The Ultimate Guide To Buying Established Dropship Store

As I am interested in all kind of investment opportunities I am regularly visiting website auctions like Flippa, Website Broker and similar. I am mostly looking for sites with quality content monetized with ads, quality blogs or sites with original services that have income. Unfortunately such ones are hard to find.

Established store, but not a dropship one

Photo by bowbrick

Recently I am often seeing on established dropship stores for sale. This is generally good news for everyone who wants to start drop shipping business. A ready store with traffic solves two of the hardest problems in this business - how to find reliable drop ship companies and how to promote your e-store. Of course promotion and finding good suppliers is a continuous activity, but a store that already has some revenue gives you a much better start.

How To Evaluate an Established Drop Ship Store

Most of the drop ship stores sold on the auction sites look attractive. But of course most of them are not really as attractive. It's better not to listen to the seller's superlatives but to do your own research. Here is what you need to evaluate and how to do it:

Products sold. One of the most important things about any web store is what kind of products are sold - are they of good quality, is there enough demand for them, are they contemporary or products of a dying market. Generally you should prefer stores that sell good products at good prices - don't aim to buy stores that sell low quality products with high profit margins. It may sound attractive to earn 20% or even 50% of every sale, but such stores will quickly lose their customers when a good competitor appears. I like dropship stores that sell products in original small niches. For example today I saw a store selling legacy cages. You would think that this isn't very attractive, but it's a nice small niche with stable following, low competition and SEO advantage. It's much better to buy or build such a drop ship store rather than one selling iPads. Point of difference matters in every business.

Suppliers. Before buying established drop ship store you need to ensure that it really has reliable suppliers. Demand from the seller some documents or proof for his suppliers and some kind of guarantee that they will keep working with the new owner. If you are buying from owner in another country you should double check whether running the business will remain possible after you obtain the ownership.

Traffic and traffic sources. Checking the traffic quantity (visitors) and traffic sources is important when buying any kind of web based business. Most sellers will give you numbers, but you need to demand also screen shots from their server stats software. I prefer Google Analytics when possible, but stats from Awstats or other control panel software is also fine. You need to see not only the numbers of daily visitors, but also where they came from - what referrers and what search engine keywords were used. Request stats from at least 3 months ago so you can see some stable trends. There are no exact rules how many visits you need to see - just follow some common sense. A seller who is claiming to make $500 revenue from his store but is barely having 500 visitors monthly is likely not telling the truth.

Unless the screen shot has been verified by a third party review like Flippa does for some of their auctions, you will need to verify the traffic data yourself as screen shots are not hard to fake. When you see traffic from a site, go to that site and check whether it is related to the store and whether it really has a link or banner pointing to it. You can also check all incoming links to the store using Yahoo "linkdomain" command. Ideally you should be looking for a nice mix of quality links and large percentage of search engine traffic.

Carefully check the seller claims about search engine traffic. See whether the site really ranks well (1st page) in search engines for the keywords that bring most traffic and check whether these keywords are really searched by people - you can do this using the Google Adwords tool.

A good additional info about evaluating website traffic is available here.

Store age. Ask the seller when was the site established. Stores running for years are much preferred - this means they have survived the time and have sound business model and traffic sources. I am looking for at least 6 month old stores. Of course you need to verify the seller's claim - check the domain registration data in a Whois lookup server and try to find the history of the site in the Web Archive. Not all sites are listed in the web archive, but if the one is there and really has been a web store in the past, it's definitely a good sign.

Returns, complains etc. Ask the seller how is he handling returns and complains and what is the percentage of refunds issued. Refunds are part of the business and you should live with them, however if the seller is having more than 10% refunds, chargebacks and unhappy customers complaining online, this is definitely a red flag. Don't give up just because you have found one idiot complaining somewhere - such things happen. But if the "idiots" are 10 and don't seem to be related to each other, then the previous owner is clearly having problem with the reputation. A bad reputation is very hard to fix, so unless you can get the such a drop ship store at really low price compared to its revenue, better run away from the deal.

Revenue and asked price. Speaking about good price, what is it? Generally when selling web business prices that equal 12 - 24 monthly revenue are considered reasonable. The higher quality sites however can be sold for 3 - 5 years revenue and it's still not a bad deal. Stores with obviously untapped opportunities (under-monetized) can also be sold for such amounts. If you see the seller offering his drop ship store for 6 months revenue or less you should definitely ask why the heck he is doing it. Unless there is a good reason, he's probably unfair and hides something. Would you sell a working business for 6th months of its revenue? I wouldn't unless I really badly need the money.

Traps to Watch Out For

I have covered the most important of them already but the tricks of some con artists never end. Here are few less known but dangerous traps to watch out for:

Some cheaters will go as far as buying from their stores themselves in order to pretend high revenue. That's why you need to make sure the buyers are different people and the sales have been consistent over long period of time.

Similarly some sellers may bid very high on PPC just to make some sales, even losing money, so they can demonstrate revenue. Again checking the consistency over time will help you. Also, if the site has reliable traffic sources it has much better chances to have made these sales in natural way.

Screenshots are easy to fake. Double check everything. If possible demand live login so you can see that sales are really made.

Some webmasters can achieve short-time search engine boost by using low quality and spammy links. Evaluate the site's backlinks carefully.

I may add more tricks when I see them, so don't forget to bookmark this article.

How To Close The Deal At Best Price

Let's start with this: you shouldn't be a jerk. It's good to aim for a good price but if you try to cheat the seller and get his business for pennies, you are most likely to miss the deal. Be honest and pay a reasonable price - this is an investment that may earn you income for years to come.

Here are some tips that will help you to achieve a reasonable price and close the deal before anyone else:

Contact the seller privately. You should always do this when you find a dropship store that's worth buying. If you are bidding through online auction, try to contact the seller privately, ask all your questions and establish trust. Then see if you can negotiate a reasonable buy-it-now (BIN) price so you don't have to compete with others in the auction. Auctions can be long and the price can go higher.

To achieve a better price offer quick payment, positive review and covering the payment processor and auction fees. These fees are usually small but offering to pay them you are showing your good will to the seller.

Point out the average prices and give other auctions as examples. The seller may not have an idea about the 12-24 monthly income "rule" and might be wrongly expecting a lot more.

Offer the seller to keep or add links to his other sites if he has any. This is a small favor, but builds trust and friendliness.

When the deal is closed make timely and prompt payment. Make sure to use escrow service or other service that allows arbitration in case the seller tries to cheat you and don't send you all the files and login details.

What To Do After Purchasing

So you have made the deal and now you own the site. After transferring it to your sever and obtaining the ownership of the domain name you need also to obtain all the contacts with suppliers. If you have checked prior to purchase whether they will continue working with the new owner, now it should be easy to sign the contracts.

If there are mailing lists, RSS subscribers, Twitter followers or Facebook fans, make sure that you obtain the control over them as well. This should be negotiated as part of the deal prior to purchase.

After finishing this initial setup you may want to run the site as is for few months, check if everything is okay and enjoy the first returns.

However after this initial period I strongly recommend you to leverage on what's done and try to expand the site further. You may look into new methods to promote your store; you may see what other products can be offered; you may improve the design or entirely redesign the site; and you can improve the communication with the customers. No matter how well the store has been run so far, there is always room for improvement and expansion. This is really a leveraged effort - money and work invested into well established web store yield much better returns than the same amounts invested in a brand new one. If you play your cards well you may return your investment in twice shorter time than without doing any improvements to the store.

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User comments:

bizwrite at Dec, 26 '11 13:50
Some useful information but spoiled by poor English. Most people who know their English is not good will have the article checked by someone else before posting.
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