[spiredigital]

Great questions. Let me address them:

1) The rationale behind the reverse auction isn't 100% profit based. It's the best combination of being able to be transparent (for a good case study) combined with the ability to get a good value.

The reverse auction actually prevents people from waiting until the last minute because it creates scarcity. The moment someone places a bid, the store is off the market. So for people who really are interested, they only get one chance.

2) Small eCommerce business like this usually sell for 2-3x sellers discretionary earnings, which is a term for net income with a usual exclusion for one full-time salary. The fact that a full-time salary isn't included is part of the reason they sell for a smaller multiple.

From the original post:

Currently, my operations manager, Pat, runs the day-to-day operations. He works part time and spends up to two hours per day running the operations of TrollingMotors.net. For more details on exactly what he does, please see the section on Operational Responsibilities.

When calculating seller’s discretionary earnings (i.e., income) for small eCommerce businesses of this size, wages for one person (often the owner) are usually not deducted. Given that Pat and my combined operational workload for the business is less than 15 hours per week, I didn’t include any labor costs per this normal exclusion in calculating seller’s discretionary income.

However, I realize that most people (myself included if I were you!) would want to see the financials including payments to an employee. That’s why I’ve listed below how paying an employee would impact the bottom line. This is the anticipated cash flow assuming someone else was running the day-to-day operations of the business, effectively putting the operational aspects of the business on complete autopilot.

Cost for employee wages is $15,000 / year (assuming $50,000 full-time salary paid at two hours per day), reducing the net income to $50,000 from $65,000.

You mentioned it can barely sustain one person which, if this all they did all day, may be true (depending on where you live). But the operational time involved with running the business is 2 hours per day, which leaves a lot of time to do other things. Most of the existing work has been done (website development, supplier relationships, etc) and the product line doesn't change much so the website doesn't need to be updated frequently.

Two hours a day can seem really low, especially from the perspective of the seller as I obviously have a conflict of interest. That's why I added real data points to the workload required for operations. Over the last year, averages are:

- 3 email tickets per day - 4 phone calls per day - Average call time of 8 minutes)

...plus some work at the beginning of the year to retrofit the website for the 20 to 30 new models that come out.

If you tried to take out a $150,000 full-time salary for someone out of the business, it obviously wouldn't make sense. But for someone who wants to get into eCommerce with a minimal amount of day-to-day work and quickly get a lifestyle business into their life, it's a much better fit.

Hope this helps clear things up, and let me know if I can answer any follow up questions. And glad you liked the traffic -> revenue chart! I think it's much more useful than simply traffic stats alone. :-)

[mvkel]

Thanks for the thoughtful answers.

Related to your #1, that makes sense if 100% of your prospective buyers know about the auction the minute it's opened, but in practice, many folks won't find out about the auction until, say, 30 days in, when they could have absolutely been interested in purchasing on day one.

In short, creating scarcity isn't the mechanism for the sale; knowing that it's even for sale is.

RE: #2, understood. I suppose it's just not clear that there _is_ additional administrative work that needs to be performed beyond the operational responsibilities you outlined, and it's not accounted for, where in virtually all other departments, it is.

Btw, in another post you talk about "illcit" questions; I think you mean "elicit," though it'd probably bring up both :)

[spiredigital]

On point #1, you're right - not everyone will know about the auction right away. But I have been able to alert a large group of people early.

I have a good-sized email list, and they found out this morning. I structured the sale to (hopefully) get attention as well early on, and that has also seemed to work well. This was also the rationale behind the 5% referral bonus - to get people to spread the word. So there will be some buyers who, yes, won't see it until mid-way through. But there should be (hopefully) enough early on watching to get some serious buyers interested at the right time.

On point #2 - you're absolutely correct. The 2 hours / day assumes just the day-to-day operations. There will be other things that need to be done (updating site, misc. work, etc). In the full post, I do disclose this and am not trying to say it's 2 hours a day only, for the entire year.

But generally, with small eCommmerce sites like this, there is an exception for a full-time owner salary when calculating the earnings, which is what the multiple is based on. Given the fact that the total hours per week are 20 inclusive of maintenance (if being liberal) - and a 40 hours owner's salary is usually excluded from calculating income - I feel it's fair.

And thanks for catching the typo! Would you mind letting me know which post it was in? Appreciated.