Ecommerce Business Valuation Multiples

If you are looking for a valuation on your e-commerce business / direct-to-consumer brand, start by filling in the questionnaire below. We’ll be in touch with you to get introduced, discuss the sales process and give you an idea of what your book of buyers would be willing to pay for your business and what type of deal structure you should expect.

At Raincatcher, we have two industry experts that have combined to sell over 40 DTC brands.

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If you are entertaining an exit, feel free to start by requesting a complimentary valuation. We’ll try to get back to you with our thoughts on your business or by setting up a complimentary valuation.

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How Much is Your E-commerce Business Worth?

The majority of Ecommerce businesses doing under $1M in profit sell for between 3 X and 4.5 X their annual profit, although more desirable brands can sell for higher multiples.

This valuation spectrum varies greatly by the quality of the business as well as its size. Businesses making over $250K in annual profit will be at the higher end of that valuation, while smaller businesses <$100K will be for the lower end of the valuation spectrum and oftentimes will sell for less than 2X annual profit.

Additionally, direct-to-consumer brands that profit over a million dollars per year often see valuation multiples ranging from 4 – 6.5 X.

Related Content

For more information on how the value of your brand is calculated and what buyers would be willing to pay in an auction, have a look at our DTC brand valuation calculator article.

You’ve undoubtedly put hundreds, if not thousands of hours of blood, sweat and tears into your business.  For some reason or another, you have decided to part ways with it.  It may be that you built it with the intention of selling, you want to purchase another asset such as a house or apartment complex.  Or, you are like many of our clients and you simply enjoy the process of building businesses more than you do of running them.

In order to sell your Ecommerce business with a website broker like Raincatcher, there are some criteria your business must meet:

  • Make at least $500k in profit per year.
  • Be at least three year old.
  • Must not be dependent on a skill or asset that only you possess.  (this rules out people selling their own artwork or pottery, etc.)

You can still sell your business if it doesn’t check all of these boxes, but it is really too small for a website broker like us to help you.  You may look into selling it on a forum or message board in addition to listing it on a platform like Flippa.  You can feel free to reach out to us anyway and we can recommend you to one of our competitors who may have the capacity to serve smaller businesses.

Factors Affecting E-commerce Business Valuations

Direct to Consumer brands are almost always valued on a multiple of trailing-twelve-months profit (adjusted EBITDA).

Therefore, the factors affecting the valuation are:

  1. How desirable is your business (this will help determine the valuation multiple)
  2. How much money is it making you (this is what is multiplied to come up with the valuation)
  3. How well represented are you? There are great brands that sell for 3X and mediocre ones that sell for 4x+. This is due to the advisors ability to market the deal, maintain deal tension and negotiate offers. If you’d like to learn more about this, check out our how to sell an ecommerce business article.

Determining the EBITDA Valuation Multiple for an Ecommerce Business

The M&A landscape for direct-to-consumer brands is constantly changing, so the below information is accurate as of the writing of this article. However, you should consult an expert who has a pulse on the market to give a better read on what eCommerce business models are highly desirable and which aren’t.

We’ll outline each asset the comprises DTC brands below and explain how it impacts your exit value.

Products:

  • Owning your own proprietary, branded products is far more desirable than being a distributor of another companies brand.
  • Being a value-added distributor or having exclusivity to resale other companies products is less desirable than proprietary brands, but still sellable.
  • Being one of may distributors reselling products and having no competitive advantage is undesirable for investors unless it has scale ($2m+ EBITDA).

Distribution:

  • E-commerce companies selling digital products are typically desirable for investors unless that products necessitates owner reliance. i.e. a digital course put on by the business owner.
  • Physical products fulfilled by a third-party-logistics company (Amazon or other) are next most desirable.
  • Products fulfilled by the company out of their own (owned or leased) warehouse is desirable at scale. ($50M+) 
    • For companies <=$20M revenue, this is uncommon and not desirable for most buyers.

Marketplaces:

  • Having customers that are familiar with your brand and come directly to your website to do business is regarded as most desirable.
  • Selling through third-party marketplaces in addition to selling through your own website is okay. Some buyers prefer this, others will avoid it.
  • Selling exclusively (or primarily) through third-party marketplaces limits value. Although this is common for smaller brands (<=$10m revenue) this presents great risk to the buyer for larger deals.
  • The hierarchy of third party marketplaces is as follows:
    • Amazon. Frequently sold, still presents increased risk to investors vs. DTC through website.
    • Walmart.com. Common for distributors of lower price-point products and less desirable to investors than Amazon.
    • Other niche specific marketplaces
    • Ebay. Low price point, commoditized products. Frequently utilized by distributors and not DTC brands.
    • Etsy. Not desirable to investors

Marketing:

  • Having such a strong product that your brand is having success in-spite of poor marketing is most desirable.
  • Blended traffic sources that all prove to have positive ROAS is highly desirable. These campaigns can be run by in-house ad buyers or agencies.
  • Having a single profitable traffic source is less desirable, but is common for smaller brands (<=$20M revenue)

Thinking About Selling?

If you are entertaining selling your consumer brand, feel free to request a consultation with one of our e-commerce business brokers or M&A specialists.

Operations:

  • Owner should be out of day-to-day operations as much as possible. Leveraging in-house talent is common for larger brands, while smaller companies may opt for outside agencies to support supply chain, marketing, fulfillment, customer service, etc.
  • Relying on individual contractors (especially overseas contractors) should be limited

Other Value Drivers:

  • Niche dominance is valuable to a buyer. Instead of being an aftermarket headlight brand. A business that is seen as thee formidable brand in off-road 4X4 xenon headlights, sells their products at a higher price point and has a cult-following will sell for a higher price.
  • Wholesale distribution is highly desirable. This can be tricky as MAP pricing will need to be enforced to protect brand value, higher levels of inventory are also needed. This is common amongst larger, sellable CPG brands ($20M+ revenue).

Do e-commerce brands sell on revenue multiples?

Very rarely do e-commerce brands sell on revenue multiples. There are numerous examples of CPG brands that sell on revenue multiples as they are experiencing heavy growth and therefore reinvesting all of the potential profits back into the business to hire more personnel, feed their marketing budget and produce more inventory.

While this can be the case with e-commerce brands, for the most part, they are expected to be late enough in their life stage that they have material profit (EBITDA) and are therefore valued on a multiple of that.