How much is my business worth?
If you’ve ever asked this question, you’re not alone.
Whether you’re focused on Amazon, Shopify, or building the next global omnichannel brand — the idea of one day selling your retail business has probably crossed your mind.
But selling your business can have major emotional and financial implications. It’s important to keep an accurate and up-to-date estimate of exactly how much your business is worth to help keep a clear focus on the end game.
The problem is, assessing your store’s value can be a complex task. Let’s dive into the benefits of having a strong e-commerce business valuation on hand and how to arrive at an accurate valuation, step by step.
How Do I Calculate My Business Valuation?
- Gather key information
- Calculate earnings
- Determine revenue streams
- Assess growth potential
- Find your valuation multiple
- Account for intangible assets
- Retain legal counsel
- Consider tax implications
What Is An E-Commerce Valuation?
A valuation determines the current worth of your e-commerce business. It’s a rigorous process that involves analyzing your financials, growth, competitive position, and future outlook.
There are different methods of valuation that can be helpful, depending on your business’s size and growth history. Ultimately, the goal of a valuation is to give business owners and potential buyers a quantitative estimate of what the business is worth.
The Benefits Of A Strong Business Valuation
Whether you’re ready to sell in the next few months or just getting a sense of where you stand in your market, there are many benefits to knowing the value of your e-commerce business.
Here are just a few of the benefits an up-to-date business valuation can bring:
- E-commerce is constantly changing. The e-commerce landscape is evolving fast — and so are the trends that impact your store’s value. A real-time business valuation will ensure you always present the most accurate numbers to potential investors.
- Business valuations are a door opener. Nothing kicks off an acquisition conversation better than a valuation number showing your online store is a great investment. Investors want to know how your company performs financially before they dig into your everyday operations because it makes the due diligence process easier.
- Manual valuations = costly errors. Manual tools and off-the-cuff valuations leave room for human error, like confirmation bias and double counting. An objective business valuation reduces the margin of error, so you can get an accurate value when you need it.
- Get your store on (and off) the market faster. You already have multiple tasks on your plate. When opportunity arises, you want to be able to jump without having to rush or forego your valuation. Being prepared can save time and get you to a profitable agreement sooner.
- Gain confidence and clarity. With an accurate valuation at your fingertips, you can wave goodbye to the guesswork and gain the confidence you need to find the perfect buyer.
Even if you’re not considering selling today, there are several evergreen benefits to knowing your business’s value.
- Establish a “true north” to measure your success against. A valuation metric is a concrete, high-level success benchmark. Keeping it in sight helps you stay focused on activities that drive value over time.
- Set informed growth goals for your business. Understanding your current valuation gives you a baseline for setting growth targets. If your business is worth $1 million today, why not set a goal for $5 million in the next five years?
- Secure favorable loan terms. Many e-commerce funding solutions tend to provide more capital at better rates to businesses with quantified value.
- Motivate employees with equity. If equity is part of your compensation structure, it’s a lot more meaningful when employees know the value and have a clear picture of how it’s divided.
Value Your E-commerce Business in 8 Straightforward Steps
While experts recommend working with a trusted third-party to help you value and sell your business, it is possible to calculate the value of your e-commerce business yourself.
Here are eight steps to follow to pinpoint your business value.
1. Gather Key Information
The value of your e-commerce business is based on fundamental metrics like cash flow, operating expenses, and revenue.
Before you get started, gather at least three years (or however long you’ve been in business, if shorter) of:
- Financial statements
- Sales data
- E-commerce site traffic analytics
- Inventory levels
Your goal is to get a complete picture of performance across the business. Profit/loss statements, balance sheets, tax paperwork, and sales reports are all on the table here.
2. Calculate Earnings
Your valuation is based on earnings. There are a couple of different ways to arrive at this important metric.
For small businesses with an estimated value of $10 million or less, the Seller’s Discretionary Earnings method is the most common.
SDE = Pre-tax income + Owner’s salary + Depreciation + Amortization + Discretionary expenses + Non-recurring items
For estimated values over $10 million, the EBITDA Method of Valuation is more common.
EBITDA = Earnings + Interest + Taxes + Depreciation + Amortization
Earnings calculations can vary even within your chosen method, especially if your EBITDA is closely tied to your campaign performance data. Take time to research this step and clearly lay out how you arrived at earnings in your valuation documentation, including any key alliances or retail media campaigns driving brand equity.
📌 Note: There are also growth-based valuation methods available for companies experiencing exponential business growth. However, these tend to be more volatile than earnings-based methods and are usually used in outlier situations. When in doubt, consult with a trusted expert to determine the best approach.
3. Examine Revenue Streams
Next, take a close look at each source of revenue — individual sales channels, wholesale, affiliates, and more.
You’ll want to analyze:
- Growth trends and seasonality: Have revenues fluctuated by time of year or with certain external events?
- Segmentation: What portion of your annual revenue comes from each geographic region, product category, and channel?
This information helps contextualize your historical revenue and project what will happen in the future. Growing, diversified revenue streams will tend to increase the value of your business.
4. Assess Growth Potential
With clear insight into your earnings and revenue, it’s time to talk about growth potential — including both volume and speed.
Use your historical data to project growth across:
- Net revenue
- Customer base
- Profit margins
- Market share
While it may be getting harder to measure, putting a firm number to your growth potential can lead to a big boost to your valuation.
