[CASE STUDY] How We Sold a $130,000 Dropshipping Business in 10 Days
Hey guys, just wanted to write a quick note at the top here. One of the really awesome things about internet marketing is that you don’t need a degree to get started. Often, playing around, learning things for free, or taking a premium course is all you need to start cutting your teeth with online marketing. If you are looking for a valuable course all about dropshipping where you can create a similar story as this seller did with us, check out Dropship Lifestyle. The seller in this case study is an actual student of Anton Kraly, the creator of the course. You can learn more about Dropship Lifestyle and what dropshipping is all about here.
Selling any business is a unique experience, as every business is a bit different. A drop-shipping store is no exception. Luckily, our team has a vast amount of experience when it comes to selling profitable e-commerce businesses—just like this home and gardens e-commerce store—and we were able to sell this six-figure store in just 10 days.
One of the easiest ways to get a quick sale like this is by being proactive in your communication with potential buyers and with our team. Prompt communication is key to keep things moving smoothly along.
The business was initially given a $141,957.47 valuation and listed on our marketplace at that price. It was then sold for $133,000.
We are going to examine the details on how this listing was prepared for sale, the negotiations process, and, finally, how it was successfully migrated over to the new owner.
Let’s dive in.
Created in August 2016
Niche: Home and Garden
Original List Price: $141,957.47
Sales Price: $133,000
Time on Market: 10 days
Preparing and Listing the Business
You should follow a specific process to prepare a drop-shipping store for sale.
This business went through all of these steps outlined below—but, really, these steps can be applied to any drop-shipping business.
Good preparation will ultimately shorten the time frame to sell the business. One of the most important things to get right is the Profit and Loss (P&L) statement.
Whether you prepare it yourself or use a bookkeeper, you want to make sure this is absolutely clean. An erroneous P&L is something we see that often kills a deal in late-stage due diligence. A potential buyer might like everything they are seeing, but then they spot an error on the P&L and their entire confidence in the business shatters.
After all, a P&L is the most important document your business has. If there is something wrong here, the buyer will logically ask what might be wrong elsewhere.
The other portion of preparing your business for sale is making sure all agreements you have with your suppliers are transferable to the new owner. This business did have special agreements, so they went to their suppliers to let them know they would be selling the asset and made sure those exclusive agreements would be transferable over to the new owner.
If you have any special agreements, exclusivity, or anything else you’ve developed as your relationship with your supplier has improved, then you’ll want to give the new owner the same deals. The best way to go about this is just to give your supplier a call and let them know you will be selling the business and will want to introduce them to the new owner.
It is important to also create Standard Operating Procedures (SOPs)—especially if you have a team in place—that show how the work is done in the business. While SOPs don’t exactly add value to your business, they do increase the overall buyer pool by making the business more attractive. Your SOPs are the “owner’s manual” for your business. The SOPs should be so outlined and simple that you can give them to almost anyone and they will be able to perform at least 80 percent as well as you.
This business had SOPs since a virtual assistant (VA) was doing the main day-to-day tasks. This makes it way easier for the new owner to plug their own VA or team into the daily operations by having them go through these SOPs.
Make sure you’ve marked any weird dips or spikes in traffic/revenue, too. These are going to be obvious areas of interest to your potential buyer, and you will want to have the answers to back up why those spikes/dips happened in your business.
Once you have all this information detailed, it’s time to submit your business for sale with us. If we see anything else you can add that will make the business more attractive to potential buyers, we will let you know during our thorough vetting process.
This business passed our vetting process and had nine potential buyers doing their due diligence on the asset very quickly. Unlike other brokerages, we allow multiple buyers to do due diligence all at once, which greatly speeds up the sales process. We can do this because we use a unique deposit system rather than the often more restrictive Letter of Intent (LOI) process that other brokers use.
Let’s dive into what kind of questions were asked by real potential buyers doing their due diligence on the business and the actual negotiation process.
The Negotiation Process
This is where prompt communication can help you sell your business much faster. There will be a flurry of questions—most of which are handled by us—that buyers will want answered. One reason we ask so many questions during the vetting process is because it allows us to field those answers on your behalf, minimizing the amount of time you have to be involved with selling the business.
Here are some of the questions that were asked specifically about this drop-shipping business:
How Competitive is the Site from a Pricing Point of View?
The seller came back saying their main competitors were big retailers versus other small drop-shipping stores. The nice thing about this store in particular was their selection of products for their niche was entirely unique compared to other retailers, giving the business an advantage on more than just price. The number of brands represented by the store dwarfed the other retailers.
Unlike the bigger retailers, the customer support was next-level. This was a great differentiating factor that most of the big guys can’t or won’t compete on. Since the product is a high ticket item, this is especially attractive for the customers looking to purchase the item who would expect a higher amount of touch points.
The business also made a point of selling the products at the lowest price possible compared to other retailers, their strategy focusing more on volume sold.
Since all the suppliers have a Minimum Advertising Price (MAP) policy, the store couldn’t be undercut: it was already offering the best price online for the items. In addition to this pricing scheme, the site provided a discount code to new customers in exchange for their email address. This allowed them to increase the overall lifetime value of each lead by being able to perform email marketing, selling accessories for the high ticket item.
