What’s the Worth of Your E-commerce Business?

When you started your e-commerce business, maybe you did it with the intent of eventually selling the venture. When the day comes to sell the e-commerce business and you’re approached by a prospective buyer, do you know what you’ll tell them your e-commerce business is worth? In order to be taken seriously by buyers, you’ll have to have a pretty good idea as to the worth of your e-commerce business. This will put you in a better place to bargain and speak knowledgeably on the process of selling your e-commerce business. Here, we’ll discuss a couple factors that play into the value of your e-commerce business.

            The mindset of the buyer is one of the most important things to consider when trying to determine the worth of your e-commerce business. The buyer is primarily looking to get a return on his or her investment. This means that if he or she ends up paying $12,000 for your e-commerce business, then his or her main goal is make $12,001 as quickly as possible, and then continue making money from that e-commerce business. Things such as the sales and profits of your e-commerce business are important for determining how quickly the buyer can get the return on his or her investment.

            However, sales and profits are not the only factors that speak to the value of your e-commerce business. While sales and profits speak to the history and the reliability of the e-commerce business to make money, they don’t totally describe the likelihood that the business will continue to be profitable. This presents a risk to the buyer. In order to describe this risk, the buyer will assign a sales multiple to your e-commerce business. This sales multiple is just a ratio that tells how much of the annual profit the buyer is willing to spend in order to acquire the business. This ratio is almost always greater than 1 and usually falls somewhere between 1 and 3, as you can see in the chart below.

Source: Digital Exits

            In order to calculate the final sales price, simply multiply the annual profit of your e-commerce business times the sales multiple assigned by the buyer. For example, if your e-commerce business is profiting $10,000 and a prospective buyer assigns a sales multiple of 1.8, the final sales price of your e-commerce business will the $10,000 X 1.8, or $18,000.

Since the sales multiple directly and proportionally affects the final sales price, it’s very important to secure a good sales multiple from the buyer. The higher the sales multiple, the higher the final sales price. Things such as a well-documented history of steady growth, clean records and predictable new drivers for consistently increasing sales all contribute to securing a higher sales multiple. These factors prove to the buyer that investing in your e-commerce business is a sure way to make back their investment and then some; these factors lower the risk of their investment. Less risky investments are always worth more in the eye of the buyer.

Putting a price on your e-commerce business is not always an easy task. However, it’s been done plenty of times before, with plenty of diverse businesses. The statistics and information from previous sales of e-commerce businesses can be found in some different valuation reports. These reports give many characteristics of the e-commerce businesses that were sold, including the sales multiples and final sales prices. To get a roundabout idea of what your e-commerce business is worth, you can look at these valuation reports and find businesses that have a similar size, age, profit margin, sales history and business model as your own. Then you can get an idea for how much buyers are willing to pay for an e-commerce business like your own!

Much like the process of starting up your own e-commerce business, the process of valuing and selling your e-commerce business isn’t always easy. However, with these tips and some help, you’ll be sure to put the right value on your e-commerce business!