
The Open Book Sale of My $600K eCommerce Store, With Financials - spiredigital
http://www.ecommercefuel.com/selling-an-ecommerce-store/
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spiredigital
Hey all - OP here. I know drop shipping sites tend to illicit some curiosity
(as well as a lot of skepticism) online, so I'm happy to answer any questions
as honestly as I can here in the comments.

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kohanz
As someone who has zero experience in this area, but is curious about it for
that same reason, I want to thank you for your voluntary transparency. The
piece itself is also well-written and is an overall enjoyable read. I wish you
all the best!

~~~
spiredigital
Thanks - appreciate that!

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smoyer
According to "The Portable MBA", the selling price for a business like this
should be about 2X gross profits, so we'd logically expect about four price
cuts before someone bites (predicting a sale at $145k).

~~~
davemel37
From what I understand, the value would be based on a multiple of each traffic
source and the likelihood of it standing the test of time... SEO traffic can
expect to trade at 1.5x-2x Paid search traffic at a 6 month multiple direct
navigation traffic at a 3x-4x multiple

Also, It would be based on the previous 6 months average... Not the current
year sales...

Personally, I am way to skeptical of this guy finding a buyer, and than
scamming him by buying up inventory through friends and entities he creates,
knowing he will get 2.5x+ on each product he buys.

~~~
spiredigital
Unfortunately, the trailing six months isn't a meaningful figure given the
annual seasonality of the niche. Value would be over stated in the spring
(when profits are high) and under stated in the fall (when profits are low).

And while, theoretically, it could be possible to create a ton of fake
transactions to boost the sale price, it'd sure be a heck of a lot of work for
little payoff. You'd need legitimate transactions, otherwise you'd simply be
returning the motors and reducing revenue.

I suppose I could start a trolling motor MLM and ruin all my personal
relationships to boost my chances at a slightly higher sale price...

~~~
IanCal
> And while, theoretically, it could be possible to create a ton of fake
> transactions to boost the sale price, it'd sure be a heck of a lot of work
> for little payoff. You'd need legitimate transactions, otherwise you'd
> simply be returning the motors and reducing revenue.

It'd also likely be fraud.

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chstrcheeto4prz
The real value in this sale (which the author readily admits) is the organic
traffic that he'll get from publicizing the sale. Pat Flynn did the same thing
with [http://www.smartpassiveincome.com/niche-site-update-new-
cont...](http://www.smartpassiveincome.com/niche-site-update-new-content/).
The people reading about how to create niche sites are actually the ones
bringing the most value to the author's niche site. It's a clever model for
social seo.

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mvkel
I agree with the other sentiments here on losing the reverse auction. There's
no need for it; pick a number that's objectively fair and leave it at that.

I'm trying to figure out what the incentive would be for anyone to buy this,
let alone folks in HN-type circles.

Yes, technically it's an ecommerce business, but with wages and salaries
(outside of the general part-time site administrator) being non-existent, I
don't see how it can stay afloat. You allocated a portion of the shared
infrastructure expenses with the parent company; why is a portion of your
salary not also included? Surely work goes into finding and brokering
relationships with the motor manufacturers, selecting opportunities, setting
the vision, etc.

On paper, even if you allocated 100% of the profits to pay for a person's
salary, it can barely sustain a single person. The only realistic outcome is
for it to be added into the fold of an existing company that wants to get into
the high-end trolling motor space as a break-even business unit. Potentially
serving as a loss leader to sell other higher margin items.

This reduces your prospective buyers down to about ten in the entire country.

