How to Assess the Market Value of an E-Commerce Business
By Niv Buzzetta, CBI, CM&AP
The rapid expansion of e-commerce has been driven by technology and convenience. Over the next few years, e-commerce revenue is estimated to increase at an annualized rate of 7.7%, reaching 1.4 trillion in 2027.1 The online consumer purchasing behavior can be attributed to a variety of factors such as mobile device penetration, a wider product selection, improved shipping options, mobile commerce, social media, and the increased usage of digital payment methods.
The fundamentals of valuing an e-commerce business are similar in some ways to a traditional brick-and-mortar business. Analysis includes reviewing financials, viability of product line, customer retention, concentration of suppliers, shipment methods, and logistics. There is an added appeal to acquire an ecommerce business for tech savvy entrepreneurs due to the flexible hours, multiple online marketplaces, and increased employee productivity through technology. The intangible assets can be key to the premium market value of an e-commerce business. Below are four factors to consider:
1. Robust omnichannel capabilities
How many and which marketplace channels does the business use? There is a growing number of online marketplaces including Amazon, eBay, Shopify, Walmart, Etsy, and more. The more sales channels a company utilizes usually leads to more market share potential.
2. Mobile shopping
Are the business website and payment methods optimized for mobile use? The penetration of mobile devices has increased the convenience of online shopping. The business website should provide ease of navigation and payment on a mobile device. Businesses can benefit from a variety of payment options including digital currency, mobile wallets, and subscription-based models.
3. Social commerce
Does the business use social commerce as a tool for customer engagement? Traditional methods for advertising and selling include paid search or content-driven marketing campaigns. Social commerce offers a new way of engaging with customers. Some key elements of successful social commerce strategies include leveraging influencers or partnerships with other brands, creating compelling visuals through video content, providing exclusive offers, creating loyalty programs, offering timely discounts, incentivizing referrals, and utilizing interactive features. Social commerce is becoming popular as a marketing strategy to increase customer engagement and customer loyalty.
4. Innovation and automation
Does the company leverage artificial intelligence (AI) to maintain visibility and boost sales? AI platforms can tailor customer experience to increase sales and customer satisfaction. Customer preference and purchasing history data and algorithms are used to enhance customer experience through improved searched and product offerings resulting in increased online sales.
In conclusion, the flexibility, automation, and growth dynamics increase the appeal of an e-commerce business and can lead to a premium market value. Purchasing an existing e-commerce business requires additional considerations highlighted in this article. Online consumer spending, competition among e-commerce businesses, and number of online marketplaces will continue to grow. Analyzing how an e-commerce business is positioned for these market trends will protect your business investment.
1. IBISWorld, September 2022 – ibisworld.com
