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Valuing Your E-commerce Business

by Olufisayo
Valuing Your E-commerce Business

When placing a value on your e-commerce business, there are a whole host of different factors for you to consider before naming your price. Not surprisingly, one of the biggest errors that you can make in the process of selling your e-commerce business is overvaluing your website worth. This happens to so many sellers, and it results in either the seller being disappointed or the buyer walking away. In order to avoid such disappointment, take a look at the factors discussed below. Then you’ll be ready to take a more realistic look at the value of your e-commerce business.

How to Value Your E-commerce BusinessThe size and age of your e-commerce business will definitely contribute to how much your e-commerce business is worth. The general trend is that larger businesses tend to be sold for higher prices, to a point. In 2013, that “point” was around five million dollars, as you can see in the chart. The age of the e-commerce business is also important, especially if the business has been steadily growing for some time. E-commerce businesses that are well established and well known tend to sell for a higher price, because these factors prove to buyers that the business is not a risky investment. Since the buyer’s goal is to make back the amount of his or her investment as soon as possible, size and age, as well as the reliability that accompanies these factors, are major points of interest when valuing your e-commerce business.

Valuing Your E-commerce Business

However, two of the most important things to keep in mind when valuing your e-commerce business are the profit of your business and the sales multiple assigned to your business by a prospective buyer. Your profits depend on how much money your business is making after you’ve accounted for all of your operating costs. Before you take your e-commerce business to a prospective buyer, you should make sure that all of the documents, facts and figures that represent your income, spending and profits are in order. Then you’ll be able to show consistent profits and reliable numbers. This is very appealing to the buyer when it comes time for him or her to put forward the sales multiple. The sales multiple is a bit trickier to come by though since it varies according to your business model (check out the table) and according to the buyer.

How to Value Your E-commerce BusinessA buyer will set the sales multiple based on the risk that he or she perceives in buying your company. The lower the risk, the higher the sales multiple; the higher the sales multiple, the higher the overall selling price. So it is important for you to factor in all of the risks associated with your business. Additionally, you should minimize these risks as much as possible before you present a prospective buyer with your business. This way you can be sure to lock in a higher sales price for your e-commerce business.

While there are many other factors that play into the value of your e-commerce business, the history of the business, including its size and age, as well as the profits and the sales multiple that will likely be assigned to your business, tend to be the truest indicators of the value of your e-commerce business. Before you sell your e-commerce business, you should check out some website valuation reports, which show how much money different types of online businesses sold for. Then you can get a better idea of what your e-commerce business is worth by comparing your business to other businesses presented in the reports. This is the most effective way to put a price tag on your e-commerce business.

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