Is it Worth It: Assessing the Opportunity Cost of Selling Your Online Store

Is it Worth It: Assessing the Opportunity Cost of Selling Your Online Store

Selling your online store can be a great way to make a lump sum of cash. However, there is an opportunity cost attached to it. Once you sell your e-commerce website, you obviously will no longer be able to generate a cash flow by running it.

If you are trying to decide whether not to sell your e-commerce store, you will need to take the following into consideration.

Decide how high it should be priced

Business valuation is a very complex science. It must account for the value of all tangible assets, any outstanding liabilities and future revenue forecasts. Accounting for the value of your assets and liabilities is difficult enough. Predicting future cash flow is exponentially more difficult.

You can never predict future revenue with 100% accuracy. Therefore, it is often advisable to sell your business based on current revenue estimates instead. Many online marketing experts advise marketers to sell their digital properties for 10 times their current yearly profit. This may sound like in ambitious target, but truly dedicated entrepreneurs will be able to grow a sustainable business and repay their investment within the year.

Understand the factors that affect future revenues

You will lose out on future revenues when you sell your business on a site like Shopify Exchange. Before you can make an informed decision, you need to estimate your revenue potential to the best of your ability. Here are some of the factors that you should look at.

Industry sales trends

How has the market grown over the last five years? Take a look at data from IBIS and other leading industry publications to estimate industry growth. If industry revenues have grown at least 10% over the last five years, you can realistically expect the trend will hold unless there is compelling evidence to the contrary.

Your own ability to cut costs

Cutting costs is one of the best way to boost your profit margin. A business with a 10% profit margin only needs to cut costs by 10% to double its profit. It would need to increase revenue by 100% to accomplish the same goal. Companies like HoneyWell have boosted profits considerably with modest cost cutting strategies.

If you have identified effective ways to reduce your overhead, then you can expect your future profit ability to rise significantly. You need to take that send a consideration with your forecasts.

Performance of new products

When many online entrepreneurs consider selling their online store, they usually look at aggregate revenue data. They rarely break down their data by product. This is a mistake, because it causes them to overlook new and potentially lucrative cash cows that could drive future revenues into the stratosphere.

Let’s say that your last twelve months’ revenue data was $100,000. You break down your sales figures by product and realize that half of your revenue was generated over the last three months. Over two-thirds of your sales were driven by a single product that you recently introduced.

After looking at this data, you can see that the new product has the capacity to triple your sales.

Consider selling your online store after you have a chance to boost revenue more

Buyers look carefully at revenue figures when deciding whether or not to purchase an e-commerce business. You may want to hold on selling it if you think there is a chance that you can boost revenues more.

Take a look at the hypothetical business above with a 10% profit margin and $100,000 in net revenue. If you are able to cut costs by 10% and increase sales by 200%, then you will have turned your $100,000 a year business into a $222,000 one. Instead of getting $1 million by selling it, you could get nearly $2.5 million. That is a huge premium that you can’t overlook! 

Featured Image - Shutterstock / By Odua Images

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