What Size Online Business Should You Buy?
Online business buying can feel overwhelming. With the abundance of quality online businesses for sale out there, it can be difficult to know which one is right for you.
However, when you break the process down by looking at your situation, budget, and goals, it actually becomes pretty simple.
While there are many potential acquisitions available, there are only a few you’re likely to be able to be successful with.
This article aims to help you get clear on what size business makes the most sense for you to acquire. We’re going to look at businesses in the five, six, and seven-figure ranges so you know what to expect if you acquire a business at any of these levels.
But before we get into that, we need to get clear on what you have at your disposal to invest in an online business and what you aim to gain from acquiring one.
Your Financial Situation
Let’s start by challenging a common assumption: your budget is not how much money you have in the bank.
If you feel your skills and experience are limited by the amount of capital you have, you can leverage your capital to acquire a business above your price range by obtaining funding.
We had two entrepreneurs who were highly skilled and experienced in Amazon fulfilled by Amazon (FBA). They wanted to acquire a business that will generate the highest possible return on investment (ROI) based on their proficiencies to successfully operate the business.
They had the skills to successfully run a six-figure business, but they only had five figures in the bank.
We connected them with our lending partner who offers funding for up to 80% of the business price. The buyers were able to acquire a $355K business with a budget of around $50K.
With a larger business, they were able to gain more cash flow from the asset, 49.9% more than they would have if they’d acquired a five-figure business.
The downside to this type of acquisition is you need to invest the majority, if not all, of your budget into the business.
If you don’t have enough risk tolerance to be comfortable investing all of your money into one asset, then you might consider investing in multiple small businesses. Or if you want to support your acquisition with a growth fund, then you can acquire a small business and use your growth fund to scale the asset and keep you funded if the business experiences low-earning months.
The final consideration is your goal for the acquisition; do you want to replace your full-time income?; do you want to support your income with a profitable side business?; do you want an almost-passive source of income?; do you want to add to your business portfolio?
Knowing what you want to do with the business will help you understand what size business you should buy. For example, if you want to replace your full-time income which is currently $100K a year, then you would either be looking at a single six-figure business earning $8,000+ a month or multiple five-figure businesses earning less.
Now you know what ranges you can look at based on your situation you can start learning about what to expect from businesses of those sizes. The least you can spend on a business that’s profitable is $10,000+.
You can buy businesses cheaper than $10,000, even for $1,000. But those are definitely starter sites in many cases. Those businesses likely aren’t bringing in any significant cash or maybe not any cash at all.
On Empire Flippers, we actually have a requirement where any business has to make at least two thousand dollars per month in net profit to be qualified to list on our marketplace.
For those of you who aren’t familiar with how business valuations work, I’m going to explain what a business multiple is.
This is a figure used to calculate the value of a business. We multiply a business’ multiple by its 12-month average net profit earnings to arrive at its value.
For example, a content site that has earned $2,000 a month in net profit on average over the past 12 months given a 32X multiple will be worth $64,000 ($2,000 X 32).
When valuing a business, our professional vetting advisors analyze its performance history and build. Based on their professional opinion and understanding of business values and market conditions they will assign a multiple that reflects the quality of the business. A high multiple means the business is of high quality and vice versa.
How Much Five-Figure Businesses Earn
At the time of writing, business multiples typically fall within the range of 30-40X across most business models. Some businesses like software as a service (SaaS) businesses have a higher multiple range, between 40-65X+, because they earn recurring revenue which is a valuable quality of an investment asset.
Most five-figure businesses earn anywhere between $1,000 to $3,000 a month in net profit. So when deciding whether to buy a five-figure business, consider whether those earnings will be enough to support your financial needs.
The next consideration to take into account is the build of five-figure businesses so you can know what to expect when running the asset.
How Five-Figure Businesses Operate
Most businesses at this level tend to be run by solopreneurs. The business isn’t large enough to need a team of employees. However, it’s possible that a portfolio owner with a team of employees running multiple businesses has a five-figure business in their portfolio.
Businesses this size tend to be content-based businesses including blogs, YouTube channels, and course sites. They’re usually monetized through affiliate marketing, display advertising, Amazon Kindle direct publishing (KDP), YouTube advertising, or digital product sales.
Because content-based businesses have such high profit margins, up to 98% in some cases, you can find ones earning a few thousand dollars that are established enough in their operations and niche to be a viable acquisition.