One thing I love in your data: tracking traffic -> revenue. Cool!

~~~
spiredigital
Great questions. Let me address them:

1) The rationale behind the reverse auction isn't 100% profit based. It's the
best combination of being able to be transparent (for a good case study)
combined with the ability to get a good value.

The reverse auction actually prevents people from waiting until the last
minute because it creates scarcity. The moment someone places a bid, the store
is off the market. So for people who really are interested, they only get one
chance.

2) Small eCommerce business like this usually sell for 2-3x sellers
discretionary earnings, which is a term for net income with a usual exclusion
for one full-time salary. The fact that a full-time salary isn't included is
part of the reason they sell for a smaller multiple.

From the original post:

Currently, my operations manager, Pat, runs the day-to-day operations. He
works part time and spends up to two hours per day running the operations of
TrollingMotors.net. For more details on exactly what he does, please see the
section on Operational Responsibilities.

When calculating seller’s discretionary earnings (i.e., income) for small
eCommerce businesses of this size, wages for one person (often the owner) are
usually not deducted. Given that Pat and my combined operational workload for
the business is less than 15 hours per week, I didn’t include any labor costs
per this normal exclusion in calculating seller’s discretionary income.

However, I realize that most people (myself included if I were you!) would
want to see the financials including payments to an employee. That’s why I’ve
listed below how paying an employee would impact the bottom line. This is the
anticipated cash flow assuming someone else was running the day-to-day
operations of the business, effectively putting the operational aspects of the
business on complete autopilot.

Cost for employee wages is $15,000 / year (assuming $50,000 full-time salary
paid at two hours per day), reducing the net income to $50,000 from $65,000.

You mentioned it can barely sustain one person which, if this all they did all
day, may be true (depending on where you live). But the operational time
involved with running the business is 2 hours per day, which leaves a lot of
time to do other things. Most of the existing work has been done (website
development, supplier relationships, etc) and the product line doesn't change
much so the website doesn't need to be updated frequently.

Two hours a day can seem really low, especially from the perspective of the
seller as I obviously have a conflict of interest. That's why I added real
data points to the workload required for operations. Over the last year,
averages are:

\- 3 email tickets per day \- 4 phone calls per day \- Average call time of 8
minutes)

...plus some work at the beginning of the year to retrofit the website for the
20 to 30 new models that come out.

If you tried to take out a $150,000 full-time salary for someone out of the
business, it obviously wouldn't make sense. But for someone who wants to get
into eCommerce with a minimal amount of day-to-day work and quickly get a
lifestyle business into their life, it's a much better fit.

Hope this helps clear things up, and let me know if I can answer any follow up
questions. And glad you liked the traffic -> revenue chart! I think it's much
more useful than simply traffic stats alone. :-)

~~~
mvkel
Thanks for the thoughtful answers.

Related to your #1, that makes sense if 100% of your prospective buyers know
about the auction the minute it's opened, but in practice, many folks won't
find out about the auction until, say, 30 days in, when they could have
absolutely been interested in purchasing on day one.

In short, creating scarcity isn't the mechanism for the sale; knowing that
it's even for sale is.

RE: #2, understood. I suppose it's just not clear that there _is_ additional
administrative work that needs to be performed beyond the operational
responsibilities you outlined, and it's not accounted for, where in virtually
all other departments, it is.

Btw, in another post you talk about "illcit" questions; I think you mean
"elicit," though it'd probably bring up both :)

~~~
spiredigital
On point #1, you're right - not everyone will know about the auction right
away. But I have been able to alert a large group of people early.

I have a good-sized email list, and they found out this morning. I structured
the sale to (hopefully) get attention as well early on, and that has also
seemed to work well. This was also the rationale behind the 5% referral bonus
- to get people to spread the word. So there will be some buyers who, yes,
won't see it until mid-way through. But there should be (hopefully) enough
early on watching to get some serious buyers interested at the right time.

On point #2 - you're absolutely correct. The 2 hours / day assumes just the
day-to-day operations. There will be other things that need to be done
(updating site, misc. work, etc). In the full post, I do disclose this and am
not trying to say it's 2 hours a day only, for the entire year.

But generally, with small eCommmerce sites like this, there is an exception
for a full-time owner salary when calculating the earnings, which is what the
multiple is based on. Given the fact that the total hours per week are 20
inclusive of maintenance (if being liberal) - and a 40 hours owner's salary is
usually excluded from calculating income - I feel it's fair.

And thanks for catching the typo! Would you mind letting me know which post it
was in? Appreciated.

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staunch
How is this more open than just about any auction on Flippa? Basic financials
and traffic stats are the norm, not a special example of transparency.

~~~
pakitan
You obviously don't visit Flippa too often. As someone who does, I can tell
you that you have quite the wrong impression. Flippa is a cesspool full of
people selling crappy sites at inflated prices and if you really want to get
detailed info on a site, you usually have to spend hours and hours pulling it
out of the seller. Something as detailed and transparent as the auction here
is a _very_ rare exception. Not to mention that it actually seems a solid
business with increasing revenue over the years. Most people sell their sites
only when they start going down the drain.

~~~
staunch
Well, I admit Flippa looks worse than the last time I checked it out. There
are plenty of auctions with just as much detail as this post though. So, it's
as transparent as a good listing on Flippa.

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dingdingdang
Thanks for the transparency, I'll wager that this sort of behavior will become
much more naturalized in the business environment at large as pre-internet
behavior gradually becomes replaced with post-internet sentiment - for now it
certainly reflects very positively on you and your business.

