Unlock Your Store’s Hidden Value With Data Analysis
How well your business is performing has the biggest impact on its value. This fact begs the question, “do you know how well your business is performing?”
You can have a good idea with surface metrics like revenue, profit, and sales numbers, but there’s a lot more of your business’ value locked away in the data vaults of your business. When you discover this data you can see your business’ true value.
Many business owners only know their surface metrics. When they allow buyers in to do their due diligence and analyze their business’ data, the buyer gets to see the business’ real value.
If you don’t know or understand your business’ metrics when it comes time to sell you leave yourself in a weak position to command the full value of your business. This is why it’s important to understand how your business data affects its value.
The added benefit of getting your metrics in shape is you build up more data for buyers to look at.
A buyer’s number one goal with your business is to make a return on their investment. If you can present data that shows the past and current performance of your business, and potential future performance, you help them see how they can make an ROI.
Conversely, if your data collection is inaccurate then buyers could be turned off. Or if your business is performing worse than you thought and this comes out when the buyer is assessing your analytics, then you’ll be caught flat-footed in negotiations.
In this article, we’re going to explore the data buyers look at so you can collect the data needed to get the true value of your business when it comes time to sell.
The Data You Can Analyze
Each area of your business is filled with data that are perpetually moving. The data tells how each of these areas is performing. By collecting data in each of these areas you can see whether you’re in the red or green and understand the overall health of your business.
One of the first places a potential buyer is going to want to look at is your storefront.
Storefront Analytics Data
Your storefront is the entrance to your business. It’s where all sales are made and new customer experiences are had, so it’s a crucial component of your business.
Buyers will check the analytics platform you’re using to track traffic. When we list businesses for sale, we require them to have at least 3 months’ worth of Google Analytics or Clicky data for a sizeable data set that tells the story of how your business is performing.
The main data you should collect are
- Conversions: this is the percentage of store visitors who become customers.
- Revenue by traffic source: this is the dollar amount generated by each traffic source.
- Average order value (AOV): this is the amount spent per order by each customer on average.
- Shopping cart abandonment rate: this is the percentage of store visitors who add a product to the shopping cart and then don’t complete the purchase.
When you have data from these metrics you see how your storefront is performing and can make fixes or enhancements. For example, if you notice your cart abandonment rate is high, you can test your site to make sure there aren’t any bugs stopping people from completing their purchases.
Revenue by traffic source is important data for buyers because it allows them to see which of your traffic sources generate the most income for the business. The buyer needs to understand the opportunities and risks associated with your site’s traffic.
Buyers also check AOV so they can see how well your store is generating sales. A low AOV is a sign that either your store’s design, marketing campaigns, or product offerings need improvement.
The shopping cart abandonment rate can also be related to your store’s design and functionality. If you have a low shopping cart abandonment rate, that could be a sign that your store is well-designed. It could also be a sign that your traffic channels are healthy as you’re attracting visitors who closely match your product offering.
Conversion rate is the most important metric. This tells you how your store is performing overall. The other metrics are more granular and tell the story of why your conversion rate is what it is.
The next data set to prepare is your sales and customer data.
Sales and Customer Data
Most ecommerce entrepreneurs get caught up in the rat race of chasing new blood; they pour money into ad campaigns to continually acquire new customers, but this isn’t sustainable for long-term growth. Putting all of your efforts into getting new customers without supporting them when they come in and keeping their loyalty is a good way to quickly burn out your business.
This is why you need to know what your customers are doing after they make their first purchase. The metrics you can collect to track this are
- Customer Lifetime Value (LTV): this is the average dollar amount of how much your customers spend in total.
- Customer retention rate: this is the percentage of customers who make repeat purchases from your business.
- Refund and return rate: this is the percentage of purchases that are returned or refunded.
LTV is the metric that tells you the overall health of your customer base. The more customers spend with you and the longer they stay customers, the better. It’s important to note here that refund and return rate should be taken into consideration when calculating your LTV. If not, then your LTV will be higher than it actually is.
Your customer retention rate influences your LTV as the more customers purchase from you, the higher the amount of revenue they generate. Getting a repeat purchase from a customer is faster than acquiring a new customer and on average it costs up to seven times less.
Your refund and return rate tells you a lot about the quality of your product and service. A high return rate could be an indication that your product is of low quality. You can confirm this by checking customer reviews, feedback, and customer service emails.
It could also be a sign that the information on your storefront is incorrect or poorly communicated. A common example of this is when customers return products because they are larger or smaller than how they look in the product photos. This is why you should clearly display as much product information as possible on your product pages.
Your number one customer-related goal should be to have a large audience of customers who make many repeat purchases over a long time period and make few product returns.
There’s only so much you can control this, but the main ways are by selling high-quality products, re-marketing to your audience, and offering stellar customer service.
The next data set to collect is your paid ads data.
Paid Ads Data
Your customer acquisition channels need to be in good shape for your business to keep making sales.
If a significant amount of sales come from your paid ad campaigns, then your store’s overall profitability is heavily reliant on your paid ads. For example, if you’re spending too much to acquire customers, then it could be making your business financials sink into the red.
It’s important to understand how your ads impact profitability so you can fix areas where money is being lost and identify opportunities to reduce costs and increase revenue to improve overall profitability.
The main data points to consider when assessing your paid ads performance are
- Customer acquisition cost (CAC): this is how much you spend to acquire a customer.
