If you’re ready to sell your ecommerce business, apply for a small business loan, or raise significant funds for your business, you need to know how much your business is worth. There are several ways to tackle this important question, from AI-powered calculators to individualized quotes or DIY valuations.
The process can be confusing and time-consuming, which is why we recommend working with an established business brokerage service like Transworld Business Advisors. With over 40 years of experience, this company knows the business world inside and out. You can either use its free valuation tool or speak to an advisor for a more thorough ecommerce valuation.
Crazy Egg’s Favorite Tools for Valuing an Ecommerce Business
We’ve done some digging on good service providers that can help you with a valuation of your ecommerce business. Here are three top brokers to consider:
Transworld Business Advisors has expert business valuators on staff, and they can provide a personalized, in-depth report of how much your ecommerce business is worth. You can also use Transworld’s free valuation tool as a starting point.
First Choice Business Brokers takes a deep dive into your business to unearth assets that you may not have considered before. Learn more about First Choice’s market price analysis and contact a broker today.
VR Business Brokers prides itself on being a leading seller of established businesses, having been in operation since 1979. Find a VR office location in your state to get a valuation.
With a few solid options to choose from, let’s walk through the process of getting an initial valuation with Transworld Business Advisors.
Step 1 – Get Started with Transworld Business Advisors
As our top recommendation, Transworld Business Advisors makes it easy to get a valuation of your ecommerce business. Our advice is to start by using the company’s business valuation calculator. You won’t get an exact number, but you will get a price range that Transworld estimates a third-party buyer on the open market would pay for your business.
Once you land on Transworld’s calculator page, you’ll enter your name, email address, and ZIP Code. Next, the calculator will ask you to select the industry you’re in, along with the amount of revenue and net profits your ecommerce business earns each year. You’ll also be asked to enter how much of the net profit goes toward your salary and benefits.
We tested out the tool using a hypothetical ecommerce business in the furniture retail industry, entering an annual revenue of $8,000,000, a net profit of $700,000, and an owner’s salary and benefits amounting to $250,000.
The ecommerce business valuation was completed within seconds. Using the latest market multiples along with the information we entered, Transworld gave us an unofficial business valuation range of $1,900,000.00 to $4,465,000.00.
This calculation is a good starting point. However, it’s quite a wide range. If you’re looking to sell, you’re going to need a more accurate number—or even a detailed business valuation report. That’s where the rest of Transworld’s services come in.
Before we get into that, let’s touch on the basics of business valuation.
Step 2 – Understand the Basics of Ecommerce Valuation
There are many ways to create a valuation for a business. For ecommerce businesses, the most common way to reach an estimate is to calculate your business earnings—that is, your net revenue—and multiply that number by an industry multiplier.
Let’s break this down.
How do you calculate earnings? There are two popular methods: seller’s discretionary earnings (SDE) or earnings before interest, taxation, depreciation, and amortization (EBITDA).
SDE is calculated by taking your revenue and subtracting the costs of goods sold and your operating expenses. Then, take that number and add to it owner compensation and non-essential expenses.
Small businesses often use SDE because it helps buyers know how much they’d make if they took on the business and worked it full-time.
For EBITDA, it’s easier. Add your net income, interest expense, income taxes, depreciation, and amortization. This is more useful for larger companies, as it helps investors see how the business compares to similar brands in the industry.
Plus, multimillion-dollar companies rarely have a single owner-operator in charge of the entire business. The EBITDA calculation helps investors see how much they’d earn after everyone running the business received their salaries.
Most ecommerce businesses are small enough that the SDE method is more applicable, as you can see in the two Transworld listings shown below.
Keep in mind that the formulas above are somewhat simplified. Your business advisor will help you calculate SDE or EBITDA more precisely after taking a close look at your business structure, financial statements, and other records.
After calculating earnings, your advisor will help you determine the industry multiplier. This number can vary a lot based on what industry you’re in, ranging from 1x to 6x. With the mishmash of industry factors that can influence the multiplier, a business advisor’s experience and input are invaluable. Unless you’re an expert appraiser or business valuator yourself, your best bet is to get help from a professional.
Step 3 – Get Your Records in Order
Before you get started with a business broker from Transworld or anywhere else, you’ll need to get organized. Your business broker or advisor will need to comb through all of your ecommerce business’s records, statements, and other paperwork to make an accurate valuation.
