How Sunil Started and Sold His ECommerce Business for $250,000

This is a guest post from Sunil. Sunil owns over a dozen profitable niche websites and is the author of “How to Go from $0 to $1,000 a month in Passive and Residual Income in Under 180 Days All in Your Spare Time”, a FREE report you can download instantly from his Extra Money Blog, where he discusses how to create multiple streams of passive and residual income, entrepreneurship, internet marketing, blogging and personal finance.

In 2007, he sold his ecommerce website for $250,000 to a top Ebay Power Seller and since then has sold several niche sites for five figures each. You can read more about him and his work on his blog.


I first heard of Steve and his wife’s project through a webinar link that was relayed to me by a fellow blogger. I was immediately interested because this is a road that I have been on before. In this guest post I will share how I came up with my business idea and niche, what I sold online, what obstacles I encountered and why I decided to sell my business.

In 2005, I started an ecommerce business that sold discount designer fragrances. There were already tons of online retailers in this space, but I sold not only to the individual customer, but also to mom and pop resellers of designer fragrances. I was essentially running a warehouse club for designer fragrances similar to a Sam’s Club or a Costco.

How did I come up with this idea? I was on an international business trip where I purchased a bottle of cologne that I frequently wear. The price discrepancy was too large to ignore, and after further research I realized that manufacturers price their products differently in different markets. I am not talking 5-7%, I am talking 20-30% in the designer fragrance industry.

Upon return to state side, I contacted resellers / wholesalers to determine whether an opportunity exists in this space. Though I couldn’t find the arbitrage working as well locally for many reasons, I did learn through my interactions that the small mom and pop retailer is often ignored by the mass supply chain. I am talking about the small shop in your downtown area, or the mall kiosk. These guys need a reliable and affordable supply source as well. Thus an opportunity to serve them was born.

The Product and Service

Without wasting much time, I established relationships with the necessary folks (supplier /web developer, etc) and started an online business from where anyone can order designer fragrances at discounted prices. The individual can order bottle X for $30, which was always 20% or more cheaper than the mall, and the reseller could order everything at my cost.

How did I make money? Similar to Sam’s club, I charged a yearly membership fee of $39 to join the “club”. Therefore the product became the designer fragrances, and the service became my promise to provide a supply source for the reseller at my cost.

Obstacles Encountered

Though the overall business experience was rewarding for me, the road wasn’t free and clear of obstacles, as with most things worthwhile pursuing in life. Some hurdles included technical challenges. I am not very technical, thus when I needed website work done, I had to shell out big dollars for every single small change. Later down the road, the developer disappeared on me, leaving me hanging and helpless.

There were some other challenges as well involving logistics and administration, but none bigger than the obstacle of managing too fast of a growth. You read that right, I was growing too fast for my own good, which may be a good problem to have for many but not for others. It was specifically difficult for me because I was not prepared for this growth, which I think would happen much later down the road.

Here is an example of what I mean. Resellers started ordering in amounts in the $4,000 to $8,000 range, and the number or resellers grew exponentially month over month. There came a point where the website was processing an $8,000 order, and then me having to refund back $2,000 because I wasn’t able to fulfill it due to logistic and supply chain challenges.

This hurts because not only am I paying a credit card processing fee upfront, but also on the return processing, thus hurting the overall bottom line. Thus the larger transactions were ending up costing me more money than I was bringing in. Not a winning equation is it?

The $250,000 Sale

Two years later the business was generating $60,000 in annual earnings. That said it could have been generating much more. The business grew organically through proper search engine optimization and internet marketing (this was huge for me) and virally through word of mouth. A good deal is a good deal, and word does spread.

Not knowing the internal challenges I was encountering, a large Power Seller from the Ebay marketplace had approached me to purchase the business. This was a completely unsolicited offer (God sent), and the approach made me contemplate the sale really hard. When I finally decided to sell it, we agreed on a price just under a quarter million dollars, which puts the deal roughly at an EBITDA (earnings before interest, taxes, depreciation and amortization) of four.

I was relieved to say the least, but did not regret the overall experience and ride at all. The business was eventually dismantled as the buyer was mainly interested in the underlying customer base, a common practice for big sharks acquiring little ones. The shark that acquired me was the second largest Power Seller on Ebay at the time.

Best Word of Advice from Me

We are always learning from our experiences, but we miss the chance to learn if we don’t try out new experiences. So my first advice would be to get out there and start it up. Whatever you are thinking about, just do it and let the market dictate how good your offer is.

