How to value a supplement company?

[Zain Miah]

Hey everyone!
I have an idea for a CENTS frame business. It's a supplement company selling protein drinks and preworkouts (sounds generic but theres more to it than that). Now my question is, how do I know what the average industry multipliers are for that sector? I've googled it but can't seem to find the averarge industry multiplier for supplements. Reason I'd like to know this, is so I can determine how much net profit it would need to make so I can hit my escape number so i'm hoping someone can push me in the right direction!
Thank you everyone!

 

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[Subsonic]

Hey everyone!
I have an idea for a CENTS frame business. It's a supplement company selling protein drinks and preworkouts (sounds generic but theres more to it than that). Now my question is, how do I know what the average industry multipliers are for that sector? I've googled it but can't seem to find the averarge industry multiplier for supplements. Reason I'd like to know this, is so I can determine how much net profit it would need to make so I can hit my escape number so i'm hoping someone can push me in the right direction!
Thank you everyone!

If you can't find it, think how you would value it.
If you estimate, always do it lower than you'd think. So you could take the low estimate of 4x.

 

[Zain Miah]

If you can't find it, think how you would value it.
If you estimate, always do it lower than you'd think. So you could take the low estimate of 4x.

Would 2-3x be WAY too small of an estimate? Somethings telling me 2-3x is too small but 4x seems like a good middleground

 

[Johnny boy]

How much does it make, how much time do you realistically spend on it each week, how consistent is the revenue, where does the revenue come from, can you run it while on a beach in Bali, etc. all these questions will determine how valuable it is.

If you’re making 300k a year working 4 hours a week remotely and all of your customers are from a steady and reliable source that isn’t going anywhere, then expect a couple mil for it because that’s awesome and if you just go grab a SBA loan to pay off for 20 years you’re instantly retired.

 

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[MJ DeMarco]

I'm guessing the supplement business would be on the low-end, 2.5 to 3X, depends on how unique and defensible your product is, plus the size of your customer list and their retention.

 

[NeoDialectic]

I have direct experience in this. The answer is it depends on so much. Everything from the business itself to the market.

In an average market....Average multiplier is probably around 2.5x-3.5x profit.

The higher your control, the better the branding, the stronger sales growth, the longer the business history, etc the closer to 3.5x profit you are. It wouldn't be crazy for a perfect business to command 4x, while one that relied on shady tactics or some other major issues to be like 1.5x.


During the tail end of the covid market, you could probably add a whole 1x to the best of the businesses (so up to 5x!) ...... I dont actually know what its at right this second (the tight financial markets really wreaked havoc), but i wouldnt be surprised if its back to either average or less than average. By the time you sell yours...who know.

 

[Zain Miah]

How much does it make, how much time do you realistically spend on it each week, how consistent is the revenue, where does the revenue come from, can you run it while on a beach in Bali, etc. all these questions will determine how valuable it is.

If you’re making 300k a year working 4 hours a week remotely and all of your customers are from a steady and reliable source that isn’t going anywhere, then expect a couple mil for it because that’s awesome and if you just go grab a SBA loan to pay off for 20 years you’re instantly retired.

I'm going to stick with 2.5x in mind and calculate from there then! One thing I don't quite understand is where the SBA loan comes into this, like I'm not too sure what you mean by pay off for 20 years. Would really appreicate if you could elaborate on that!
Appreciate all the help man!

 

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[Zain Miah]

I'm guessing the supplement business would be on the low-end, 2.5 to 3X, depends on how unique and defensible your product is, plus the size of your customer list and their retention.

When you say defensible I am assuming you mean whether it's easy to copy or not right?
Also its nice to hear from you MJ! You've had a huge impact on my life so I'll forever be grateful for you

 

[Zain Miah]

I have direct experience in this. The answer is it depends on so much. Everything from the business itself to the market.

In an average market....Average multiplier is probably around 2.5x-3.5x profit.

