Thinking about investing in ecommerce? Want to know how to evaluate ecommerce brands for sale?
I just invested millions of dollars to acquire a new 8-figure business.
But before I did, I screened 100s of brands to determine which ones are “safe” bets, which are easiest to scale, and which will give me the greatest return on my investment.
And to help me, I created this 22-point checklist. It includes my ideal benchmarks for 5 areas:
- Financials
- Product
- Product Category
- Marketing
- Internal systems
These are the criteria I use to judge the quality of an ecommerce brand and get a general idea of how big it can scale…
And most of the brands I looked at failed to meet them.
So even if you’re just starting out, this checklist can be a great tool to help you discover which market to enter and what brand types are the easiest to build, manage, and sell.
22-Point Checklist for Buying an Ecommerce Brand
Any brand that passes most of these criteria has the potential to scale to $100 million+ in revenue.
Anyone that fails, could cost you millions in future gains or bankrupt your entire investment.
These are only my ideal requirements, and I didn’t expect any brand to pass all 22 benchmarks. But you should know, that every one a business fails to meet could make your life more difficult and put your money more at risk.
And why would you choose to do that?
FINANCIALS
1. $1–5 Million In Revenue
I start by looking for businesses generating between $1–5 million with a single operator and often a third-party supplier.
I know that if they’re doing everything on their own, then I can scale it from $2 million to $10 million just by adding better systems, infrastructure, and advanced marketing strategies.
2. 80% Profit Margin
My philosophy is buy for 1 and sell for 5. That gives you a profit margin of at least 80%. So if the product costs $12, I need to sell it for $60 to support the paid advertising model I use to run the business.
It helps to look for premium-priced products in the markets. Premium products are easier to sell, and it’s easier to create higher margins when the product is perceived as higher-end.
3. $75+ Average Order Value
If you want to compete against billion-dollar brands, you have to increase your Average Order Value so you can spend more to advertise and acquire new customers.
It’s so hard to be successful off Amazon when your AOV is $25 and you only make $10 in profit. The higher your AOV, the more you can spend to win customers, develop new products, and add value to the marketplace.
4. 25% or less from Amazon
If it’s a 75% Amazon play then there’s no point, in my opinion, because of the volatility of that marketplace.
Plus, it’s just a whole different business model than the paid advertising model I use to grow all my brands.
5. 3+ Years of Proven Sales Volume
If it’s a higher volume brand, you want at least 36 months of consistent sales volume, so you know their success isn’t a flash in the pan or some trend that will fizzle out.
You also want that historical sales volume to prove that this brand holds its value in the marketplace, and you want to give yourself two years to see their repeat customer rate.
6. Sub-2% Return Rate
Return rates are category-specific, but you don’t want to purchase a brand with one that’s higher than standard. If a brand’s return rate is 4% in a category where the standard is 2%, then something is wrong with either support, marketing, or product.
It also helps if you can resell returned items like you can with apparel, for example.
PRODUCT
7. Weighs 1lb or Less
Finding a product with an average order weight under 1 pound makes it easy to turn shipping into a profit center, and to have reshipping and returns not kill your business when you mess stuff up.
So, this is not as necessary as having an 80% profit margin, but it’s certainly a really nice attribute to have. With a lower weight SKU, you can charge $5 for shipping that may only cost you $2.50 and gain a little extra margin.
8. Made for Recurring Consumption
This is non-negotiable: the product must be a consumable item or in a category with a lot of repeat purchases, like apparel. You don’t want to invest in a product customers only buy every three years, like a car battery or a bed.
If I’m not confident I can get a 30% annual repeat purchase rate, I don’t see the point in investing because then you live or die by your acquisition — and I don’t want that kind of stress.
9. Non-restricted Category
Restricted categories like health supplements, CBD, and sexual wellness products are just hard to advertise.
It’s a nightmare to get advertising approved, and most brands don’t. Why put yourself in that position if you don’t have to? (To see Facebook’s list of banned products, Google “Facebook commerce prohibited content”.)
10. Difficult to Source & Not Commodified
It’s easier to sell products on the Internet if you can’t find them at your local grocery store.
And it’s easier to sell products that aren’t commodities (like toothpaste) because eventually Amazon will sell that same item for $1.
11. Relevant to Wide Audience.
I only want to find brands that can scale to $100 million in revenue with direct-to-consumer visibility sources and a paid advertising model.
