This article is part of our Valuation by Business Model series, in which we provide you with information on what makes your particular business model unique when it comes to business valuation. For more in-depth reading on valuation, see our post How to Value a Website or Internet Business.
Before we get into the technical side, it is important to understand why e-commerce has become so popular and mainstream, which has driven a lot of the buyer and investor demand to buy these businesses, regardless of their size.
Ecommerce is woven deeply into the fabric of our everyday lives. If you haven’t tripped over a pile of Amazon boxes at some point over the past holiday season, you’re likely in the minority. So, how have we ended up here?
“After nearly 20 years of delivering roughly the same e-commerce experience, the industry is finally beginning to make some big strides. What’s exciting is that these strides are not just focused on the online shopping experience but the merging of offline with online to create some truly unique and brand-driven experiences for consumers. Even more exciting, the democratization of e-commerce means that this is no longer limited to large companies.
“In the next few years, we’re going to begin seeing some of the biggest advancements in e-commerce with the addition of augmented reality and virtual reality. To say the future of the e-commerce industry is bright would be an understatement.” – Richard Lazazzera, Founder – A Better Lemonade Stand
Amazon tends to get most of the attention when we speak about e-commerce. This is largely understandable. How many other corporations could capture the attention and resources of the 238 cities across the USA that vied for Amazon’s HQ2 complex? Then, Amazon created headlines when protests and political turmoil led it to abandon its plans for a campus in New York City projected to provide 25,000 jobs.
While Amazon and one of the world’s richest people, founder Jeff Bezos, have been in the news lately for reasons other than Amazon’s ecommerce dominance, the numbers behind that preeminence are remarkable. Amazon’s global sales in 2021 were $468.78 billion. That is $64.34 billion more sales than in 2020, a 15.91% increase. Statista reported in 2023, Amazon.com was the leading online marketplace in the United States, and eBay.com ranked second.
For more insight into the current state of the market, unique FE data and trends in the M&A landscape specifically for ecommerce, download our 2024 Industry Report.
While one might look at these numbers and assume that e-commerce retailers not named Amazon must be struggling, nothing could be further from the truth. Most of these sales come from the roughly 2 million active third-party sellers. A little-known fact is that third-party e-commerce sellers actually sell more products on Amazon, through its Marketplace platform, than Amazon itself. In 2021, sales for independent businesses selling on Amazon grew over 50% compared to 2019.
So, while Amazon Marketplace and Fulfilled by Amazon merchants are thriving, what about those e-commerce businesses operating independently of the Amazon ecosystem?
Total US retail e-commerce sales in 2023 totaled over $1 trillion. While over a majority of ecommerce sales are made by just five retailers–Amazon, eBay, Etsy, and Walmart– that still leaves a large portion of the ecommerce market up for grabs by independent ecommerce retailers.
Average revenue or net earnings numbers for independent ecommerce stores using platforms like Shopify, Magento, WooCommerce–or running custom-hosted solutions–can be difficult to come by. However, figures from Shopify indicate the strength and scale of the independent ecommerce sector.
Online shopping on Thanksgiving grew 21.5% in 2020, with spending reaching $5.1 billion in both 2020 and 2021. 47% of these sales were via mobile.
The FE International team has advised on the valuation and sale of hundreds of profitable online stores for over a decade. One of the most common questions we get asked by e-commerce business owners is: “How much is my online business worth?”
That’s not an easy question to answer, but we’ve written this resource to help merchants arrive at a ballpark estimate of how much their e-commerce business may be worth. We also hope to show e-commerce business owners the fundamentals of raising their business’ value.
We hope that this post clears up some of the inaccuracies about the e-commerce valuation process. If you’re a business owner interested in an e-commerce business sale, don’t hesitate to reach out to the FE International team for a free valuation.