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Of all the ecommerce businesses, dropshipping has one of the lowest barriers to entry. With little more than a website, you’re good to go.
And yet, starting a business is one thing, making it grow and prosper is another. If you have a lot of start-up capital, you may be better off buying a going concern.
This way, you can skip all the little steps that can make building a successful drop shipping business difficult. 90 percent of e-commerce businesses fail in the first four months.
As always, buying a business is not without risk. You want to be sure you’re taking over a business with a strong history and great potential for future growth.
In the long run, buying a bad or failed business can be a costly mistake – it often costs much more than starting a new one from scratch.
So how do you do this? buy a drop shipping business?
Let’s find out.
Understand the ins and outs of dropshipping and ecommerce
Buying a dropshipping store saves you from the chaos and hurdles of building an e-commerce business from scratch.
But once you buy a successful business, you need to have the means to run it. We still have to get to work. Otherwise, there is always the real possibility of driving it into the ground. No business, regardless of its size, is completely safe from collapse.
Your best chance of running the business successfully begins by arming yourself with the required industry knowledge.
Be prepared to take the reins and supervise daily activities. Dropshipping in particular requires a high degree of coordination and attention to detail.
While you don’t need to be a technology expert, a fundamental understanding of how the Internet, e-commerce, and e-commerce platforms work is fundamental.
Define your goals for your dropshipping business
Once you take over the business, where would you like it to go? There are many paths you could potentially take. For example, your core business may be a particularly successful product line that you would like to refocus your entire business on.
Or perhaps you want to build on the established business brand to launch a new set of products – in which case, the existing business serves as a buffer in case your new products fail to gain traction.
Defining your goals allows you to narrow your search to the type of business that suits you best.
Your goals should be consistent with your bandwidth. Some dropshipping businesses will need more work to operate.
Set a budget
Once you start looking for a dropshipping business to buy, you quickly discover that there are many good companies that you would like to buy from. But chances are you won’t be able to afford every business for sale.
To avoid spending too much time researching dropshipping stores that are out of your reach, set a budget. Of course, many of the best companies to buy will also be among the most expensive.
It is important to note that when budgeting for the purchase, you should budget for significantly more money than is necessary to purchase it.
You’ll cover operating costs, advertising expenses and inventory management – and you need money for that.
Lately, don’t limit yourself to your own money. Look for partners or investors who may be interested in financing the purchase. Additionally, some companies may be open to seller financing, meaning you can make payments over time.
Search for dropshipping business buying and selling platforms
So where are you looking?
There are a number of generic and specialized platforms where you can purchase an existing dropshipping business.
- Flippa – A large global marketplace where buying and selling of all kinds of online businesses takes place. At any given time, about a third of these businesses are dropshipping stores. For a company to change hands, you can spend as little as $400, but you could pay more than $5 million. Flippa has useful features that can support due diligence. For example, the platform has partnered with SEMrush to display current traffic analytics for a dropshipping store. It also integrates with Google Ads to determine how much the store earns from search advertising.
- Empire Fins – Empire Flippers is a much smaller version of Flippa. Expect to see a few dozen more sites for sale. The lack of variety is a major drawback but you might still come across a few gems. On the other hand, Empire Flippers deals exclusively with large, profitable and well-established companies. There is personalized support throughout the transaction. Dropshipping stores sold here could cost anywhere from $100,000 to over $3 million.
- Acquire – Acquire is a marketplace that facilitates a verifiable process of buying and selling businesses, including dropshipping. Unlike most of these platforms, you don’t see the identity of a company you’re interested in until later in the process. Meanwhile, you get a detailed description of the company’s business, establishment date, operations, sales volume, revenue and profit. The median asking price is around $70,000.
- Side lights – SideProjectors is a platform where people can offer or support a side hustle. Dropshipping stores are popular side projects, so it’s no surprise that there are hundreds of listings on this site. With median prices around $500, SidProjectors is one of the most affordable marketplaces to buy an existing business. On the other hand, the stores offered are small and generate relatively low revenue.
Perform due diligence
Due diligence involves confirming that the business is viable and verifying that the claims made by its owner/management are true. This is especially important for Internet-based businesses because they can be sold by anyone, anywhere, without any physical meeting between the buyer and seller.
Due diligence is the most important part of the transaction. This can be complex and the involvement of professionals who can see beyond the headlines is crucial. At a minimum, you will need an accountant and a lawyer.
The larger and more complex the dropshipping business, the more expert hands may be required to complete the transaction.
There are lots of things you could check out. These can mainly be divided into operational, financial and legal.
Operational:
- Some products – What products does the store sell. Is there significant demand in the market for the foreseeable future?
- Optimized site – Optimized for speed, user navigation and search engine ranking.
- Website traffic – Check the site’s traffic numbers, growth, and sources. If a site relies on a single traffic source (e.g. Meta Ads), this is potentially a single point of failure. As an aside, businesses that grow without advertising present a lucrative opportunity for acceleration.
- Social networks and mailing lists – Does the company have an active social media presence on multiple platforms?
- Customer Size and Demographics – What is his size? Is it faithful and growing?
- Inventory management – Does the company have full control of supplier stocks to track orders transparently? Poor inventory management leads to fulfillment failures, unhappy customers, lost sales and a damaged reputation.
- Automating – To what extent are company processes automated? The more automation, the better. It accelerates and streamlines operations while facilitating rapid scale.
- Customer reviews – What do customers say about their in-store shopping experience? How many customer reviews are there? Are the ratings mostly positive or negative?
Financial:
- Order history – Order history and growth trajectory.
- Revenue/Sales – What is the company’s revenue and growth trajectory?
- Profit – Is the company making money? If not, are losses steadily decreasing and is there a good chance that this will generate profits in the short term? Your best is still a profitable business, and has been for some time.
- Marketing expenses – How much money does the company spend on advertising and customer acquisition. The low acquisition costs suggest an opportunity for development. On the other hand, high costs indicate limited room for growth.
Legal:
- Business information – When was the company founded and has it been in business since then? Does it have all the documents required to operate as a business in the jurisdiction in which it was registered.
- Agreements with suppliers – With which suppliers does the company have agreements? Are they reliable? Strong and diverse relationships with suppliers are an asset. Avoid businesses that rely on a single supplier. If that supplier unexpectedly raises its prices, goes out of business, or stops offering the product, the dropshipping store could suffer a catastrophic crisis.
- Are there any current or future legal or regulatory requirements that could adversely affect your ability to operate the business.
Wrap
Buying a business is always an important decision. There are many things to take into consideration. We’ve covered the most important details you should think about.
Do your research and be sure of what you’re getting into before investing your money. Browse the data to your satisfaction.
But don’t ignore your intuition. If everything seems to be going well but you have a poor idea of the company’s prospects, don’t buy it.