- Ad spend: this is the total amount you spend on advertising campaigns.
- Cost per click (CPC): this is how much it costs when someone clicks on your ad.
When you subtract your CAC from your LTV, you can see how much profit you’re making from your ad campaigns. This tells you the overall health of your paid marketing efforts.
Every other metric contributes to this value; ad spend is included in your CAC calculation. A high ad spend could be an indication of a competitive environment as many other businesses bid for the same audiences you’re targeting. A low ad spend could indicate the opposite, but it could also indicate that your ad campaigns are well-optimized.
CPC is also included in your CAC calculation and tells you about the competitiveness of your niche and how well-optimized your ad campaigns are.
If you can show these metrics to a buyer and explain the market environment in your niche in relation to the performance of your ad campaigns, you can present your business in the best light and give yourself the opportunity to negotiate for a high sale price.
Another key area buyers will assess is your supply chain.
Supply Chain Data
Your supply chain is the backbone of your business. A significant percentage of your profits are influenced by your supply chain and it’s where the majority of your business’ expenses come from.
Knowing your supply chain metrics allows you to identify areas where you can cut costs to increase profits.
The main areas of your supply chain you want to focus on are the suppliers, storage, shipments, and delivery. Not only will analyzing these areas allow you to see where you can cut costs, but you can also see where to improve efficiency and order capacity so you can take on more sales and offer a better customer experience.
If your supply chain stops, your business stops, so you want to make sure you’re keeping your finger on the pulse so you can quickly intervene if troubles arise, or better yet, prevent troubles from happening.
Some key metrics that will give you a view of your supply chain’s health include
- Stock out rate: this is how many times you’ve gone out of stock over the past year.
- Profit margin: this is how much money your business takes home after all expenses.
- Lead time: this is how long it takes for your suppliers to have products ready for delivery.
- Inventory turnover: this is how many times you sell your inventory over a year.
Buyers will want to know how often you stock out over the course of a year as this is a key indicator of the overall health of your supply chain.
The number one goal of your supply chain is to keep products in stock and deliver them on time so your business can continually make sales.
When you show a buyer the metrics behind your supply chain, they can identify the areas where they can make improvements. They can also see the healthy areas, which will make them feel confident your business is a safe investment.
So far we’ve looked at the metrics within your business. Now let’s take a look at the external metrics that impact your business.
Market and Industry Data
A buyer’s biggest fear when acquiring a business is the risk of failure; an area that carries a considerable amount of risk is the market.
Market trends, consumer behaviors, competitors, industry regulations, and the economy all influence how many sales your business makes and therefore its risk profile. In order to understand the external risk of your business as an investment, the buyer will like to see some data, including
- Number of competitors: this is the number of competing businesses in your niche that sell the same or similar products.
- Niche trends: this is a mixture of consumer behaviors and market/economy trends related to your products and the overall niche.
- Industry laws and regulations: these are the laws and regulations in your industry that directly affect how your business operates and the products you sell.
One of the biggest direct risks to your business is competitors. Collecting data on who your competitors are, what products they sell including their designs, who their target audience is, and how they market themselves helps you understand the impact your competitors are having on your business.
Having this understanding allows you to make smart business decisions to mitigate the negative impacts competitors can have on your business.
If you also collect market data, you can jump on market opportunities your competitors aren’t taking advantage of to get ahead.
Overall, you should keep your finger on the pulse of what’s trending and changing in your niche so you can keep on top of market changes and adapt your business accordingly. For example, if a new regulation in the pet food industry comes in that requires all meat food products to concord with certain standards, then you need to be ready to work with your suppliers to make changes to your products so they meet the new standards to avoid punishment from the regulatory bodies.
When selling your business, having accurate data from all its areas and understanding what the data means for your business’ overall health puts you in a strong position to command a high sale price.
The best thing about selling your business is you don’t need to be an expert in business sales and acquisitions to sell it for the right price.
How to Use Data to Achieve a Highly-Profitable Exit
Be open to buyers about your data, warts-n-all. If you try and cover up data or be vague about it then buyers are going to lose trust in you and your business.
Instead, use the low data points to show the buyer the opportunities for growth. You can even do some math calculations to show the buyer how they can make an ROI. For example, if your AOV for your $15 product is a bit low at $30, then you can highlight increasing AOV as an opportunity for increased sales and ROI. You might tell them if they add a “Customers Also Bought” section to the checkout page it could increase the AOV to $45, which would increase the total sales and profits of the business.
Having data also enables you to show your business’ strengths. A solid track record of sales and effective order fulfillment are some examples of strong selling points. Analyze your data to find where your business is performing well so you can present these to buyers.
If you’d like help with collecting your data and preparing your business for sale, then you should sell your business through a broker like Empire Flippers.
We have teams dedicated to every step of the selling process. We provide free, no-obligation consultations to help you prepare your business for sale. Then, if you decide to list your business for sale with us, our vetting team helps you prepare your profit and loss statement to get your business listed on our marketplace.
Your site’s identity is protected and can only be accessed by buyers who have verified their identity and liquidity with us.
We’ll market your business to our buyer audience that has almost $2BN in collective verified liquidity. We help with negotiations and once you receive the offer you’re happy with, we’ll migrate your business over to the buyer and collect your funds.
If you’d like to get the process started, submit your business information to our team and we’ll start getting your business listed for sale.