With the new normal economic landscape fast becoming a reality, many people are looking for new income streams, whether to augment their current income or replace a lost one.
The pandemic has taught us that the online business market is flourishing, making it an attractive investment proposition. If you are considering buying an online business or starting one, there are many options available. It seems that they are limited only by one’s imagination.
To start or to buy… that is the question
Starting an online store is stressful, and it takes a long time before you begin to see real profits from it. This is because of the startup and launch periods, during which you might not see much turnover. The alternative is to buy a pre-existing online business. Each option has its own advantages and potential pitfalls.
As mentioned above, starting an online store is a rigorous process. You must establish an inventory and delivery infrastructure while raising awareness about the store to develop a customer base. This takes time and costs money, so you need to be prepared to wait six months to a year to see a profit.
If you buy an online store, you have the advantage of hitting the ground running as the business is already operating. However, the online store could be on a downward trajectory, and it will take a considerable amount of effort to turn it around.
Taking over from someone else with a different view of operating a business can also present several challenges, as you will need to deal with change-resistant employees, non-functioning systems, and a marketing strategy in need of a complete overhaul.
If you plan on investing in an online business and building it into a sustainable income-driving asset, you should know what you are getting before you buy it. Consider what shape it is in by looking at these factors:
Online presence
Having an online presence means that the online store’s site is easily found when customers conduct a search. The website should also be navigable and user-friendly and must be optimized for mobile users as the use of cellphones to shop online is a growing trend. Social media posts should be relevant and provide backlinks to the website to raise its profile.
Using SEO (search engine optimization) keywords and backlinking is essential to climbing the SERP (search engine results page) to come in close to the top. This is achievable through the publication of content on the website in well-written blog posts that users find informative or entertaining.
Customer database
If an online store has done a great marketing job, it will have an operational website that asks visitors to leave their contact details and lists of followers on social media. This constitutes a database used during marketing endeavors, such as email newsletters, advertisements, and flash notices of discounts and sales.
A decent-sized database is an online store’s greatest asset, as it gives them access to potential customers. If you are buying a business with a significant database, this can take a lot of legwork out of the marketing process. However, thousands of emails do not translate into as many sales. Therefore, while a database is an asset, you need to evaluate how valuable it is.
List of active customers
Once you have seen a potential customer database of an online store you are considering investing in, you need to narrow that list down to those people who have made a purchase and separate them from those that were merely browsing. A study of how many visits converted to sales is vital, as it provides a lot of information.
For example, you can see what kind of customers are shopping in the online store, which demographic they are drawn from, and which items they have purchased.
This gives you valuable insight into what is and is not working with the business operation as it stands now. It can show whether some product range items need to be dropped or if there is a need for additional offerings.
Reputation
While it might be an abstract concept, an online store’s reputation adds or subtracts value from it. A poor reputation is difficult, although not impossible, to rehabilitate. However, it might be worth it to buy the company and rebrand it under a new name if the reputational damage is so severe that there is little chance of restoring it.
There is no exact calculation or formula that will give you an accurate figure. However, a good point of departure is using an online store’s reviews as a barometer of its reputation. They give a lot of insight into customers’ experiences, although they cannot be taken as gospel. People are far more inclined to complain than compliment a company.
Inventory and infrastructure
The amount of stock you will acquire through your purchase is an important factor in valuing a business’s assets. Existing contracts and relationships with suppliers should also be evaluated. There may be drastic changes needed, but you will have to fulfill the obligations of any agreements you ‘inherit’ as part of the sale.
Once you have invested in the online store and have full control without any supplier obligations, you can investigate alternatives that might allow you to get the same products or parts at lower prices.
One of people’s biggest gripes with online stores is their inability to adhere to delivery deadlines. Look at the business’s current delivery arrangements as these relationships with logistics, warehousing, and delivery companies might be worth keeping after you buy the online store.
You need to be able to deliver on the promises you make customers when they purchase goods from your store. Therefore, you need to have sufficient stock, a place to store it, and a method of getting it to the customer’s door on time and undamaged.
An infrastructure overhaul is usually the first order of business, and many online store owners tend to opt for third-party companies that handle storage and shipping for them. This leaves you with more time to focus on business basics, including building the business and generating more sales.
Photographs by Burst and Jarosław Bialik