Dropshipping Business Valuation: 10 Factors That Contribute To The Exit Value

This probably goes without saying, but the first thing that any investor or entrepreneur is going to look at when examining your business data is the net profit. While we often see companies listed on the NASDAQ worth billions of dollars while losing money each quarter, that simply doesn’t work with a small, Shopify store. When you’re running an eCommerce shop, people want to see profit!

If your website isn’t generating profit, you’ll be unlikely to make a sale. While it isn’t the only factor in website valuation, profit is still king.

When people are looking to acquire a new business, you’ll often hear the term “profit multiple”. This is a simple tool used to calculate how long it will take for an individual to recoup their investment if they were to purchase your dropshipping store.

For example: If your store is making $5,000 in profit each month ($60,000 / year) and you want to sell the business for $150,000, that would be seen as a 2.5x annual profit multiple as it would take 2.5 years for your business to generate $150,000 in net profit if all things stay the same. 

Generally, on Flippa, we find that 2.5x is a pretty good annual multiple to value your business at if you’re going straight off of profit and not considering any other aspects of your website (that we’ll discuss below). This is because most investors want to make their money back in under 3 years.

That said, every one of the next 9 factors for your website valuation can make your business worth more than average. So, let’s take a look.

Developing a website that can stand the test of time means a lot. Investors are on the prowl for Shopify stores that have weathered storms. They want to see a stable business over the Summer and Winter months. They want to know that the products being sold aren’t just trends or momentarily popular because a celebrity happened to tweet out a link.

While you might feel like the king or queen of the world when you start seeing a few months of profit, an investor will weigh the value of a 5-year-old site far more than a 5-month-old site, even if the younger site is more profitable.

Unfortunately, you cannot hack your way to a well-aged site. Developing trust simply takes time, dedication, and a well-built store.

Age is actually one of the most critical factors that we use in the Free Valuation Calculator on Fippa which can get you a general idea of your site’s value in just a few minutes.

Anyone working in the blogging space realizes how crucial it is to achieve organic, search traffic, but it can sometimes be overlooked when developing a Shopify store. 

Don’t make that mistake!

If you can drive traffic organically, bringing people to your store who are literally searching for what you’re selling, not only will your profit be higher as you’ll be spending less on advertising, but the intrinsic value of your business will skyrocket as well.

Solid organic traffic is like building a brick-and-mortar retail business on a busy street. Sure, you might put up some billboards or run a few magazine advertisements, but you are also getting tourists who are walking past. These are essentially free customers!

Well-optimized Shopify themes, like Debutify, can help you achieve strong SEO and, therefore, plenty of organic traffic. Providing the opportunity to create content-rich, SEO-friendly product descriptions is just as important as having an exciting blog, and choosing a theme that loads fast is also important for your search rankings as the Google algorithms are biased towards site load speed (and your customers don’t like to wait for either).

Organic traffic is great, but if you can rely completely on SEO to generate revenue, well, you are in an incredibly unique and amazing position. For the rest of us, we are running paid advertisements to help bring traffic to our products.

Whether you’re running Facebook ads, Google ads, or buying Super Bowl commercials, there is a cost to acquiring a customer. Most of us refer to this simply as CAC or Customer Acquisition Cost and it is another crucial item for your dropshipping website valuation.

When selling your dropshipping company, understanding the Return On Ad Spend (ROAS) is important. The simple way to look at this is for every dollar that you spend on advertising, how much money are you making? If you spend $10 on Facebook ads, are you making $15 or are you making $50?

Website investors love to see a high ROAS or a low CAC. They want to know that you barely have to spend any money on advertising in order to bring in a customer and get them to make a purchase. 

Again, this is where a well-made, high-converting theme comes into play. This brings us to the next aspect of valuing your dropshipping business.

While it might be fun to talk about a website that has over a million page views each month, that means nothing if only a couple of those people are actually making a purchase. 

Anyone investing in a Shopify store is far more concerned with conversions than views. They would rather see a website with 1,000 visitors that is selling products to 400 of those visitors than a website with 10,000 visitors that is only selling to 300 of those visitors.

This is where a theme like Debutify can really come into play. While it’s on you to attract visitors with cunning advertisements, their built-in apps like cart animations or countdown timers can help put the crunch on people, taking them from visitor to purchaser.

