The right method for valuing an ecommerce business depends on your goals. Are you planning to retire, sell your business, merge with another entity, or be acquired for a profit? No matter your objective, determining your business’s valuation is a key step to clarifying your direction and building confidence in your progress.

Valuing an ecommerce business is similar to selling anything else you own: understanding what it’s worth, what you’d sell it for, and what buyers are willing to pay. While ecommerce valuations can get quite complex, the process ultimately boils down to understanding your business’s worth and ensuring both parties feel they’re getting a fair deal—something ecommerce merchants already excel at.

No matter your business’s stage or goals, the valuation methods explored in this blog can help you make informed decisions and unlock future growth opportunities.

The Income Approach: Estimating Future Earnings

Discounted Cash Flow (DCF) Analysis

DCF analysis is a popular method for valuations used by analysts in investment banking and corporate finance. Analysts impute the value of the business based on predicting its future cash flows and adjusting the cash flows to their value today. DCF analysis values a business on the basis of its predicted future performance (although some assumptions are made based on what the business has done in the past). 

DCF analysis is based on the idea that money you have today is worth more than money you’re going to have in the future, because you can invest what you have today. When determining the valuation of your ecommerce business, the same principle applies. Even if you are virtually certain that your business will make $100,000 in profits for the next 5 years, it doesn’t mean the business is worth $500,000. Should you sign a 5 year agreement to pay $100,000/year, it is still not the same as giving someone $500,000 today. This logic forms the basis for Discounted Cash Flow analysis. DCF analysis involves:

• Predicting your ecommerce business’ future cash flow over a set period (such as 5 years). For example, you might begin by looking at your prior sales and extrapolating them to future years. Or, you could use the size of your customer base or the average order size to predict future sales.
• Setting a discount rate, or a rate of return required by the investor. This can vary based on market conditions or the risk of the business. 
• Finding the terminal value of the business beyond the set period (for example if you’ve been looking at cash flows for the next 5 years, you’ll need to find the value of Year 6 and beyond).

The Market Approach: Benchmarking Against Competitors

Just like the market for selling a product or service online, the value of your ecommerce business will depend on what others in the industry have done. Has a similar business been sold lately? How about one of your competitors? How similar are your business models, size, growth potential, and market share?

There are two primary ways to implement the market approach:

Comparable Company Analysis

Comparable Company Analysis, or "Comparables," involves benchmarking your business against others in the same industry.

To use this approach, look for businesses similar to yours in size, niche, or performance. This can include publicly traded companies (if there are any similar) or private sales of other e-commerce stores. Once you find some, check to see:

• Their stock valuation metrics, if public: some calculations, such as price to sales or price to earnings ratio can be used as valuation multiples to help calculate value.
• Their sale price, if private: look for the sale price compared to the company’s revenue or profit. Similar ecommerce company sales might be available to browse on sites like Flippa.

Precedent Transaction Analysis (PTA)

Precedent transaction analysis (PTA) looks at businesses that have recently sold in the same industry. Think of selling a home: you probably set the price based on other houses sold in your neighborhood or on your street. The PTA method works the same way: PTA looks at the sale prices of businesses similar to yours and helps you to estimate your value. 

To use this method, find businesses similar to yours that have sold. Determine the price of the sale, compared to the revenue or profit that they bring in. This gives you a valuation multiple which you can use on your own company’s numbers.

The valuation multiple is what you’ll use against your financial information (sales, DCF, EBITDA) to estimate your business’s value. The right multiple depends on several factors, including your industry, growth rate, and risk profile. If a large public company is valued at 5x revenue, you might adjust to 2x–3x for your smaller operation.

Where to Find Multiples

Industry Reports: Platforms like IBISWorld, Statista, and Market Research make detailed industry data available, including average multiples.

Business Brokers: Industry professionals specializing in buying and selling businesses often have access to comparable sales data from their own office or from others in their network.

Investor Reports: Look at industry reports from firms like Goldman Sachs or PwC that analyze market trends and may give you some insight into valuation benchmarks.

The Asset Approach: Evaluating What You Own

Seller’s Discretionary Earnings (SDE)

SDE is the go-to method for most ecommerce businesses. SDE is a measure of how much profit the business will provide to one full-time owner/operator. Is this a scalable business, or a full time job? How much will it bring a new owner, if you sold?  

For example, say an Amazon seller brings in $170,000 of net profit after they take out business costs each year. They claim $40,000 as salary, use $10,000 to take a vacation, and pay $2000 to their accountant to do their personal taxes. The SDE would be: $170,000 + $40,000 + $10,000 + $2000 = $222,000.

Say the seller finds a report suggesting a similar business sold for 2x value. The seller can use the same multiple on $222,000 and value the business at $444,000. 

Why Valuation Matters for Your Ecommerce Business

Valuation isn’t just about numbers—it’s about understanding your business’s worth and preparing for its future. By choosing the right valuation method, you can identify opportunities for growth, set realistic goals, and negotiate fair deals.

With Clearco, you can take the next step toward unlocking your business’s potential. Our Invoice Funding and Receipt Funding solutions provide the capital you need to scale, invest in growth opportunities, and position your ecommerce business for success.