~~~
spiredigital
Thanks! I have a hunch that this way of selling might get more traction in the
future as well. When you're selling a business, usually the more attention and
publicity you get the more buyers (and higher price) you're likely to have.

There are a few things I'm not sharing (like the top selling products, for
example), but for the most part, I think the advantages from being transparent
far outweigh the risks.

~~~
joshdance
I think you are right. Transparency rarely hurts.

~~~
grimtrigger
I'd imagine it hurting a lot.

Not a dropshipper, but I believe one of the greatest costs is finding
profitable niches. IE many sites won't make any money at all because there's
no demand.

When you do find a profitable niche, being transparent can invite competition.

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grimtrigger
Hey, i highly suggest getting rid of the reverse auction.

Imagine X is the highest value any bidder attaches to ownership of the site.
Even if the price drops below X, the bidder has an incentive not to bid (since
they can potentially wait and scoop it up at a discount). You're throwing out
money.

~~~
spiredigital
OP here. Thought a lot about the auction structure and decided the Dutch style
(reverse) was the best given my goals.

I wanted to combine getting a good value with the ability to showcase the
bid/price - and the process - publicly.

If I did a normal open auction, there is a chance everyone would wait until
the last minute to bid. I'm managing bids manually, so it could get hectic.
Plus, it wouldn't be as fun to watch for people reading.

Also, if there were NO bids early on it would really hurt the potential sales
price with a lack of interest.

A full-on closed auction wouldn't be nearly as exciting for people to watch,
and I wanted to generate buzz and interest, plus show the whole process.

With the reverse auction, the bid management is simplified - I only have to
manage one winning bidder. It also allows the process to be showed publicly.
Finally, it creates a sense of scarcity. If someone really wants it, they'll
be more likely to bid early to prevent others from getting it.

So is it perfect? Definitely not! :-) Probably leaving some money on the table
but I thought that this was the best structure to maximize value AND interest.

~~~
NicoJuicy
You forget the value of impulse when someone is bidding :)

This would maximize intrest, but not maximize value (money).

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kposehn
One very important note for anyone looking to purchase this site: a huge
portion of his traffic - and revenue! - is from direct visits (no search).

That is a fantastic asset to the site and makes it very sticky in the face of
Google algorithm changes.

~~~
spiredigital
Thanks kposehn! But that is a little deceiving. Direct traffic makes up about
40% of the revenue. But about 1/2 of that is phone traffic that we get because
we take phone orders via our site, which appears as direct.

So 20% is true direct traffic. But that other 20% of the total probably is
originally sourced from other places (referral, search engines, etc) but they
just close the deal over the phone with us.

~~~
kposehn
Even at 20%, that is still a Very Good Thing. I've seen a lot of ecommerce
sites (10x or more in size) with far less direct traffic.

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fatbat
Thank you for the awesome article and sharing the details! One random question
from looking at the charts, how do insurance/product liability for drop
shipping work? Are they generally not needed or covered by someone else?

~~~
spiredigital
Good question. It's really a personal decision based on risk. Technically, I
think consumers can go after anyone in the supply chain so, even retailers or
stores. So it's not a bad idea to have.

That being said, I'd say the majority of stores don't have it....

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ajiang
A few questions:

* Why is Q4 Projected so low compared to Q1-3? * Why are Gross and SDE Margin % falling consistently from 2011-2013?

I think one thing that pops out at me is that while most business get better
margins as they scale, your margins are actually declining or stagnant, which
seem to be driven by the decline in COGS.

~~~
kohanz
_The trolling motor niche is seasonal, with demand peaking in the spring and
summer and dropping off in the fall and winter months._

~~~
ajiang
Thanks, that's helpful.

Any hints on the declining margins?

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spiredigital
Good question! I was actually wondering about that when I was drawing up the
financials. I don't honestly have a good answer for that.

Speculating here, but it could be minor changes in the manufacture pricing
(they set minimum pricing levels). It could be slight differences in which
supplier we use over time (given different costs at different warehouses). I'm
really not sure. Sorry I don't have a better answer for you.

~~~
ajiang
I'd like to see if it's decreasing margins over time on products or if it's
due to a shift in product mix sold.

