Can You Sell Your Online Business if Your Profits Are Declining?
June 4, 2020
You’d think an online business on the rise would be more desirable to an investor.
The more money it makes, the more an investor would want it – right?
A continuous increase in traffic shows that a business’ popularity is increasing. A rise in sales shows that the business’ performance is improving. Media attention shows that the business is one of the top players in its niche.
All are desirable features of an online business.
What if your business is heading in the opposite direction?
Struggling with poor inventory management, which eats into profits and causes stock-outs, failing to use marketing techniques, which limits sales, and having an unoptimized website, which limits conversions and therefore revenue, are just some reasons businesses drop in performance.
However, there’s a silver lining: looking at a business in this state as a salable asset and not just a business, we can flip some of these negative traits into opportunities.
Some buyers specialize in particular areas of online business, such as marketing, inventory management, optimizing business finances, and conversion rate optimization (CRO).
A business without any marketing presents the opportunity to add another income stream. Poor inventory management is an opportunity for a buyer with inventory expertise to quickly increase profits. An unoptimized website is an opportunity to increase revenue with a redesign.
Some investors see opportunities even in online businesses that have suffered Google penalties. In fact, we have an investor who specializes in helping websites recover from Google penalties and is often looking to purchase such businesses.
Buyers can improve businesses with shortcomings in these areas, and they usually get very fast results. This means they often want to purchase businesses that are somewhat deficient, make the improvements, and then sell for a large return on investment (ROI).
This is great news for business owners who don’t have the skills or resources to scale their business or who would like to focus on other ventures.
So before you jump to the conclusion that your online business isn’t worth much or that you need to improve its performance before it will be of any value, let’s look at some real-life examples of businesses on the decline that sold for $100,000+.
From Flying High to Being Neglected
Our first example is a 10-year-old digital media business that was once earning $39,300 per month.
The business had a Facebook page with 600,000+ followers, a YouTube channel with 55,000+ followers, a Pinterest account with 700,000+ monthly viewers, and an email list of 100,000+ subscribers. It also had a regular podcast and over half a million monthly website visitors.
It was doing well and earning money from digital products, advertising, affiliates, Amazon Associates, info products, and subscriptions, so how could it drop in profit by 67.68% down to $12,700 per month?
Simple: the seller had another business that demanded more of their attention, so they neglected the business. They hadn’t worked on it for over a year before selling it on our marketplace. The only things keeping it afloat were the advertising and high organic traffic.
How come a business that wasn’t touched for over a year was still a valuable asset?
Strong Foundations for Growth
All the business assets, including the email list and social media accounts, were opportunities for growth.
The email subscribers were waiting to receive promotions and broadcasts. The social media followers were waiting to be entertained. Customers were waiting for the next product they would buy.
A brand with such a huge presence comes with a nurtured audience and great sales potential: setting up a new email campaign or updating the old one, setting up a social media campaign and posting regularly, engaging with the online community that has already been built – basically, bringing the brand to life again.
We’ve noticed that, since the business sold, the brand has been very active on social media. The website has desktop notifications. Posts are uploaded to the Facebook group every day, with 118 posts in the last 30 days, and it has gained hundreds of new followers in the last month alone.
The Pinterest account now gets 936,200 monthly views, up from 700,000. The YouTube channel receives regular uploads. On Instagram, the business has been sharing other photographers’ work and linking to a funnel, which will undoubtedly bring in some targeted traffic.
This activity shows that the buyer saw these areas as opportunities, and these opportunities were likely an influencing factor in the decision to purchase the business.
Let’s take a look at a very different example.
Recognized by Microsoft, Reddit, and Wikipedia, to Name a Few
This eight-year-old AdSense and advertising business featured news and helpful articles based on a popular mobile brand.
With little to no search engine optimization (SEO) work, the site gained 116,000 backlinks and a good domain rating (DR) of 50. The business ranks first in Google for some relatively desirable keywords in the niche, and it averaged 2,509,644 monthly page views leading up to its sale.
That’s pretty darn impressive, considering next to no SEO work was done to the site. But the SEO value of the website isn’t the most impressive thing about this business.
It’s an authority in its niche and has had recognition from giants such as Wikipedia, Microsoft, Reddit, Google, and XDA.
The business also has an app that has more than 10,000,000 all-time downloads. At one point, the app alone brought in over $10,000 per month.
Its success started to wane, however, as other things in the seller’s life took priority and the business was neglected.
As a result, profits started to decline. The app went from making $10,000 per month to making very little. The seller spent two hours per week arranging sponsorship deals and paying the freelance content writer, the video producer, the two developers, and the VAs, who did the majority of the business’s maintenance work. No one was growing the business.
Was it a business worth investing in?
Despite the Decline, Opportunities Were There
If you do think the business was worth investing in, you might be starting to understand where an online business’ value lies.
What value can you see in this business? Where are the opportunities for growth?
A Content Site Needs Content
We recently conducted an ROI study of content business acquisitions, in which we asked investors why they had invested in a content business and what work they intended to do on it.
We found that for 50% of investors, their number one strategy for growth of a content site is to improve the content, update old content, or increase the amount of content. That makes a content site that already has a lot of content desirable to an investor.
