually used and can bring instant results. To build more of a fortress around your store from competitors, consider adding additional traffic sources.
Using search engine optimisation in the form of ranking your product pages or a blog to diversify traffic and lower your customer acquisition cost. Social media is another way to do this, but both options take time, so it pays to start implementing them early even if you don’t want to sell just yet.
Building a dropshipping store with multiple successful products and traffic sources makes your business a much more attractive prospect for buyers, so it will receive a higher multiple when you do reach the point of selling.
The ability to run an e-commerce business without handling inventory is the beauty of the dropshipping model.
If your supplier is running a tight operation, then it’s important to get this locked down in writing. It might be possible to negotiate a better rate with them if you’re doing a high volume of orders. Also, ask about an exclusivity agreement, which makes it harder for copycat sellers to start selling your exact product.
The bottom line is that all of these details should be outlined in a contract where possible. One of the first questions a potential buyer is going to ask is how your supply chain works. Responding that the supplier contracts are in place to be transferred to a new owner will make their life easier and your business more enticing. And the deal is even better if it comes with improved rates that are unique to your business.
Email marketing is a big winner for almost any kind of online store.
An email list acts as your very own marketing channel. You don’t have to worry about your ads becoming overpriced or a google update tanking your search traffic. Instead, you’ve built up a warm audience of people that you know are interested in your niche.
This is a huge asset to have and the bigger the email list, the bigger the valuation multiple tends to be. It increases even more if you can monetise your email list, and there are quite a few ways to do so.
New product releases become easier if you can do an email blast to promote your new product to people that have likely brought something similar previously. Discounts for holidays and on customer birthdays are also great customer incentives. Abandoned cart campaigns can do wonders to improve your profits, and your email list can also be uploaded to your Facebook ads manager to do retargeting and lookalike campaigns.
There is so much potential with an email list, so set up a capture form early on. Consider promoting a discount or free downloadable to help it grow that much quicker. You might not have time to grow a considerable number of subscribers if you’re planning to sell soon. In this case, setting one up is a good start, as it can largely be run in the background once the initial setup is done.
Most buyers don’t want to spend a large sum of money to buy a business only to work more hours than they already are.
If you’re spending more than 15 hours a week on your business, then consider hiring people to take some of the workload off your shoulders. For example, virtual assistants can be hired from sites like Upwork and Freelancer to help you with administrative tasks, such as customer service and order processing.
Having a dropshipping store that operates with little involvement from you is a good sign to buyers. It means that they can take over the reins knowing that the day-to-day operations are being handled, allowing them to focus on improving the business or running it hands-off.
Creating standard operating procedures, which detail how to perform day-to-day tasks like order processing, is a necessity. This should give the buyer all the important information on how to run your business and makes hiring new people easy.
Now that you have an understanding of how to value a dropshipping business, it’s time to value yours.
Getting an impartial valuation is the best way to see how your business is doing. From this point, you may choose to sell, or you can spend some time building up your store to sell at a later date.
Use our free valuation tool to get an accurate valuation that’s built on the latest sales data. It takes less than five minutes to fill out, and you can connect to one of our Business Analysts who can give you an overview of the sales process and give you more detailed exit planning advice.
You might be surprised by how much your dropshipping store is worth.
Guest Author: Max Lapit is part of the Marketing Team at Empire Flippers. Before joining the company, he was involved in creating content sites and copywriting. Outside of work he can be usually found watching sport or travelling the world to watch it. He’s hoping to take in more new places after memorable trips to Budapest and Croatia.