So it has to be relevant to a wide audience like an entire age range or gender. When your market is this big, it’s a lot easier to build a multi-8-figure company.
12. Relevant Internationally
You want the option to scale this brand as far as possible, and that means selling internationally.
Some products like electronics may not be relevant outside the United States, or if they are they may require converters or new tech, and that’s tough. So, international appeal is something I consider.
PRODUCT CATEGORY
13. Hobbyist or Enthusiast Category
Hobbyists and enthusiasts are people who care about the brand and have strong opinions. This makes it a whole lot easier to create engaging content and recruit brand ambassadors to produce video ads for you.
This is really important in today’s world, because without ambassadors you just have a faceless ecommerce brand.
14. Micro-influencer Category
Like enthusiast markets, brands in micro-influencer categories have passionate customers in niche communities like rock climbing, snowboarding, CrossFit, MMA, etc. Micro-influencers often don’t make money from their hobbies but they do have big followings.
You can help support their lifestyle with endorsements, and you can get a lot of incremental value if they’re relevant to your brand.
15. Proven Seller’s Market
I only want to buy brands with clear exit strategies. Afterall, I’m investing this money to have fun and make a return on my investment, so I need to know that I can sell it in the end. That’s the game.
You should know for sure that private equity firms or strategic buyers are actively buying brands that sell this type of product before you sign on.
MARKETING
16. Unique Selling Proposition (USP)
Your USP is your hook, and you need a hook to build a brand. Without one, it’s hard to sell anything. So what is this brand doing differently than anyone else?
In my skincare brand, we are pro-age. I don’t need to say anything else, that’s it. We have supplemental hooks (like how we’re animal-friendly, sustainable, and simple to use) but being pro-age is the hook that we used to scale to $125 million.
17. Owned Customer List
I think we also want a brand that has an existing customer list and “owns” their customer data in the form of email addresses, pixelled audiences, phone numbers, etc.
That means their customers are not all on Amazon (where you don’t get any customer data), and the business already has good products, successful brand presence, and a unique hook to market.
18. Under-optimized Marketing Channels
If you’re good at one marketing channel like Facebook ads, Google Shopping, email marketing, sales funnel optimization, SMS, or whatever — then you should be looking for brands that are under performing in those marketing channels without you.
Find a business that’s under-optimized in your area(s) of expertise but still has a strong brand and some revenue, and you will be able to add so much extra value to the company.
19. Route to Additional Channels
We looked for under-optimized marketing channels above, now we’re looking to add brand new ones. For example, maybe this brand isn’t on Amazon yet, or this brand doesn’t have TV yet, or it hasn’t expanded internationally.
There must be new channels or products to add, because if the plan is to acquire the brand and just keep running the same playbook, then it’s a lot harder to scale.
BUSINESS SYSTEMS
20. Customer Support & Product Team
I feel like the customer support and supply chain/product teams are arguably the most important part of any brand you purchase.
Because we’re good at marketing — but for production and customer support, keeping the existing teams in place is your best choice. And ideally, they’re organized with standard operating procedures, so you can see clearly into the operations behind the brand.
21. Simple Supply Chain
I am fearful of complicated supply chains. The more variants you have and the more complex those variants are, the more things can go wrong and sink you. I want a simple supply chain, that’s ethically sourced, made in the USA, and only has a few SKUs.
Fewer SKUs also gives me more flexibility over the direction of the brand and allows us to launch new products to increase revenue.
22. Unnecessary Overhead
This is a bonus, but when I consulted for private equity firms researching brands, I noticed a lot of businesses had overhead that was very easily cut.
In some cases, they could save $200,000 a year in development costs by switching to Shopify. In others, they were spending $50,000 a year on office space when they could work remotely. If you can remove the unnecessary overhead, it’s a clear path to adding extra margin.
And that’s my list!
Backed by 15 Years of Experience & Millions In Sales
I’ve been an entrepreneur since 2006, and most of this stuff I learned on the job.
I’ve built multiple 8-figure businesses from scratch, and I’ve done a lot of consulting for big private equity firms that buy, scale, and resell ecommerce brands as their investment strategy.
The information on this checklist is fundamental to how I would scale any business.
So whether you’re choosing a market for the first time or the tenth, I hope you can use this checklist as a guide to help you get the most out of your investment.
P.S. Are you still wondering which type of business you want to start: ecommerce, info, services, or SaaS?
I’ve owned and operated them all, and I can help you decide which one to start first in this video: The Best Business Model to Scale, Support, and Sell.