Because SaaS valuations are so high, few are profitable at this price range. As for ecommerce stores, they’re a low-profit margin model so in order for an ecommerce businesses for sale to be established enough to be worth buying, they need to be earning above $3,300 at a minimum.
Content-based businesses are hands-off to run once they’re generating consistent profits. The main tasks required to maintain a content-based business are:
- Website maintenance
- Checking affiliate links
- Producing content
- Keyword research
These operations are easy to learn as they don’t require any expert-level knowledge. Just make sure the seller of the business supports you in the acquisition by educating you on their content production and business maintenance processes.
How to Know If You Should Acquire a Five-Figure Business
There are numerous ways five-figure content-based businesses can help you achieve your goals.
Because of how hands-off they are, they can be ideal sources of almost-passive income. They’re also highly scalable, so if you’re looking to build your wealth you can acquire a business at this level and implement growth strategies to increase the earning power of your business.
Five figures is a good place to get your feet wet if you don’t have any experience in online business or business ownership, as long as you don’t invest all of your capital into one business.
If you have skills and experience in marketing or working with online businesses in other similar capacities like web design, then you have the potential to scale your wealth as a first-time business owner.
If you think you’ve got the capacity to handle more, then let’s look at six-figure businesses.
The size range for six-figure businesses is considerably larger than for five-figure businesses, so the businesses can vary pretty widely.
At the low end, most are one-person operations. They tend to be on the brink of experiencing the next level of growth, so they’re good assets to acquire if you can identify one that is well-built and ready to scale using a due diligence checklist.
How Much Six-Figure Businesses Earn
Businesses valued at $100,000 plus typically earn anywhere from $3,350 per month up to $33,500 per month.
Considering content sites and ecommerce stores tend to sell between 30-45X multiples, you’d be looking at sites earning $3,350 per month up to $33,500.
Amazon FBA businesses range between 25-35X multiples, so monthly earnings range between $4,000 and $40,000.
SaaS business multiples range between 45-65X, so monthly earnings range between $2,300 and $22,300.
Businesses at the lower end of the six-figure range tend to have lower profit margins as they’re still becoming established in the niche and their operational structures are in the early stages of being built. Businesses at the upper end tend to be more efficient and economical so they earn higher profits.
How Six-Figure Businesses Operate
Businesses of this size tend to have been operating for at least one year, so the entrepreneurs usually have started to introduce some employees and are building a team to help with operations. Businesses valued at high six figures usually have established teams and processes.
Content sites will have teams consisting of content writers, keyword researchers, and maybe social media managers handling content production. The site owners oversee operations and provide instructions to the employees. They may also carry out regular website maintenance checks like testing affiliate links.
Six-figure Amazon FBA businesses tend to work with third-party logistics (3PL) companies to help with order fulfillment in areas such as order checking and storage. If there are employees working for the company, these tend to be virtual assistants (VAs) who handle inventory ordering, customer service, or product listing management.
These businesses also rely on pay-per-click (PPC) campaigns for marketing, so there may be an agency involved that runs the campaigns. Business owners tend to focus on tasks like financial tracking, overseeing inventory management, and growth planning.
SaaS is one of the most hands-off business models. Since the software fulfills the service, the owner just needs to ensure the business is getting customers. Most SaaS owners use marketing agencies to help in this area.
Other employees that help run SaaS companies are VAs that handle customer service and on-demand developers who maintain and upgrade the software.
How to Know If You Should Buy a Six-Figure Business
Because six-figure businesses are usually older than five-figure businesses, they have longer earnings histories; you can look back over the years and see how the business has performed over time.
If the business has experienced any performance dips, like a content site that suffered impact from a Google update, you can see whether the business was able to withstand the setback. This tells you how strong of an asset the business is and how long it could potentially continue to be profitable.
Your risk tolerance will ultimately be the most important decision-maker. Businesses in this range are pretty high risk as they aren’t very big in their markets compared to seven-figure businesses.
However, businesses at the upper end of the six-figure range are on the cusp of becoming market leaders, so if you have the skills and resources to take it up to the seven-figure level, you could earn a considerable return on investment (ROI).
Based on the earnings from these businesses, most are full-time income replacing assets, so you could acquire one to replace your day job if you have the skills or are willing to learn how to successfully operate one of these businesses.
Another application for a six-figure asset is having a business that supports your other businesses. For example, you could acquire a $100,000 content site not for its profits, but for its audience to bolt it onto one of your other brands.
