Shopify store valuation: what your store is actually worth
Ask 10 different brokers for an opinion on the valuation of your Shopify business and you will get 10 different answers. The math in valuing a business (multiple x revenue) is straightforward. The variables are not and you are leaving a lot to interpretation if you are going out. Some buyer is going to come at you with a strategic motive and another tired operator just looking for some cashflow to pay off debt.
There are a number of ways to get a real number out. First pick a method that you think tells the best story for the store. Then make sure that you have a handle on the variables that get put into the equation. Finally make sure you understand how the comp’s are going to react to that number. Thats the whole game.
3 Methods for Valuing an Online Store in Ecommerce M&A + How Multiple Goes Up and Down | running an ecommerce business vs selling an ecommerce business. Want an estimate for a specific shop in 60 seconds? Here.
In this post
- Three valuation methods that matter
- SDE and the profit multiple
- Comparable sales and market data
- What raises your multiple
- What kills your multiple
- When to sell
- FAQ
Three valuation methods that matter
There are three different ways a buyer might calculate the value of a retail business, and most buyers will use a combination of these methods.
| Method | Formula | Best for |
|---|---|---|
| SDE multiple | Seller discretionary earnings x 2 to 4 | Profitable stores with clean books |
| Revenue multiple | Annual revenue x 0.5 to 2 | Fast growing brands not yet profitable |
| Asset based | Inventory + domain + list + IP | Unprofitable stores or fire sales |
Most general ecommerce stores under $5,000,000 in revenue sell using a multiple of SDE Content heavy DTC stores with strong growth trade based off of revenue. Stores that are breaking even generally sell off their assets for a value lower than owner intended. Almost always lower.
SDE and the profit multiple
Seller discretionary earnings is net profit plus owner salary, plus one time expenses, plus non-cash items such as depreciation. This figure represents the actual selling price for a buyer. In other words, it includes the owner’s salary, for the simple fact that a buyer wants to know the true discretionary earnings of a business, not what he has discretionary earnings after he pull 60 hours a week removing the grease stains out of your business for minimal return based on what the tax laws allow him to deduct for year end purposes.
SDE multiples for Shopify stores have ranged from 2x to 4x, and recently 5x. 12 month old dropshipping store with 1 winning product has been worth around 1.5x to 2x. 5 year old brand with strong customer retention, owned inventory, real team can be worth 4x. Every so often you get the rare bird that gets 5x.
Rough mental model for store valuation: take the average SDE of your SDEs for last trailing twelve months, and multiply by 3. Calculator here. Adjusts for age, traffic source mix, and SKU concentration.
Comparable sales and market data
Everyone looking to buy a store looks at comparable sales. Flippa, Acquire, Empire Flippers and even private online e-commerce brokers like StoreLabs complete and post comparable sales data on deals that have closed in the public domain. So if there are completed deals listed in Flippa in the apparel niche with $500k in annual revenue they have averaged 2.8x SDE. Nice to look at dashboards that say you’re averaging 4x- even higher- sorry that ain’t happening.
Comps are also where owners get hit when their supposed unicorn store turns out to have loads of siblings. Make reasonable comps before you list the place.
What raises your multiple
- Diversified traffic (not 90% paid social, not 90% Google)
- Repeat purchase rate above 30%
- Clean Shopify reports, clean Stripe, clean books in Xero or QuickBooks
- Owned audience (email, SMS, engaged social)
- SKU depth that is not dependent on one hero product
- Operating SOPs a new owner can follow day one
- Strong on page SEO and product structure (grouped variants, proper collections, working filters)
Buyers look around your site and if it looks like it has not been taken care of recently, it will loose the multiple even if the revenue looks good. If you have separate products for every color, fixing this before you list the product with Rubik Combined Listings is one of the lowest cost multiple upgrades you can get.
What kills your multiple
- One supplier risk (especially a single Alibaba factory)
- Trademark issues or cease and desist letters in the inbox
- Declining trailing three month revenue
- Over reliance on a single ad account (one ban and the store is dead)
- Owner dependent content (every post written by you, every photo shot by you)
- Unfixed tech debt. Broken collection filters. Product images that vanish on mobile.
Fix the cheap stuff first. Get the rest of your store clean too. Run our free store valuation tool before and after to see the difference a clean product page makes. A tidy Shopify store will also help improve your product page score, which will in turn boost your conversion rate and multiple sales.
When to sell
Sell when your passion for the business is waning before revenue growth has slowed. Sell when the next round of capital or talent is no longer required to continue growth. Sell when a strategic buyer is willing to pay 5x and you expect to get only 2x the next year. (Don’t sell the week after you get a big tax bill).
Do not sell in a down month. Buyers look at the trailing twelve months so a down month in one month can hurt you for the entire year. Give yourself a fresh “peak” to sell into.
Run the numbers
Build a better listing before you list with a broker. Improving the product structure and adding variant images can add more to your multiple than you know. See the demo store here, watch the tutorial video here or read the getting started guide here.
FAQ
What multiple do most Shopify stores sell for?
Most profitable Shopify stores generating less than $5 Million in revenue typically sell for 2x to 4x SDE. Growth stage Shopify stores and revenue multiple can range anywhere from 0.5x to 2x SDE. Unprofitable Shopify stores typically get sold for the value of assets.
What is SDE in ecommerce?
Seller discretionary earnings (SDE) – Also known as the net profit plus owner’s fees plus any one off expenses. SDE normalises the annual earnings so the potential buyer can see exactly what a full time operator would expect to receive as a take home pay wagered annually on the business.
How long should I own a store before selling?
Twelve months history. Most brokers require a full twelve months of financial history before they will list a property and most buyers place very little value on anything less.
Does email list size affect store valuation?
Yes. An active list with good open rates is an asset and adds value to the multiple of a sale of a mailing list. A dead list with 2% open rates adds little or nothing to the sale price.
Should I sell through a broker or direct?
The brokers take 10-15% but usually do a better job getting a higher gross sales price. And they handle all of the escrow, due diligence and closure. For stores over $200k it’s often best to sell direct to the buyer if you have a ready buyer with a legitimate offer.
Do Shopify apps transfer to the new owner?
Most apps will transfer all of your store’s applications when the owner of a store gets transferred, especially if the store is paid for through Shopify. Any subscriptions that you may have purchased through the app will need to be transferred manually.
Can I use a free tool to value my store?
The free store valuation calculator provided by Store Valuations gives an operational overview of the valuation range for a convenience or fuel and convenience store using the same SDE and revenue multiples used by brokers to provide a defenceable starting point for valuation.
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Umid
Co-Founder at Craftshift