When it comes to starting a successful online business, ordinary seems to be the way to go. In a struggling economy, it’s the everyday products and services— health and beauty products, sports and fitness products, IT and online marketing businesses, etc.—that outshine the novel ones.
In general, most online businesses usually sell for about 2.0 to 4.5 times the seller’s total discretionary income. But there is a certain section of the market—namely, businesses that provide common goods and services that command the higher range of these multiples. Why are these companies selling for so much? Here are a few reasons:
Wide customer base: Companies that sell everyday products and services like health and beauty products, sports and fitness products and service businesses such as online marketing companies, have an advantage of being appealing and easily understood by a wide range of potential customers. Most prospective buyers understand the basics of these products and services because they use them on a daily basis, which makes the idea of buying them more attractive.
Built-in revenue: If a company comes with an established revenue base, it will automatically generate a higher price. Companies with strong customer base create security for the business, unlike trend companies where the customers are one time buyers and the market may not be hot for long. Buyers of these companies know they have a customer base to work from everyday, which makes it easier to expand; it’s much more feasible to sell additional products or services to a customer who is already buying from you than to track down new business. However, reaching and establishing new customers is also enabled by having a strong financial foundation (Organic Optimization, Strong Paid Advertising or even a strong Affiliate Network). Exploring new marketing mediums to reach potential buyers is made possible when revenue streams are strong in other areas of the business.
Limited specialized knowledge: Any company that a potential buyer with general business knowledge can purchase and start running right away will command a higher price than a company that requires special knowledge. An office supply business, for example, will not require much experience or specialized knowledge; new buyers can easily take over and manage the product line with ease. With service industry companies, when there is a saturated market of companies offering the same service, it may take some specialized knowledge to stand out; however, it may only require basic knowledge to be competitive such as knowing basic marketing services for an online company or understand various facets of the IT business.
Customer loyalty: By virtue of the nature of some companies, it is easier to let go of an existing customer than to gain a new one. In the case of some service companies, for example, a website hosting company—it is more of a hassle for customers to switch to the competitor than it is for them to stick with their current company so it creates a great recurring revenue model. These types of businesses are very attractive to potential buyers, particularly the buyers with little business ownership or management experience.
Different prospective business owners want different things from a business. An entrepreneur with a degree in electrical engineering may be interested in a company that makes a particular type of computer chip, for example. But in general, companies that offer the above perks and sell products and/or services needed by a large base of customers command a higher price than companies with more of a specialized niche. If you’re currently shopping for a company, keep the above mentioned factors—and your individual experience and knowledge—in mind as you shop.
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