We have been in talks with a potential buyer of treadmill.com for several weeks, but I didn’t want to post anything here until the transaction was final. We went into escrow early last week and the transaction officially closed last night. As of today, February 1st, treadmill.com is in the new owner’s hands.
I have to admit, as I write this post I’m conflicted with emotion. On one side, I know we made the right business decision by selling: We got a great price and even though I think treadmill.com is a great business, I know we can make more money in other businesses. On the other side, treadmill.com was the first eCommerce store we built and I get pretty emotionally invested in any project I work on. I personally put a lot of heart and soul into treadmill.com and on some level I feel like I’m losing my baby. However, the only thing constant is change and I hope bigger and better things are to come.
What I learned by running treadmill.com
eCommerce In General
The biggest thing I learned was how to operate an eCommerce site. It’s something I take for granted now, but before launching treadmill.com I had no idea what platforms were out there, how to deal with sales tax, how to take credit card payments, how to do live chat, and countless other things I’ve picked up over the past 2 years. It’s left me in a position where I can rapidly launch other stores and can instantly focus on business issues rather than tech issues.
What products to sell and not to sell
Over the past two years I’ve developed a definitive criteria on what products to sell and not to sell. Here is what I’ve learned to look for:
No significant shelf life – I don’t want inventory that I’m pressured to get rid of quickly or it will “expire”. Things like food or other products that go bad in a few week or months are out.
Fairly light products – Ideally I want products that are under 5 pounds. Shipping items via USPS is by far the cheapest way to go. If it’s under 1 pound, even better. Once you get above 4 or 5 pounds UPS and FedEx become better options. The problem is UPS and FedEx are expensive; the heavier the item is, the more it’s going to cost to ship. eCommerce is a world where you have to offer free shipping; you don’t want big heavy products where shipping is going to crush your margins.
Fairly small products – Not only are smaller products lighter to ship, but they take up less square footage in a warehouse. Storage is another cost that needs to be factored into overall margins.
Easy to ship, hard to damage – I want products that are easy to ship and are very hard to damage. If you can just toss the item into a box without having to add bubble wrap or other dunnage, that is ideal. I also don’t want something that can be broken easily. Things such as glass jars are out!
Don’t become obsolete – I don’t want products that become obsolete quickly. This pretty much means any tech item is going to be out.
Model numbers don’t change often – It costs a lot of money to do a good product listing with pictures, video, descriptions, etc. So, I don’t want an industry where the model numbers change often. The treadmill industry was famous for this and it sucked.
Above a $25 price point – I generally want items that are above a $25 price point. I feel like a $100 price point is even more ideal. There is a base cost of labor, storage, boxes, etc for each item. Anything under $25 and your profit is just evaporated by that.
Good profit margins – The fitness equipment industry operated at about 15% GP and that just isn’t sustainable. I now look for industries that offer a minimum of 40% GP and really want to be above 50% as a minimum.
Treadmill.com was 100% drop shipping business for us. What I’ve come to realize is that if you plan on running a serious business, where you are trying to build a big brand and offer amazing customer service drop shipping is really difficult. With drop shipping you have to rely 100% on someone else to make you successful and I don’t like that. As I expand into other businesses I’ll be looking to do 100% warehousing and / or use fulfillment centers.
What I won’t miss about treadmill.com
The biggest thing I won’t miss about treadmill.com is the total lack of control in running a drop shipping business that relies on LTL trucking companies. I’m a bit obsessive when it comes to customer service and there was nothing more annoying than telling a customer “I don’t know”. When will my treadmill ship? I don’t know. When will my treadmill be delivered? I don’t know. How come the manufacture didn’t call my back about my warranty issue? I don’t know. It was seriously beyond frustrating. At least 35% of our orders had some sort of issue in this regard. Moving forward I’m going to enjoy running businesses where I have much more control. I want products in my warehouse I can look at, touch, and ship the same day.
The Economics Of The Deal
To be fair to everyone involved I don’t want to get too much into specifics on this deal. I’ll just say that I’m very happy with the sales price that worked out to be over 4x earnings. Considering the average eCommerce business sells at around 3x, I’m very comfortable that we did the right thing. Comparing this to the IceWraps project I just purchased at 1x earnings, it’s an even better deal. Of course I think treadmill.com was worth a premium because a) we had a premium brand / domain name b) we had a great looking website that even an eCommerce beginner could take over. c) we worked out all the kinks of this business model and had it at a point where it was working relatively effortlessly.