At the time of sale, the opt-in rate for the email strategy was right around eight percent. After someone opted in, an automated email sequence would remind them of their discount code and indoctrinated the lead to the store’s branding.
There was one brand that the store sold that didn’t have a MAP policy; however, the store did have an exclusive pricing agreement that allowed them to be the lowest-priced offering of the product online by a large margin, giving them a unique competitive advantage and deepening the overall moat for this store.
What Kinds of Relationships Did the Store Owner Have with Their Suppliers?
The relationships the store owner had with their suppliers ranged from average to the ever-coveted exclusive agreements. For their bigger brands, it was harder for them to get much more than an average relationship due to their size. However, working with other suppliers allowed them to have exclusive product offerings even when the main supplier showed those products out-of-stock, which was one reason for their revenue growth.
With other suppliers, they had an exclusive agreement on the margins of the product or they were allowed to sell certain brands at sale price all year-round, which helped them maintain their low-pricing offering to customers visiting the store.
Why Do the Profit Margins Seem Low?
The main products being sold only had a 10 percent agreed margin with five percent on the accessories. This is what caused the business to look like they had smaller margins. Since the business’s main tactic was to offer the lowest price online, they didn’t count so much on big margins but rather on moving the most volume of the product.
Other brands they sold had much higher margins in the 20-30 percent range but were just lower volume, something a new buyer could re-balance when they took over the store.
What Were the Daily/Weekly Tasks of the Owner and the VA?
Most tasks involved handling customer inquiries and existing orders either over the phone, or through email or the live chat functionality on the store’s website. They also would send in the POS documents to the suppliers, input tracking, and talk with the suppliers if anything strange or unique cropped up.
What Types of Calls Did They Get?
Most customers called just to see what their order status was or if there was an issue. Newer customers might have asked a few questions, and some called just to place an order with the business or were thinking that the store was the actual manufacturer of the product.
How Were Suppliers Obtained?
The seller obtained new suppliers simply by reaching out and contacting them. The goal was to open up a dealer or wholesale account. Every supplier was somewhat unique when setting up these accounts. Because of that, adding a lot of suppliers all at once wasn’t a recommended route to go just because of how hard it was to manage them during the initial setup.
Once all of these questions were answered, there were still nine people doing their active due diligence on the store, and one sent in an offer that the seller was more than happy to take.
The Accepted Offer
The offer that came in was for $133,000. One reason for this discount of the list price was that the buyer felt like the employee estimate of hours worked was slightly lower. The $133,000 would be paid in two cash payments, with the first $20,000 payment sent immediately and the rest paid within 10 days of the purchase.
The reasoning for this short delay was that the seller needed to cash out some money from various investment accounts before they could send the rest in the form of a bank wire. The other condition of this offer was that the buyer wanted to be introduced to all the primary suppliers to verify pricing and make sure there wouldn’t be any changes in the agreements that the seller had already built.
The seller agreed to these terms and the business was marked “sold” on our marketplace. Then, we moved to our migrations team to switch everything over to the new owner.
The Migration of a Six-Figure Drop-Shipping Store
The migration process was very straightforward.
It mainly consisted of switching over all the login credentials, hosting, and the domain to the new owner. Bank accounts and payment gateways were also updated to reflect the new ownership. Our migrations team helped the buyer and seller every step of the way with any technical difficulties and made sure the proper training was being done.
The seller introduced the buyer to all the suppliers and helped train a new VA that the buyer had hired to help with the day-to-day operations of the business.
The majority of the migration period is summed up by the seller helping the buyer learn how to run the business on the day-to-day basis and helping train their new VA to be up to speed.
Once the revenue and traffic was verified, with the buyer having the ability to run the marketing and being able to pay the suppliers for orders, the payout phase was completed with $113,050 paid out to the seller after our 15 percent commission was taken from the final sales price.
The entire migration period from time of sale to the actual payment sent to the buyer took 11 days.
That made the entire process from the time of listing the business with us, selling the business, and migrating to the new owner to just 21 days.
Not a bad payday to get over $100k in your bank account by letting us help you sell your digital asset.
Are You Ready for a Profitable Exit for Your Drop-Shipping Business?
This goes to show that selling a six-figure business can be a pretty painless process. It doesn’t have to take that long, especially if you are providing good support and communicating promptly with us and the potential buyers looking at your business.
While migrating a business can be tedious, it doesn’t have to be when you lean on the Empire Flippers team, since we can step in and handle the majority of the technical work on your behalf.
When you sell a business like this, you’re going to have quite the war chest on hand to go off and supercharge the speed at which you can build your next business. A $113k war chest can lead you to starting several new drop-shipping stores using the same principles you used to build the last one, or it can allow you to level-up a current business you already built and are profiting from. The opportunities that open up to you are many.
In fact, one thing we see often is that after a seller collects the payment from the sale, they’ll turn around and keep money on file with us so they can purchase other businesses on our marketplace.
After all, the best time to buy a business is right after you sold one since you’ll be as liquid as possible to create the best (and most profitable) deal structure when acquiring an online business.
If you don’t know anything about e-commerce and would like to learn more about the business model, then check out our Youtube video we did on the subject below:
Photo credit: StartupStockPhotos.com