Think of any clothing store that you’ve walked into. There is always a salesperson (or several) who asks you how you’re doing. They point out something that might be on sale on the far wall of the store. They offer to get you a few things to try on in the dressing room. And then at the counter, they let you know that if you buy two pairs of pants, the third is half off! 

Shopify stores don’t have the luxury of salespeople, but they do have the luxury of automated, well-tested, sales boosters. Building out your store with all of these extra gizmos and gadgets can help bring your sales conversion rate from a meager 1.5% up to 5 or 6% and while these numbers all seem rather small, the difference is enormous. 

If you’re attracting 10,000 people each month to your website, a 2% change in your Conversion Rate means you are making 200 more sales every month and raising the value of your drop-shipping business by a monumental amount.

All too often, we see websites that are trying to be great at everything and fall on their faces.

It’s better to be the best at one thing than average at many things. 

When it comes to dropshipping, it is easy to get carried away by the thousands of items available. It’s key to research the industry and find just a few products that make sense together so that you can present a store that makes sense to an investor.

To succeed in this competitive industry, you need to find a profitable niche for your dropshipping business.

When valuing a drop-shipping store, investors want to see that you are focused on just one topic...and so do your customers! 

You can be a sporting goods store or a technology brand. You can sell pet products or gear for new dads. But if you’re selling footballs, makeup, and couches on the same site, you’ll look like you aren’t sure who you are or what you’re doing and both customers and investors will see your site as lacking integrity and trust.

Social media isn’t just a game. Creating a dedicated following outside of your website traffic is another important factor when it comes to creating value for your drop-shipping business and this is for a few different reasons.

If you can boast a huge following on Instagram, Facebook, Pinterest, TikTok, or whatever mega social platform is next in line, investors will be chomping at the bit to take advantage of that organic opportunity. 

With a big social presence, your business will be able to generate organic sales, interact with large-scale influencers, and use all that data for advertising purposes.

While playing around on Instagram might seem like fun and games, it can mean big business and a high valuation for your store.

Make sure that your Shopify theme includes links and social media integrations so that people can access your accounts and even share their love for your product with their own networks.

Everyone likes to talk about passive income these days, and, while I will contend that the concept doesn’t truly exist - all business takes time and energy - you can certainly create value by adding as much automation as possible to your drop-shipping Shopify store.

Building your website is bound to take some time and testing advertisements and conversion tools and optimizations will conquer your attention for a few months in the early stages of your website. But if you can get things set and perfect the integrations and automation that a superb Shopify theme can provide, eventually you can set your business up for success while working just a few hours each day or week. 

Many entrepreneurs will add the time required to operate a business into their valuation calculation as there are only so many hours in each day. If you can set your site up to essentially run itself, you’ll have a strong case for a higher valuation once you get into negotiations with a potential buyer on Flippa.

It might be easy to gloss over the “Newsletter Pop Up” that Debutify provides to its theme users. After all, does email still matter? 

Yes. Yes, it absolutely does.

If you can build a large email list, the intrinsic value of your online store will rise exponentially. Going back to the idea of page views vs conversions, think about how many people you might be able to sign up for emails, looking to get information on sales or new items who are simply visiting, but not ready to purchase.

These email addresses can be used for first in class email marketing tactics by whoever acquires your store and better still, those addresses can be used for retargeting and lookalike audiences on any digital advertising platform. 

Email addresses can be used to cross-promote from one store to another, allowing an entrepreneur who owns multiple online businesses to compound their marketing efforts by acquiring your store. 

Email matters, so even if you aren’t sending out emails yourself, it is critical to your website valuation to start collecting them today.

The final note that I’ll make today on driving value for your drop-shipping store is to make sure it is easy and ready to transfer to a new owner.

What does this involve? 

Keep good notes and records. Track your inventory. Keep note of your vendor contact information. Document any processes that will need to be handed over. Be on top of your accounting by using software integrations. 

While these sorts of things won’t necessarily make your drop-shipping site worth anymore, they will certainly help close a deal. 

Nobody wants to purchase a business that they can’t understand. Be sure to have documentation ready to hand over so that after just a few weeks of training, the new owner of your business is ready to run things on their own without skipping a beat.