SBA and Private Debt Financing Options for Product / Ecomm business

December 07, 2023

by a searcher from The University of Chicago - Booth School of Business in Dallas, TX, USA

I am evaluating a DIY-focused ecommerce business with a portfolio of brands doing about ~$13-14M a year in revenue at around 5-6% operating margins. The business is a mix of branded products and third-party products. I have two sets of questions that I'd like to get the groups input on.

1. Besides COGs and labor, there are two major cost drivers, Advertising (8-10% of revenue) and outbound shipping expense (8-10%). I am trying to get a sense on whether costs are in line with industry benchmarks and how much room there is to improve these. Does anyone have experience or data that would support these as levers that can drive near-term EBITDA improvement?

2. How lendable is a business like this. Single owner, business has been in operation for 20+ years. Minimal debt. $500k in real estate assets are included along with ~$2M+ in inventory. How much debt could I get on a deal like this? Would SBA be an option or any other private financing sources that I should consider looking into?

Thanks in advance for any insights or opinions!

Reply by a searcher
from University of Notre Dame in San Diego, CA, USA

I spent many years in ecommerce. Everything varies, but in terms of benchmarks, I'd say the shipping and advertising costs look favorable compared to averages. I'd be careful about baking in EBITDA improvements from these cost categories. The operating margin appears low, and the significant $2 million inventory give pause. To make an informed decision, understanding unit costs, Lifetime Value (LTV), and acquisition channel composition is crucial, among others. This includes clarifying if it's an FBA business or heavily reliant on SEO. Personally, I'm skeptical about ecommerce (or least committing to several years with a loan) due to intense competition, the dynamic digital landscape, and unpredictable consumer behavior. AI is going to change buyer search dynamics. FWIW, an ecom acquisition seems most feasible when the business possesses Intellectual Property (IP), a built-in audience (such as influencers), or as a bolt-on to an existing, cash-flow-positive company. If this company boasts a loyal customer base with a high LTV, it could present an opportunity. Happy to share contacts for ecommerce optimization consultants--e.g, shipping. Worth having a marketing agency do a review as well.

Reply by a professional
in Lucknow, Uttar Pradesh, India

1. I own https://super-ali.com and https://www.facebook.com/groups/ProductResearchLab and ran my own eCom stores for many years.

If it's an eCom business and they are getting sales for 8% of the revenue, they are killing it.

Usual eCom business operation looks like:
30% marketing cost
30% COGS
30% Overhead cost
10% profit

+7 more replies.

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