Let me be honest and upfront, I have never purchased an existing and established dropshipping business. I do however have a lot of experience and understand what to look for and know multiple people who have purchased successfully established dropshipping stores.
Whether it’s a Shopify, eBay or Amazon dropshipping business you plan to purchase, I suggest you read the entire article first but if you want a quick answer, here it is.
It is worth buying a dropshipping business if the business has been generating a consistent income for a minimum of one year, the income and traffic are not declining and the store is automated and not reliant on the owner to manually operate the day-to-day tasks.
This article is a guide to buying an established and successful dropshipping business already making sales. It is not for a turnkey pre-built store that has not yet generated any income. If you would like some information on this, I have an article Is it worth buying a pre-built Shopify store?
Should You Buy a Dropshipping Business?
I believe dropshipping businesses are worth buying but only with the following criteria:
- You are already experienced in the dropshipping and eCommerce space.
- The dropshipping store has been in business for at least one year but preferably two to three years.
- The business is not dropshipping from AliExpress.
- The business is not selling a generic product with a lot of competition.
- The business does not rely on the owner to run ads, deal with returns and refunds, customer service and any other tasks.
- The business is a sustainable brand and not product cycling the latest trends.
- The business has all its profit/loss income statements.
I would say that most people who are considering buying a dropshipping business and reading this should not buy one. Simply because I don’t believe most people wanting to buy one can meet all the above criteria. There are actually more points to consider when buying but I believe the above criteria are non-negotiable.
Another point I have not listed above is buying a store that is currently on a downward trajectory. Obviously, it is preferred to buy a store that has a positive upwards trajectory in terms of traffic and income generated.
However, the vast majority of sellers don’t sell when business is booming, they sell because the business is doing poorly and they want out. Their traffic and income are going down and they are willing to take whatever money they can before the business is gone.
If you are experienced in eCommerce, often you can pinpoint the problems with the website and make the necessary changes to turn the store profitable again and you can often get that store at a bargain price.
Buy an Automated Dropshipping Business!
This is a very important part of buying a business and one that many people do not consider. Often when you buy a successful dropshipping business, it’s successful because the owner made it successful. The owner does not come with the sale!
Is the business only successful because of the owner’s ongoing experience and knowledge with running ads, product research, supplier relationships and negotiation skills, etc? How will the business run when the owner is no longer running the daily tasks?
Ideally, you want to buy an automated dropshipping business that does not rely on the owner for any of their skills. Many businesses will outsource the marketing side of the business to an agency which is a preferred option as you want these tasks as hands-off and as automated as possible.
If the owner is performing basic jobs such as customer service, order fulfillment or product updates, most VA’s (Virtual assistants) can perform these jobs and is easier to outsource and automate.
The most valuable asset to a new business should be the actual business itself and not the person running the business.
What is the Success Rate of a Dropshipping Business?
According to Shopify the success rate of a dropshipping business is anywhere between 10% and 20%. I have no idea how accurate this is as how do they really know who is dropshipping, who is being honest and how is success defined?
If a business is dropshipping from AliExpress the rate of success in the short-term may be high, however, the chance of succeeding long-term will be low. AliExpress is good for product testing but ineffective for sustained consistency. Any success with dropshipping on AliExpress will be met with an abundance of competition as the order count is publicly visible.
For more info, I have an article on the 9 most common problems with dropshipping from AliExpress.
The success rate dropshipping with domestic suppliers however may be a far more sustainable option. Buying a dropshipping business in the USA, the UK or Australia and using local suppliers is less likely to fail. Chances are the supplier relationships have already been built and you will be working with reliable suppliers with fast shipping and providing a premium customer experience.
I would also be apprehensive about buying an eBay or Amazon dropshipping business. These platforms have policies in place for dropshipping and if you don’t abide by them or they change them your business is over. They are essentially your boss and your income depends solely on them which is a large risk.
How Much Should You Buy an Established Dropshipping Business For?
The most common metric used for evaluating a dropshipping business is a multiple for its monthly net profit. According to The Website Flip, an average multiple range will be anywhere between 18x and 36x the monthly profit of the dropshipping business.
However, don’t be at all surprised to see multiples under 18 and over 36. There are so many factors that can impact a businesses valuation including:
- If the store’s income and traffic are on an incline or decline?
- How old is the business?
- How unique are the products being sold?
- Are the products trademarked, copyrighted or have a patent?
- Is the niche being sold seasonal?
- How reliable and reputable are the suppliers?
- Is the store branded?
- Is the store automated?
- Where do the main traffic sources come from?
These are just a few of the factors you should consider when deciding how much you should expect to pay for a dropshipping business.
I would recommend that if you do plan to buy a dropshipping business you pay closer to the 18x multiplier than the 36x multiplier. This is because purchasing a dropshipping business is riskier than a normal eCommerce business for a few reasons:
- There is such a low barrier to entry which means you’ll likely have a lot of competition.
- Dropshipping stores are generally easy to replicate.
- The picking, packing and shipping side of the business is out of your hands meaning a large part of your success is reliant on the supplier.
- Dropshipping businesses are more prone to income fluctuations and failure rates are high.
Where to Buy an Established Dropshipping Business?
There are a plethora of websites where you will be able to buy a dropshipping business but if you’re planning on making a large purchase I would stick to one of the more well-known websites listed below.
|Platform||About the Business|
|Flippa||Probably the biggest choice for eCommerce businesses including dropshipping on Shopify and Amazon.|
|Side Projectors||Sells a large variety of different online businesses including dropshipping and eCommerce stores.|
|Empire Flippers||This is more of a high-end buying and selling experience with Empire Flippers vetting the listed businesses. A better option if you plan to buy an established successful store at a high price point.|
|AliDropship||As well as being a plugin for AliExpress AliDropship also has a marketplace for dropshipping and eCommerce businesses.|
|Buy Sell Empire||Large selection of various online businesses including Amazon FBA and dropshipping stores for sale.|
The main takeaway from this article should be that if you are new to dropshipping and eCommerce, it’s probably not a wise investment to purchase a business a dropshipping business. They are risky and the chances of the store continuing to run on autopilot and bringing you consistent income for a sustained period of time are very slim.
Chances are that problems will arise, the income will fluctuate and you need to know how to manage each problem. Building your own dropshipping business is the best way of learning the ropes before you make the decision to buy an existing and profitable business.