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.
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.
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:
Even if you’re not considering selling today, there are several evergreen benefits to knowing your business’s value.
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.
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:
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.
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.
Next, take a close look at each source of revenue — individual sales channels, wholesale, affiliates, and more.
You’ll want to analyze:
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.
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:
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.
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:
Arriving at a reasonable valuation multiple can be tricky, so be sure to do your research and document how you got there.
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:
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.
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:
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.
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:
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.
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:
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.
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:
If you’re already a SellersFi user, these metrics are automatically tracked for you in the Sellers Signals dashboard.
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:
Leveling up your systems will also make transitioning out of the business easier by reducing post-sale contact between you and the buyer.
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.
