How to Flip Micro E-Commerce Companies

Flipping assets is nothing new — just turn on HGTV to find countless house-flipping shows. The concept is simple: You buy an underperforming property, make some upgrades, and sell it for more than what you put in.

Tempting as it sounds, flipping real estate is no easy venture, and investors regularly lose money in the process. The good news is that you can take the concept of flipping and apply it to much simpler fields.

One highly lucrative but often overlooked niche is e-commerce. Venture capitalists have been realizing 100-300 percent returns on their money by flipping micro e-commerce companies. If you prefer a steady revenue stream, there’s also the option of holding onto a site after getting it in tip-top shape.

The beautiful part is there are no termites in the foundation or floors to refinish. With a little bit of knowledge, flipping e-commerce sites can be a highly rewarding endeavor.

Micro E-commerce Equals Major Revenue

E-commerce sites have been raking in billions of dollars to the detriment of brick-and-mortar stores (thanks, Amazon). These sites traditionally offer thousands, if not tens of thousands, of products.

At the other end of the spectrum are micro e-commerce sites. These are companies that operate solely on the web, and often are focused on a very narrow set of products. Some might be so focused that they target only a single type of customer.

Not every site is created equal, however, and there are a number of factors to account for in order to realize maximize returns.

Picking the Right Site

This is the most important step, so make sure to do as much research as possible. Time spent here can save you months of headaches down the road.

Before you buy, you must gain a full understanding of how a business is monetized. Oftentimes, a company will have more than one revenue source, depending on the niche it serves. Don’t just read reviews on bidding sites — go to the site itself. Spend a good amount of time there to make sure it works well. How the interface looks is important, but if it looks dated you can improve that later on.

After taking the site for a test run, take a peek under the hood. Ask for Google Analytics “read only” access. This is an even more detailed snapshot to get a full picture of the site’s analytics and traffic environment.

Never bid if the seller withholds information or provides vague or brief descriptions. In addition to traffic analytics, pay close attention to the financials of the site, as well as verification of the claimed revenue. Look into the suppliers of the products being sold to confirm the terms and lengths of their relationships.

How to Add Value to Increase Revenue

Anyone can buy a website, but not everyone can implement the following steps to add value and increase revenue. This is the time to make upgrades and get the site firing on all cylinders.

The first thing you’ll need to do is implement some automated marketing and lead generation assets on the site. Most will come with an email list that you’ll want to grow, but if there isn’t one, you’ll want to create it. You can add new members by having newsletter opt-in messages across the interface. You can increase these metrics by sending out periodic special offers.

Increasing traffic to the site will improve both the analytics and — if you’re converting leads correctly — your bottom line. If your traffic is off the charts but sales are low, refactor and optimize conversion paths to ensure a start-to-finish buying process.

Implementing search engine optimization is a topic that could span several articles, but suffice it to say that SEO will need to be fine-tuned.

Set up a retargeting campaign through Facebook to re-engage customers who already visited your site with a more specific ad or special offer.

Driving traffic is important, but if your leads are landing on a site that hasn’t changed since 2004, you can bet your bounce rate is sky-high. Improve the existing branding or draft an entirely new look if it’s within your budget. Include a customer reviews section to build trust with your clients.

How to Make the Sale

Now comes the exciting part, where you offer your newly improved site to the market. The first step is to calculate your website valuation. This will give potential buyers a solidified understanding of exactly how much the company is worth.

The formula for the valuation is simple: annual net profit (cash flow) x multiple (years) = website value. The “multiple” represents the number of years of net profit. Website buyers see the multiple as the amount of time they can expect to pass after acquiring the business before they regain their initial investment.

Know your numbers by keeping detailed records of your financials throughout the course of running your e-commerce site. This is essential to success, and will all pay off during the sales process. Organized and clear financials shows the buyer the business has been maintained well and can continue to be profitable. Knowing your numbers also includes knowing the conversion rates, click-through rates, etc., of all of your marketing efforts.

The last thing to consider is timing, which is everything. Make sure to sell the business right after or even during a time of growth. This is especially true for seasonally driven sites, which might make most of their yearly revenue during the holiday season. Make sure no personal obligations you may have will hinder your ability to sell at the determined time.

Like any rewarding endeavor, flipping micro e-commerce sites is not without risk. The process is relatively straightforward, but perfecting it is an art. Arm yourself with the knowledge provided here (and your own research) and you’ll be far ahead of your fellow investors. Soon you could be flipping sites left and right, and achieving returns you once thought impossible.

Sean Brown is the founder and CEO of So-Cal based venture capital firm,
Go VC, focused on the growth of tech startups.

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