5. Find Your Valuation Multiple
A valuation multiple is a ratio used in your final valuation calculation. It’s often between 2 and 8 but can vary widely based on the characteristics of your business.
As an example, if your valuation multiple is 5, you’d multiple your company’s earnings by 5 to reach your valuation.
$1.2M in annual earnings * 5x earnings multiple = valuation of $6M
How do you determine your valuation multiple? Start by researching multipliers for your industry. For e-commerce, they tend to fall around the 2 – 4 range for earnings using the SDE method, and 3 – 6 for earnings using the EBITDA method.
Other drivers that commonly impact the valuation multiple include:
- Business size: Larger companies often have higher multiples (that’s why the EBITDA range above is higher than the SDE range)
- Growth rate and scalability: Companies with high growth can demand multiples of 8 – 10 or more
- Business model: Subscriptions and other models with lots of recurring revenue warrant higher multiples
- Age of business: Having a long, proven track record can increase your multiple
Arriving at a reasonable valuation multiple can be tricky, so be sure to do your research and document how you got there.
6. Account For Intangible Assets
Are we deep in the weeds enough yet? There’s one last element to consider in the valuation process: your intangibles.
These “assets” can be hard to quantify but add real value to your business.
Consider elements like:
- Proprietary technology: Custom apps and exclusive tech add value.
- Trademarks, patents, and intellectual property: These are all competitive advantages that can and should increase your value.
- Brand equity: Though hard to measure, brand recognition and loyalty have a real impact on your pricing power and growth potential.
- First-party data: In the face of rising Customer Acquisition Costs (CAC), rich customer data can increase your value.
- Talent: How much would it cost a buyer to hire your skilled employees? Consider time-to-hire and recruitment costs.
A seasoned advisor can help you quantify just how much value your intangible assets add, but there are also calculations you can use yourself to get a good idea of what this looks like.
To determine the value of your intangible assets, calculate your return on tangible assets, then compare it to the industry average — the difference is your intangible value.
7. Retain Legal Counsel
If you’re considering selling your e-commerce company, it’s important to retain legal counsel early in the process to advise on important steps like:
- Non-disclosure agreements to keep pre-sale conversations under wraps
- Securing intellectual property of the business before sale
- Non-compete agreements limiting your ability to open a competing e-commerce store
- Purchase agreements covering price, warranties, and closing conditions
- Employment contracts to retain key talent post-acquisition
- Transition assistance agreements guaranteeing your help for a certain period post-sale
When you’re serious about selling, hiring an M&A lawyer helps you avoid leaving money on the table and limits your potential liabilities after the sale.
8. Consider Tax Implications
Your M&A attorney may also be able to advise on structuring the sale of your business to minimize your tax burden.
Some strategies include:
- Seller financing: Accepting payment from the new owner in installments rather than a lump sum
- Earn outs: Additional payments tied to future performance
- Asset vs. stock: Selling assets may be more advantageous than selling shares
- Timing: Aiming to close the deal before or after the end of the year
You might also decide to consult a tax professional on the best ways to minimize taxes related to the sale of your business. Hiring seasoned pros is a small price to pay compared to the potential financial impact of your liabilities.
4 Ways to Boost Your Valuation
Now that you know the steps for calculating your business valuation, here are a few key tips to help increase your store’s value.
Modern consumers shop all over the internet. Diversifying your sales channels can help you secure a larger market share and increase your business’s earning potential.
To start, take the path of least resistance to ensure you don’t end up doubling your workload before your exit.
For example, if you already have a Shopify store and 3PL setup, and want to expand to Amazon, you could:
- Reallocate inventory between your existing 3PLs and Amazon FBA.
- Speak with existing suppliers about increasing order units.
- Repurpose photos and marketing collateral from your Shopify store.
- Tweak existing product descriptions to meet Amazon’s standards.
Negotiate With Suppliers
Next, work with suppliers toward better pricing. You’ll have more negotiating power if you buy more units, so build this into your store’s budget and consider your warehouse capacity limits.
However, keep in mind that too much inventory can scare off investors, especially if there’s no clear reason for why you have extra inventory on hand.
Don’t stop your bargain hunt there. Ask your business’s service providers for better rates on everything from software subscriptions to external consultants. Success with this may vary, but you don’t know until you ask.
Fine-tune Your Business Strategy
A clear five-year plan shows investors that your business is benefitting from a systematic strategy.
Your plan should include financial projections and key performance indicators (KPIs) such as:
- Organic traffic
- Profit & loss statement
- User ratings
- Top performing products
If you’re already a SellersFi user, these metrics are automatically tracked for you in the Sellers Signals dashboard.
Automate And Systematize Your Business
The more “passive” your store’s revenue generation, the more appealing it will be to buyers.
Step into your buyer’s shoes and automate or outsource tasks that could save them time and drive financial returns faster.
Here are some key areas to consider:
- Customer service
- Inventory planning
- Order fulfillment
- Accounting and finances
Leveling up your systems will also make transitioning out of the business easier by reducing post-sale contact between you and the buyer.
Increased Value With Every Move
As the e-commerce world continues to evolve, so will your business. To stay ahead of the game, keep an eye on your store’s current value and set short- and long-term goals to increase that value over time.
A healthy business valuation is key to building a complete picture of your store’s revenue and net profits. When buyers come knocking, you’ll be ready to show your success.
Need help valuing your e-commerce business? Register for your free Sellers Signals account and see all your core KPIs at a glance.