However, if you have a large sum of capital and resources at your disposal and you’re looking for a major, long-term wealth-building investment, then you might consider looking at the seven-figure range.
Businesses that have broken through the million-dollar mark are the leading assets in their industries.
If you want to own a majority share in a market, then a seven-figure business is for you.
Because businesses at this level are so large, the difference between low-seven-figure and high-seven-figure businesses isn’t so significant. The major difference is how much they earn.
How Much Seven-Figure Businesses Earn
Businesses valued at $1M+ typically earn between $33,600 and $400,000 per month in net profit.
Seven-figure content sites can have multiples anywhere between 25-50X, so monthly earnings are between $40,000 to $400,000.
Ecommerce and Amazon FBA stores valued at a million dollars plus range between 30-50X so earn between $33,400 to $400,000 per month.
The minimum multiple for seven-figure SaaS companies is 45X rising up to 80X and above, so they earn between $22,500 and $222,222 per month.
Content sites maintain their profitability at the 90%+ range when they surpass the million-dollar valuation mark. Some may be around 85% if the business runs paid traffic campaigns.
As for ecommerce and FBA businesses, their profitability can decrease from the six-figure valuation range as they need to spend more on advertising and inventory to maintain their leading position and handle high sale volume.
SaaS companies are somewhere in the middle with profit margins between 65-85% depending on the design of the business model.
How Seven-Figure Businesses Operate
To handle the large service and product requirements, seven-figure businesses need a team of operators to help run the business.
Content sites of this size will usually hire a number of writers and editors to manage them for large-scale content production. They will also have specialist VAs carrying out tasks to support the writing team including keyword research and content posting.
Some may also have a marketing agency on board to run email marketing or paid advertising campaigns.
Ecommerce businesses will have the same setup as in the six-figure range, just with more hands on deck.
SaaS companies have multiple developers on board to manage the software to make sure the server can handle large volumes of data and usage. That said, high-ticket SaaS products may not require such maintenance since their customer base is smaller.
Amazon FBA is one of the few business models that can be run by a solopreneur even as a $1M+ brand.
Because Amazon handles most of the fulfillment duties, it’s possible for a solopreneur to only use automation tools to act as super assistants in tasks like inventory management, listing optimization, PPC optimization, and customer service.
Having said that, most have at least some employees or VAs handling those tasks—though in the future we may see less and less of this!
Ecommerce and FBA businesses will have collected protective assets to defend the brands against competitors, including trademarks and supplier exclusivity contracts.
They will also have expanded into wholesale through brick-and-mortar retailers like Walmart.
Structurally, content sites and SaaS companies don’t change much as all of their service fulfillment is carried out on their websites.
Now you know how businesses at this range operate, you can think about whether one would be a good acquisition for you.
How to Know If You Should Buy a Seven-Figure Business
Even first-time online business buyers can be successful with a seven-figure business. If you acquire a business with a strong team and solid operations and you understand the fundamentals of how the business model you acquire works while getting as much support in the transition of the sale from the seller as possible, you give yourself the best possible chance of being successful.
Getting support from the previous owner is key. Most will offer their support for at least a month after the sale and many more are willing to offer considerably more support. Some even stay with the business on a paid consultation basis.
When you get the support of the person who built the business, you’re acquiring its strongest asset. They will introduce you to the business and give you plans or guidance on how to scale it to the next level.
Seven-figure businesses are solid long-term investments. They’re established in their markets and have assets that defend them from competitors and market changes.
Another ideal type of buyer for seven-figure businesses is someone who has the skills to be successful with a business of this size but not the capital or resources to acquire one; just like the two buyers we mentioned earlier who were able to buy a business seven times larger than their original budget within just 12 days with no personal guarantee.
Our lending partner offers up to 80% flexible financing for businesses priced six figures and above, so if you’d like to acquire a business mostly using someone else’s capital, look for the “Financing Approved” badge on our listings.
The Size Of Business You Should Buy
Hopefully what we’ve covered today will help you decide what size business to buy, but if you need extra support, don’t hesitate to ask a professional broker to help you find the perfect deal.
At Empire Flippers, our acquisition advisors provide free, no-obligation consultations. We discuss your current situation and goals and provide you with the guidance and expert advice you need to make a successful acquisition.
If you feel comfortable enough to have a look for yourself at what businesses we have for sale, then create a free Empire Flippers account and use our 25+ search filters to narrow in on the business that’s most suited to you in seconds.