My second piece of advice is to plan for growth appropriately. Do not underestimate your business idea. In my case, I grew faster than I could handle. I am not a big advocate of extensive business plans so I am not suggesting that. However, plan as best you can at least on a high level.

I hope you found my story helpful

All the best to you and your business initiatives

Sunil

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19 thoughts on “How Sunil Started and Sold His ECommerce Business for $250,000”

  1. David says:

    Very inspiring story Sunil! The only thing I don’t get is how you lost money off the credit card transactions. Usually you get an authorization first and only actually charge the credit card upon shipment. Were you charge the credit card right away and thus having to eat the fee?

  2. Charles says:

    Could I have the URL please. I’d like to take a look. Nice writeup!

  3. Steve says:

    Sunil, Interesting story. I’m fairly new to online sales & IM. Just so I’m understanding correctly, you made $60,000 in annual earnings with yearly membership fees of $39 per customer? This would mean that you had roughly 1538 people subscribing annually and no profits were made off the actual sale of the product?

  4. Actually Sunil, I had a similar question to Steve. I’m pretty sure that you made money both off of the subscription fee and a small margin off your products right?

    My question is how did you get your first customers in the door? Was it through Ebay? or did you cold call perfume sellers directly? Was there an SEO or SEM component to your success as well?

  5. @ David – yes, we charged automatically, then had to pay fees, then pay fees again upon refunding. is the method you mention an easier way to do business or just “safer”? I ask easier because the method appears manual in nature? can you please elaborate the workflow involved?

    @ Charles – i would have provided in the post itself, but due to confidentiality clause in the buy sell agreement i cannot. i’d be happy to provide URLs to any one of my niche websites, all of which are profitable on a residual and passive basis if you are interested???

    @ Steve – yes you understand the model correctly. there were less than 1,538 paid annual members. some profits were made from retail customers as well due to margins being higher, though lower than other retailers as we compensated with a fixed shipping charge which erred on the higher end thus resulting in profits. that said, the wholesale products sold at cost.

  6. @ Steve the Author – initial efforts were mainly PPC and we almost lost our shirts doing it. i suck at it to this day as success on PPC is highly predicated on intense number crunching and understanding how the system works inside out. ebay was not leveraged by us. we did email several resellers and introduced ourselves initially, but eventually the concept spread mainly because of SEO/SEM.

    the website still ranks on page one for the terms we targeted despite the new owners not knowing/executing anything from an SEO perspective. that is purely the power of proper SEO, which is the approach i take with my niche websites (“set it and forget it” type business model)

    some things we considered but did not implement:

    1) visiting and spreading word through trade shows
    2) doing the same as #1 but in local markets / swap meats etc.
    3) personally visiting resellers in various cities
    4) cold calling

  7. David says:

    Paypal allows you to do an authorization first and then collect the funds later once you have shipped. I’m not 100% positive but I believe just doing the authorization doesn’t involve any fees. PP WPP also provides free refunds but you have to eat the 30 cent transaction fee.

  8. Charles says:

    Would love to see one of your niche sites. Thank you

  9. Interesting and inspiring story! You have your three niche sites running, what’s next on your plate? Good luck to you whatever it is, but it seems you don’t really need it!

  10. @ Buck – I actually have several more niche websites, these three were just examples since Charles asked for them. I am contemplating a 6 month training class through webinar and weekly conference calls on how to research, establish, market and monetize a niche website.

    what do you think about that? go/no go?

    We can always use more well wishes from well wishers like you Buck – so thank you for them!

  11. Great story Sunil. Have you started any ecommerce stores since this experience? I would love to hear your thoughts about the pros and cons of starting an ecommerce business.

  12. @ Fred – no, but one is in works right now and I will be talking about it on my blog very soon. That said, I have created several niche websites that are all profitable on a residual / passive basis. I prefer those because of the ROI involved as well as the passive nature. Why what are you thinking? do you have one you can share? would be happy to take a look…

  13. Best advice indeed. Get started, set it up. I really believe there is enough online for everybody to live decently. For everyone it’s the fear that’s holding them back and you need a certain amount of knowledge and coaching to get there.

  14. Great article. Yes Get started and dont quit. You learn as you go. Bumps and bruises-Yes. But that’s your later testimony.

    Thanks Steve. Check out my site TDKmarketing.com which will have a new face in two weeks.

    See you at the Top.

    Ike

  15. Ken says:

    Great post Steve and Sunil. On the perfume (or anything similar) imports though, wouldn’t excise duty and shipping costs on the items bump the foreign “discounted” prices up to erase the arbitrage opportunity?

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