So if you’re behind on entering data into QuickBooks, it’s time to set aside a day—or three—to catch up. You’ll also need to make sure the data in your accounting software matches up with the numbers in your business bank account.
Next, gather records going back at least one year, but preferably two or three. Here’s a non-exhaustive list of what you need to have handy:
- Financial statements—revenue, assets, liabilities, equity, and expenses
- A profit and loss statement
- Tax returns
- Your business plan
- Accounts receivable with an aging report
- Accounts payable
- Payroll information
- A list of fixed assets with depreciation
- Relevant loan documents
- Website traffic metrics
- Supplier agreements
We recommend printing out all of this information, putting it in a secure folder, and bringing it with you to your first meeting with a broker.
Step 4 – Connect with a Transworld Business Advisor
You’ve done a preliminary evaluation using Transworld’s calculator. You know a bit about SDE, EBITDA, and industry multipliers. You’ve assembled all the paperwork in Step 3. Now it’s time to take the next step toward getting an advanced valuation of your ecommerce business.
In other words, it’s time to call a business broker. Transworld Business Advisors has offices in almost every state in the United States—including Alaska and Hawaii. You can visit one of their offices or just call Transworld’s regular business number at 800-205-7605 to set up a call with a broker.
Transworld brokers know how to scrutinize a business, analyze financials, assess value drivers, and predict the future value of an ecommerce business. Your job is to provide them with any missing pieces of paperwork or information they need to do their job.
Think of your broker as part of your team, and keep the communication between you honest and transparent.
This is where you’ll go beyond the imprecise valuation you got from Transworld’s free calculator. Their expert team will give you a number you can be confident reflects the real value of your ecommerce business. Then they’ll show you how to secure the perfect buyer and navigate the process of closing the deal.
Step 5 – Keep the Lines of Communication Open
Whether you’re working with a business broker from Transworld Business Advisors or a different valuation company, it’s important to communicate with your broker throughout the valuation process.
From the beginning, make sure you express your desired timeline for the valuation. Discuss the reasons why you need a valuation for your ecommerce business and what your goals are from this process.
Is it to analyze the health of your business and look for ways to improve profitability? Or do you need an official opinion of value to start the process of selling it?
Whatever the reason, your broker can help you meet your goals. What’s great is that Transworld is transparent about its team. You can find their brokers listed by office location and their contact information. You’ll never have to worry about starting over with a new representative unfamiliar with your situation.
There are many factors that a broker might look at. Common ecommerce valuation factors include finances, website traffic, operations, niche, customer base, and product lines, to name a few. Here’s a sample of the questions your broker may explore:
- Finances: How many years of financial data does the business have? Is the market demand seasonal or evergreen?
- Website traffic: What do the traffic trends look like for the past three months? What about the past year? Where does the traffic come from? How long do people stay on the site? How many visitors convert?
- Operations: What responsibilities does the business owner have? How much of the owner or manager’s time does the business take every day? Does the business have employees?
- Niche: How popular is the niche your business inhabits? Is market demand trending up or down? Is there any way for a future owner to strengthen the brand’s place within the niche?
- Customer base: Does the ecommerce business have a mailing list? How does the business attract and convert customers? What are the customer demographics?
- Product: How many products does the business sell? Which products earn the most revenue? Who supplies the products?
Your job during this step is to make sure you’re prepared to help the broker learn the answers to all of these questions and more. Understanding the answers to these questions—and many more—will help your broker determine the value of your ecommerce store.
Step 6 — Keep Running Your Business
The beauty of enlisting the help of a business broker for an ecommerce valuation is that you don’t have to do all of the work yourself. Let your broker do their job while you continue to run your business. You don’t want your numbers to start trending downward, after all.
You may also find that throughout the process of valuing your ecommerce business, you find areas where you can improve your business.
Now that you’re all organized and caught up with the accounting and paperwork you may have let lag in the past, you’re in an excellent position to make changes to increase the value of your ecommerce business.
Take a look at Transworld’s Industry Spotlights section to learn more about recent developments in your industry.
No matter the outcome of your ecommerce business valuation, you’ll gain invaluable information to help guide your next steps. Whether you’re prepping for a sale or another round of fundraising, you’ll have precise information about the value and health of your company to accomplish your goal.