Would product level information be disclosed if I submit a request for the
full prospectus?

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OhHeyItsE
Great post and thanks for sharing.

How did you get started in this? I mean - why trolling motors? And, how did
you find drop-ship suppliers for such a seemingly expensive/low volume-
product?

Good luck!

~~~
spiredigital
Thanks! I picked the niche purely based on where I thought I could make money.
When I started it, I had been running another drop shipping site for a few
years already and wanted to try my hand in different market.

Finding drop shippers is actually a lot easier than you might think. You can't
find them for every niche and market, but if you're willing to spend some time
digging through Google you can usually find legitimate wholesale drop shippers
without too much work. I did a video on it (see below) that might be helpful:

[http://www.ecommercefuel.com/drop-shipping-
wholesalers/](http://www.ecommercefuel.com/drop-shipping-wholesalers/)

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seansoutpost
Will you take bitcoin for the purchase price?

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spiredigital
I will if you will offer me a 60 day options contract to sell bitcoins at a
fixed price after close! Otherwise, the volatility cold double or half the
purchase price. :-)

~~~
aric
You don't need a waiting period to accept bitcoin converted to USD.

[https://bitpay.com/](https://bitpay.com/)

[https://coinbase.com/](https://coinbase.com/)

~~~
arthurcolle
Very disingenuous to post coinbase and say "no wait period" when you have to
wait AT LEAST a week to get your bitcoins.

~~~
aric
It's not disingenuous. You misunderstood. He was concerned about floating
prices between BTC:USD. You don't have to implement your own waiting period to
accept bitcoin into a static USD price with either service. If you do that,
then there are the same short waiting periods that apply to every payment
service that performs USD ACH/banking transactions before it gets to your bank
account. The value doesn't change in the meanwhile.

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tslathrow
Part of the reason this is not a good business is you can't amortize
advertising. ie no SG&A leverage going forward. unlikely to see decreasing
marginal cost

why not post cash flow as well?

you will also get your ass kicked for posting projected financials without a
series 7 & 63

~~~
spiredigital
Thanks for the comments. I do have a financial background, and to my knowledge
companies usually don't amortize advertising. Amortization and depreciation is
something reserved for large assets that have a significant upfront cost and a
very long lifespan - like a building.

The benefits from advertising are usually used immediately. Buy a super bowl
commercial? The benefits are definitely used up within that year, if not that
week.

For a business like this, cash flow is essentially what you see on the income
statement. No huge account payables (pay bills with a CC) and no non-cash
expenses (like depreciation. Again, I'n not depreciating my advertising.)

Also, I do happen to have a Series 7 and 66 - but as I left the financial
industry a while ago they aren't current. I could be wrong, but I don't think
there's any rule that prohibits me from 1) selling my own business and 2)
disclosing the financials without a license. Might be different if I was
selling YOUR business for you.

If you have a financial background and/or sources for your points above, I'm
very open to being corrected. Just let me know.

~~~
tslathrow
I was more wondering about working capital management RE: cash flow. I was
originally an IB analyst @ BB.

The series 7/63 issue only applies if you don't leave the usual "forward
looking statements etc" disclosure.

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mrmagoo312
I'm skeptical of OP, because I remember him on reddit saying he made over six
figures on his drop-shipping sites... Unless he has other successful sites, he
flat out lied about his successes, possibly to sell his ebook.

~~~
spiredigital
OP here! This is not the only drop shipping site I run, and I talk about the
others on my blog. This specific site (TrollingMotors.net) doesn't make six
figures annually - that's correct. But I do have stores that do (I mention my
other stores on my blog). And, of course, the combined earnings are above the
six-figure mark.

Also, I don't sell my eBook - I give it away for free. :-)

~~~
mrmagoo312
Then, sorry... I am an asshole. My bad OP, my bad...

~~~
spiredigital
No worries! :-)

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vpayette
Can you share the details of the site's tech stack?

~~~
spiredigital
Absolutely. It's run on the Magento OpenSource shopping cart, and it's a LAMP
environment.

~~~
livestyle
Question on EcomHub. Did you use them right from the begining?

Also how did you get the intial product data i.e pics etc?

~~~
spiredigital
Didn't use them right from the beginning, no. Have been using them to sync
inventory for about 6 to 9 months now, and just recently started using them
for order routing and sending out tracking numbers.

Original product data was gathered from the manufacturer, as well as
independent research.