Because of the high volume of traffic to this particular site, any changes or additions to the content to increase conversions would make a significant difference to the bottom line. Successful older content could be repurposed in targeted marketing campaigns to further increase conversions.
The business even had YouTube videos with hundreds of thousands of views that could be updated or repurposed for marketing.
Ad Placement
Changing a business’ forms of monetization, improving them, or adding new ones was the main growth strategy of 27% of content business buyers in the ROI study.
This example business already had a second source of monetization: AdSense.
Ad placement can be a big factor in site revenue generation. Most leave ad banners at the top of the site and never test what ad placements generate the most revenue.
One buyer in the study increased their monthly revenue by 50% after updating the ad placement and improving the page load speeds.
These were low-hanging fruit that enabled the buyer to quickly increase profits and make a significant ROI.
That was for a site that previously had authority and brand recognition in its niche, which a buyer could leverage. What about a young business without the experience of an older, larger business?
From Nothing to a Lot to Very Little
This example is a Fulfilled by Amazon (FBA) business that went from $0 to $32,690.02 in a single month.
The seller had run a number of e-commerce businesses for 10 years prior to launching this business, but he’d never experienced such an explosive rise.
He had created the business in a trendy niche just as it was rising. This was in April 2018, and the business sold a product used mainly in winter. During the following Christmas period, the business made $331,217.36 in one month!
This is an example of a business in a market boom.
It’s an excellent way to make money quickly, but it isn’t a great way to build a business that grows consistently year after year. If the business owner doesn’t have the capital or resources to accommodate the huge customer demand, the business will struggle to maintain rapid growth at the level of operations.
That’s what the seller of this business found out.
All Out of Stock
When the seller first launched the product, they’d sold out of three months’ worth of stock in just four weeks.
Although this showed that demand for the product was there, stockouts are a sign of poor inventory management, and inventory management is a crucial cog in the e-commerce machine.
The same thing happened again over the Christmas period when the business ran out of stock a couple of weeks before Christmas – one of the most important times of the year in the business world.
Poor inventory management creates many issues: stockouts limit sales, overstocking results in increased storage fees, and overpaying for inventory delivery eats into margins, even with a third party logistics (3PL) setup. Proper inventory management is an aspect of e-commerce that takes knowledge and experience.
What Made This Business Valuable?
You’ve probably guessed it: the buyer most likely saw this inventory mismanagement as an opportunity to make a quick ROI.
When an FBA owner negotiates a better rate with a supplier or finds a cheaper way to deliver products, via freight forwarding rather than air shipping, for example, the effect on profits is immediate.
This is why some buyers on our marketplace actually look for businesses with poor inventory management.
In this case, improved inventory management wasn’t the only growth opportunity that most likely helped the buyer make the decision to purchase the business.
The business had a supporting Shopify site responsible for a portion of the revenue; however, this site was never marketed and had no SEO work done to it. If this website were used to its full potential, it could be a good secondary source of income. Most of the best FBA businesses support their stores with an off-Amazon website, while still using Amazon’s FBA service to fulfill orders. The second site acts as a safety net if the business ever struggles to sell on the Amazon platform.
A lot of work had been done to achieve a good ranking on Amazon. This meant a buyer could maintain the high ranking to continue to bring in the revenue while starting pay per click (PPC) campaigns to create another revenue stream.
Although the business’ monthly profits had dropped from highs of $300,000+ to earning just $954.41 one month, it was still a desirable asset for one of our buyers.
Now we know that your business is salable even if it hasn’t been performing to its full potential. The real question is whether it’s better to scale the business back up or make a profitable exit while the business is in decline.
Scale or Bail?
A common belief we come across with online business owners and entrepreneurs is that their business is their baby.
It makes sense. An entrepreneur building an online business from scratch can form an emotional bond with it.
If you also have a particular attachment to your business’ niche, then you might want to continue working on your business to reach its full potential. You might want to build a big brand and even a name for yourself in the industry. This is not to mention the goal of getting your business to the point of being almost completely passive, with workers handling all aspects of its maintenance and growth.
That said, growing a business to its full potential doesn’t come easy. Much capital and time are required to get a business to the point of dominating its niche or even just being a top player. This process will likely take trial and error, too, which makes the life of an online entrepreneur an emotional rollercoaster.
When you get to the top it doesn’t stop there either. In fact, it may become harder because of fierce competition, and a larger audience means more responsibility to manage your brand’s reputation.
You might be in the same position as many sellers on our marketplace who don’t have the resources to scale their business. They still want to see their business reach its full potential, though, so they sell it to a buyer who can take it to the next level.
This frees them up to start their next business project. Or a personal project, or a family, or a travel adventure – the possibilities are endless!
Final Thoughts
There are many factors to consider when selling your online business. Selling should be done only after careful thought and consideration.
If you think selling could be the right decision, then hopefully this article has shown you that even if your business isn’t doing as well as it has in the past, and even if it has areas that need improvement, those are selling points that fit the criteria of a buyer out there.
If you’re curious how much your business is potentially worth, have a go with our free valuation tool.
You might be surprised just how profitable an exit you can make.
