Selling a Direct-to-Consumer E-commerce Brand

Where the customers come from

Traffic sources get the first look. A buyer will ask how much of the store's sales come from paid ads on social platforms, from search ads, from organic search, from email and text messages, from affiliates and influencers, and from direct visits by people who already know the name. A brand that depends on one ad platform for most of its new customers has a risk that any buyer can see. A platform changes its rules or raises prices and the brand has a problem overnight.

Customer acquisition cost is the figure that ties the whole review together. A buyer compares what you spend on ads and agencies to the number of new customers won, then asks what each customer is worth over time. If a new customer costs more than the first order brings in, the business only works when customers return. Buyers will want those numbers month by month, with ad spend broken out by channel, so they can see whether costs are rising.

Show the dashboards and the exports from your store platform and ad accounts, and give the buyer read-only access when the time comes. Reports that look good in a slide and cannot be traced to the platforms invite doubt.

Repeat buyers and the email list

A brand with a loyal base of repeat customers is worth more than one that has to buy every sale from scratch. Buyers will ask for cohort reports, which group customers by the month of their first order and show how many came back to buy again and how much they spent. Subscription programs, refill products and consumables tend to hold value well, because the reorder is built into the product. A one-time purchase item, like a piece of furniture or a gadget, has a harder time showing repeat behavior.

The email and text list is an asset a buyer can see and value. The questions are how many people are on it, how many open and click, how much of the monthly revenue comes from messages to it, and how the list was built. Lists bought from outside or collected without clear permission are a problem. Buyers also ask about unsubscribe rates and about which service holds the list, so the move to the new owner goes smoothly.

Reviews, user-generated content and social following help, but a buyer checks that they turn into sales. A large following with a small email list and weak conversion is worth less than it looks.

Inventory, suppliers and margins

Most online brands carry inventory that someone made overseas or domestically, and the buyer will study it closely. They will want a count by item, the cost per unit, how many weeks of stock are on hand, what is on order, and what has been sitting for months. Slow stock and returns often get valued at a discount. If your inventory sits with a third-party logistics company, called a 3PL, the buyer will want that agreement and the fee schedule.

Supplier relationships carry a lot of weight. A buyer asks whether you have a contract or only a purchase order history, whether the supplier makes the product to your specification, who owns the molds, patterns and formulas, and whether the supplier sells similar products to your competitors. Having a second supplier qualified is a plus. Having the founder as the only person who speaks to the factory is a risk, and the post on owner dependency covers how to reduce it before you list.

Margin analysis goes down to the order. After product cost, shipping, payment fees, returns, discounts and ad spend, what is left on each order? A buyer will build that contribution margin per product and per channel, and they will notice quickly if best-selling items are sold at a loss to attract customers. Be prepared to explain the choices.

Brand assets

A brand is worth what a buyer can own and keep. Check that the company holds the trademarks, the domain name, the social media accounts, the product photography and video, the website code and theme, the product designs and packaging files, and any customer data. If a freelancer built the site or took the photographs, confirm that the agreement gives the company ownership. If the domain is registered to your personal email, move it to the company.

Platform accounts should sit under company logins, with two-step verification on devices the company controls. Buyers ask about every login that touches money or customer data. Having these organized signals a business that someone else can take over.

Intellectual property rules differ by country and by state, and your attorney confirms what applies. A buyer will also look for product claims, safety testing and labeling for whatever you sell, since the requirements depend on the product category.

Records a buyer will ask for

Expect requests for tax returns and profit and loss statements, monthly sales by channel, store platform exports, ad account histories, payment processor statements, inventory records, supplier agreements, employee and contractor lists, and a list of software subscriptions. Sales tax records come up for brands that sell into many states. Our guide on getting financials ready describes what a buyer wants to see, and the post on asset sales and stock sales explains why deal structure matters for a brand with contracts and a liability history.

Many founders run their personal spending through the business, and the add-backs a buyer accepts are narrower than most sellers expect. Keep receipts. Also make sure the store platform revenue ties to deposits from the payment processor, because mismatches are a common reason for a buyer to pause.

What tends to sink a sale

Most failed sales of online brands trace back to a few causes. Profit that comes from a short run of cheap ad costs and has since faded. A top product that is easy to copy, with a competitor now selling the same item at a lower price. A supplier who will not agree to keep supplying a new owner. Account suspensions on an ad platform. A founder who is the face of the brand on social media, and whose audience may not follow a stranger. Returns and chargebacks that the owner had not counted.

Timing also matters. Buyers pay for a trend, and a brand with several quarters of growth sells better than one that has just started to decline. If you plan to sell, begin before the numbers slip.

How to get the store ready

Start about a year ahead. Clean the books and match platform revenue to bank deposits. Build the cohort and acquisition reports yourself so you know what a buyer will see. Move every account and asset to the company. Write down how orders are placed, how customer service is handled and how new products are launched. Train a second person on ad management and supplier contact. Put your best-selling product on a longer supplier agreement if you can.

When you are ready to see how a buyer would look at your brand, the page on selling an e-commerce brand is a good place to start. At Business Advisors of America we begin with a valuation built from your own numbers, prepare the materials a buyer and their lender expect, and screen buyers before they see anything that identifies your brand.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.