Due diligence analytics: evaluating a store to acquire

Acquisitions require analytical rigor

Buying an e-commerce business is exciting but risky. Sellers present their best numbers. Brokers want deals to close. Your job is to verify claims, uncover problems, and understand true business health. Proper analytics due diligence protects you from expensive mistakes and helps you pay the right price.

Revenue verification

Start with the most fundamental number.

Source verification:

Don’t trust spreadsheets. Request direct access to payment processor reports (Stripe, PayPal), e-commerce platform data (Shopify admin), and bank statements. Cross-reference all sources.

Revenue recognition:

How is revenue calculated? Gross before refunds or net after? Including or excluding shipping charges? Ensure you understand the definition.

Refund and chargeback rates:

What percentage of revenue is returned? High refund rates reduce effective revenue and signal product or service issues.

Revenue concentration:

What percentage comes from top customers or products? High concentration creates risk if those customers or products disappear.

Growth trajectory analysis

Understand the direction, not just the snapshot.

Historical trend:

Request 24-36 months of monthly revenue data. Is growth accelerating, stable, or declining? Recent deceleration is a warning sign.

Year-over-year comparison:

Compare same months across years to control for seasonality. Is the business actually growing or just riding seasonal waves?

Growth sources:

Where did growth come from? New customer acquisition, repeat purchases, or average order value increases? Sustainable growth has healthy composition.

Recent performance:

Pay special attention to the last 3-6 months. Sellers often time sales for peak performance. Recent decline might be hidden.

Traffic and acquisition analysis

Understand how customers find the business.

Traffic sources:

Request Google Analytics access. What percentage comes from organic search, paid ads, social, email, and direct? Diverse sources reduce risk.

Organic search health:

Check Search Console for organic traffic trends, ranking keywords, and any recent declines. Algorithm penalties or ranking losses can devastate traffic.

Paid advertising dependency:

If 70%+ of traffic comes from paid ads, profitability depends on ad efficiency. Verify ad account access and historical performance.

Traffic trends:

Is traffic growing, stable, or declining? Traffic decline often precedes revenue decline.

Customer acquisition cost verification

Understand true acquisition economics.

Full cost calculation:

Sellers often understate CAC. Include all marketing spend: ads, agencies, tools, content creation, influencer payments, affiliate commissions.

CAC by channel:

Break down acquisition cost by channel. Identify which channels are efficient and which are expensive.

CAC trend:

Is CAC rising or falling? Increasing CAC at stable or declining revenue is concerning.

Verify ad accounts:

Request read access to ad accounts. Verify spend matches claims. Check recent performance versus historical averages.

Customer quality analysis

Customers are the real asset you’re buying.

Customer count:

Total unique customers and trend over time. Growing customer base or shrinking?

Repeat purchase rate:

What percentage of customers buy again? Higher repeat rates indicate product-market fit and customer satisfaction.

Customer lifetime value:

What is a customer worth over time? Request cohort data showing actual cumulative revenue by customer cohort.

Retention curves:

What percentage of customers remain active over time? Steep drop-off suggests product or experience issues.

Product performance analysis

Understand what actually sells.

Revenue by product:

Which products drive revenue? High concentration in few SKUs creates risk.

Margin by product:

Are top sellers profitable? Sometimes best-selling products have worst margins.

Product trends:

Are top products growing or declining? Best-seller fatigue can erode revenue.

Inventory situation:

Current inventory levels and value. Obsolete or slow-moving inventory is a liability, not an asset.

Profitability verification

Revenue means nothing without profit.

Gross margin verification:

Verify COGS including product cost, shipping supplies, and fulfillment labor. Sellers often understate COGS.

Operating expenses:

Review all expenses. Are any costs artificially suppressed? Owner salary excluded? Deferred maintenance?

Add-backs scrutiny:

Sellers add back expenses to inflate profit. Evaluate each add-back critically. Would you actually eliminate that expense?

Cash flow verification:

Profit on paper doesn’t mean cash in bank. Review actual bank statements and cash flow.

Platform and technical due diligence

Understand the technical foundation.

Platform assessment:

What e-commerce platform? Is it modern and maintainable or outdated and fragile?

Technical dependencies:

Critical apps, integrations, or custom code? What happens if a key tool disappears?

Domain and SEO assets:

Domain age, backlink profile, and search rankings. These take years to build.

Email list quality:

Subscriber count, engagement rates, and list growth. Email list can be valuable asset or worthless liability.

Operational verification

How does the business actually run?

Fulfillment process:

How are orders fulfilled? In-house, 3PL, or dropship? What are true fulfillment costs and capabilities?

Supplier relationships:

Who are key suppliers? Are relationships transferable? Any concentration risk?

Customer service:

Support ticket volume and resolution. Hidden customer service problems can consume post-acquisition time.

Owner involvement:

How much does the current owner do? Can operations continue without them?

Red flags to watch for

Warning signs during due diligence.

Reluctance to share data:

Sellers who resist providing access to primary data sources may be hiding problems.

Inconsistent numbers:

Revenue in the pitch deck doesn’t match platform reports doesn’t match bank deposits. Discrepancies need explanation.

Recent performance decline:

Business peaked 6-12 months ago and is now declining. You’re buying on the way down.

Single channel dependency:

90% of traffic from one source. If that source changes, business collapses.

Margin erosion:

Revenue growing but margins shrinking. Growth might be unprofitable.

Valuation implications

How due diligence affects price.

Verified versus claimed:

Price should reflect verified numbers, not seller claims. Discrepancies reduce value.

Risk factors:

High concentration, declining trends, or dependency risks should reduce multiple.

Growth potential:

Genuine, sustainable growth opportunities might justify premium pricing.

Required investment:

Post-acquisition needs (platform upgrades, marketing investment, operational improvements) affect true cost.

Due diligence analytics checklist

Verify these before acquiring:

Revenue from primary sources (payment processor, platform, bank). Growth trend over 24-36 months with year-over-year comparison. Traffic sources and trends from Google Analytics. Organic search health from Search Console. Customer acquisition cost by channel with full cost inclusion. Customer lifetime value with actual cohort data. Repeat purchase and retention rates. Product performance and concentration analysis. Gross margin verification with true COGS. Operating expense review and add-back scrutiny. Platform and technical assessment. Supplier and operational dependencies. Owner involvement and transition requirements. Red flags requiring explanation or price adjustment.

Thorough analytics due diligence is insurance against expensive acquisition mistakes. Verify everything, trust nothing, and let the data reveal the true business you’re buying.