The higher your control, the better the branding, the stronger sales growth, the longer the business history, etc the closer to 3.5x profit you are. It wouldn't be crazy for a perfect business to command 4x, while one that relied on shady tactics or some other major issues to be like 1.5x.


During the tail end of the covid market, you could probably add a whole 1x to the best of the businesses (so up to 5x!) ...... I dont actually know what its at right this second (the tight financial markets really wreaked havoc), but i wouldnt be surprised if its back to either average or less than average. By the time you sell yours...who know.

Thank you NeoDialectic I appreciate the indepth response! I guess I'll assume 2.5x in my calculations for worst case calculations
What do you mean by businesses that relied on shady tactics? I'm trying to avoid that kinda thing of course haha

 

[fastlane_dad]

Hey everyone!
I have an idea for a CENTS frame business. It's a supplement company selling protein drinks and preworkouts (sounds generic but theres more to it than that). Now my question is, how do I know what the average industry multipliers are for that sector? I've googled it but can't seem to find the averarge industry multiplier for supplements. Reason I'd like to know this, is so I can determine how much net profit it would need to make so I can hit my escape number so i'm hoping someone can push me in the right direction!
Thank you everyone!

As most already mentioned on here a lot depends on how well it's built up, how long it's been selling, what the trajectory of sales is AND what your sales outlet is. If you are in walmarts and GNCs that's a different ballgame if you are selling only on Amazon FBA.

A strictly online supplement brand you can estimate to sell at 40X your monthly PROFIT. I'm not sure what you 'searched' or 'googled' but if you look up listings for sale for supplement companies, that is the general ballpark what they are selling for today. I'd start there and work your way backwards for any other values you are looking to see.

More important question is what have you done to move forward on your products? How have you validated the markets? Have you figured out a way to make $5 or get your FIRST customer?

A lot of people are stuck on this whole 'high level' visualization vision board type hog-wash, looking at 'escape numbers', and 'how do I make my first million'.

'Oh if I ain't gonna cash out with 20 MILLION in 2 years I'm not gonna bother starting that'. Truth is you won't start or move forward on anything then. EVER!

Let's hear of some progress that you made. If you execute well on your ideas, and create a well rounded business - it will sell for an 8 figure sum no problem in a decade.

Good luck!

 

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[Zain Miah]

As most already mentioned on here a lot depends on how well it's built up, how long it's been selling, what the trajectory of sales is AND what your sales outlet is. If you are in walmarts and GNCs that's a different ballgame if you are selling only on Amazon FBA.

A strictly online supplement brand you can estimate to sell at 40X your monthly PROFIT. I'm not sure what you 'searched' or 'googled' but if you look up listings for sale for supplement companies, that is the general ballpark what they are selling for today. I'd start there and work your way backwards for any other values you are looking to see.

More important question is what have you done to move forward on your products? How have you validated the markets? Have you figured out a way to make $5 or get your FIRST customer?

A lot of people are stuck on this whole 'high level' visualization vision board type hog-wash, looking at 'escape numbers', and 'how do I make my first million'.

'Oh if I ain't gonna cash out with 20 MILLION in 2 years I'm not gonna bother starting that'. Truth is you won't start or move forward on anything then. EVER!

Let's hear of some progress that you made. If you execute well on your ideas, and create a well rounded business - it will sell for an 8 figure sum no problem in a decade.

Good luck!

Thank you so much for the help man! I agree about the visualisation vision board hogwash haha. Right now my ideas for distribution are ecommerce however I was thinking majority of distribution would be to sell the products at brick and mortar gyms as well. Does selling in physical locations as majority of distribution reduce the value of the company?
I read your thread btw, it really helped put a realistic time frame into perspective

 

[Johnny boy]

I'm going to stick with 2.5x in mind and calculate from there then! One thing I don't quite understand is where the SBA loan comes into this, like I'm not too sure what you mean by pay off for 20 years. Would really appreicate if you could elaborate on that!
Appreciate all the help man!

You can use a small business administration acquisition loan to buy companies. They have long terms and decent interest rates.