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What Makes An eCommerce Brand Worth $5,000,000

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SparksCW

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Let’s say you own an eCommerce business in a competitive niche primarily reselling branded goods.

What makes that company worth $5,000,000?

Today I took some time out to figure out my “number” and then envision what my company would look like to gain a $5m sale so that I could work backwards.

Ultimately the company will only sell if 1) a bigger company believes there is more profit to be made than the purchase price and that 2) it’s cheaper/easier/quicker to buy the company for $5m than it is to start from scratch.

Aside from outright profits, what makes an eCommerce company valuable?

I thought it’d be useful to me and to others to brain storm what a $5m eCommerce company would look like and get advice from others who have been there.

Here’s what I have so far, interested in more ideas and further validation on the existing ideas. Has anyone here sold an eCommerce business for similar money? What did it look like?

Value Adding Ideas
  • Outright profit
  • Market reach (audience)
  • Digital IP such as blog, app, YouTube channel (audience)
  • Content such as guides, eBooks etc (audience)
  • Own branded goods
  • Software or apps
  • Subscription product(s)
  • High customer lifetime value
  • Patents/copyrights
  • A USP
  • Reputation
  • Trade/wholesale accounts
  • Not relying on third party platforms like eBay or Amazon
  • Systems and processes
 

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Jeff Noel

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The brand's identity is a big factor I believe. Why do people wear Nike ? Because it's Nike !

(ie.) If the ecom brand is selling wearables, is making good sales and becomes trendy amongs teens and in high school, people will associate the brand with the "cool factor". A strong brand identity amongst its consumers will most like affect the final value, because the potential for an extended product line to work is higher, people already trust the brand.

------
Edit:

5 million is just a number.

  1. Word spreading about your brand
  2. Positive feedback
  3. Recommended by satisfied customers
  4. Unique branding or unique message spread by your brand

There's so many factors. How/why did the first fidget spinner become viral so fast ?
-No identity
-No branding
Just a weird item that was used as a stress-management tool but quickly became something else. Yet, a video caused its sales to blow up.
 

MJ DeMarco

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A eCom company that profits $120K/month plus a $15K/mo owner salary would be worth about $5,000,000 at a 3X multiple.

Obviously this will vary on the type of product, barriers, channels, etc.
 

Stargazer

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A eCom company that profits $120K/month plus a $15K/mo owner salary would be worth about $5,000,000 at a 3X multiple.

The above plus a buyer will factor in potential. Financial and/or strategic.

If the above figures were half those from the previous year I would not offer $5 million as the company is possibly on the way down.

If the above figures were double those the previous year I would want to get it quickly for $5 million as the company is possibly on the way up.

Dan
 

francevalue

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Let’s say you own an eCommerce business in a competitive niche primarily reselling branded goods.

What makes that company worth $5,000,000?

Today I took some time out to figure out my “number” and then envision what my company would look like to gain a $5m sale so that I could work backwards.

Ultimately the company will only sell if 1) a bigger company believes there is more profit to be made than the purchase price and that 2) it’s cheaper/easier/quicker to buy the company for $5m than it is to start from scratch.

Aside from outright profits, what makes an eCommerce company valuable?

I thought it’d be useful to me and to others to brain storm what a $5m eCommerce company would look like and get advice from others who have been there.

Here’s what I have so far, interested in more ideas and further validation on the existing ideas. Has anyone here sold an eCommerce business for similar money? What did it look like?

Value Adding Ideas
  • Outright profit
  • Market reach (audience)
  • Digital IP such as blog, app, YouTube channel (audience)
  • Content such as guides, eBooks etc (audience)
  • Own branded goods
  • Software or apps
  • Subscription product(s)
  • High customer lifetime value
  • Patents/copyrights
  • A USP
  • Reputation
  • Trade/wholesale accounts
  • Not relying on third party platforms like eBay or Amazon
  • Systems and processes
It is ALL about the IMAGE.

Why do people prefer to buy Supreme and not CostCo?
Because when they buy Supreme, they feel hella classy. And when they buy Costco or Walmart nvmd, they feel they look poor and not trendy (when in fact it's the same T shirt)
 

SparksCW

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A eCom company that profits $120K/month plus a $15K/mo owner salary would be worth about $5,000,000 at a 3X multiple.

Obviously this will vary on the type of product, barriers, channels, etc.

Is that based on pure profit only without taking into account intangible things like audience, brand value, IP etc?

We have a long way to go yet, I’m reliant on our new plan of edu-commerce boosting the multiple as well as the revenue.
 

MJ DeMarco

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Is that based on pure profit only without taking into account intangible things like audience, brand value, IP etc?

Purely numbers. The intangibles obviously come into play and will impact it. Growth rate? Customer acquisition? Core channels? Sources for products? Yes, IP, brand value, etc. So many variables come into play, but a 3X multiple is pretty common.

A branded unique product obviously will be worth more, perhaps 4X multiple than a company that just imports gadgets from China, that perhaps 2X.
 

Envision

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1. You need the financial numbers that MJ broke down
They take SDE (Sellers discretionary earnings x 3)

(3 x multiple is current industry standard for balanced ecom businesses.)

Meaning your net profit and any add backs like salary,owner expenses, etc)
$135,000*12 months = $1,620,000
=$ 1,620,000 * 3x multiple
=$ 4,860,000

2. A brand - Do not resell other products
3. Clean operations and books
4. Systems that remove you from the operations
5. Control over your manufacturing and distribution (some level)
6. Intellectual property.

---

Having subscription/recurring revenue increases your multiple significantly.
 

biophase

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Is that based on pure profit only without taking into account intangible things like audience, brand value, IP etc?

We have a long way to go yet, I’m reliant on our new plan of edu-commerce boosting the multiple as well as the revenue.

Usually if they are making $1.5m they will have audience and brand reputation built in.
 

Sethamus

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So to break this down farther someone would need to estimate your avg. margins on the 135k/mo profit to get avg monthly revenue target. Then figure out avg revenue needed per month with x # products to get a really rough idea on the scale that takes?
Margin at $135k profit
20% = $675,000 in revenue/month needed
25%= $540,000
30%= $450,000

25% - $540,000/ $50 product cost avg = 10,800 units per month need to be sold across your brand.
Someone check my math, but hopefully you get the picture on the scale you would need and ways to do it.
 
D

Deleted74396

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This thread is really useful, thanks for making it Sparks!
 

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