How to test an ecommerce asking price before you pay

An ecommerce asking price is usually an earnings multiple plus saleable stock. The multiple is applied to provable earnings for the trailing twelve months. Saleable stock is added at landed cost, not at the retail price you hope to get.

FE International, an M&A adviser, describes the multiple as the part that prices risk. The earnings figure is the base. Iconic, a business-sale adviser, keeps stock out of the multiple and adds it at closing, usually at cost, after a final count, and net of stale or damaged units. FE International says aged or excess stock is usually excluded or discounted. Both firms advise on sales. This is how they frame a price, not an independent average of prices paid, and not a UK or US statute. The figures in this article are USD.

Convert the monthly multiple first

The adviser pages used here talk in annual multiples. A marketplace listing can show a monthly one. On one row of The Website Flip's Amazon FBA listings page, the list price was USD 714,672, average monthly profit was USD 19,852, and the multiple was 36. 19,852 times 36 is 714,672, so 36 was applied to the monthly figure.

Divide by 12 before you compare that with an annual multiple. If that monthly profit is the base for the year, 36x monthly is 3.0x annual: 19,852 times 12 is 238,224, and 238,224 times 3 is 714,672. Average monthly profit times 12 is the implied year, not a separate trailing-twelve-month total you have already checked.

That row is one listing. Use it to see a monthly multiple applied to the profit the listing shows, then ask which earnings and which revenue the multiple covers before you compare the converted annual figure with another listing.

SDE, and two different cutoffs

Seller's discretionary earnings (SDE) is the profit figure many of these multiples use. FE International defines it as net income, plus the owner's compensation, plus personal expenses and true one-off costs added back. Peak Business Valuation, a US valuation firm, describes SDE as operating profit plus expenses a new owner may not incur. Ask for the lines. The label does not tell you which costs were added back.

Where SDE gives way to another measure is not agreed. Iconic applies the SDE framing to businesses under about USD 5 million in value, and says buyers move to EBITDA past roughly USD 2 million in value when the business has professional management. The Deal Flow Source applies SDE typically under USD 5 million in annual revenue, where the founder is in the daily work. Value and revenue are different tests. Near either line, ask which measure the seller is using, and whether a management salary is already in the profit.

A turnover multiple with no stated method, period or sample is not a figure you can test. CT Acquisitions and Peak Business Valuation state revenue multiples in that position, so those ranges are not used here. Turnover still includes money that returns, that ads and fees will consume, or that stock will absorb.

CT Acquisitions, an M&A advisory firm that works both sides, says the multiple on earnings is set by channel mix, how durable the margin is, and how much the business depends on the owner. Use those factors to read the risk in the earnings the multiple sits on. In FE International's framing, the asking price is that multiple times the seller's provable trailing-twelve-month earnings. Rebuilding the profit leaves the asking price unchanged. Divide the earnings price by the profit you rebuild to see the multiple you are paying.

The owner-salary add-back

SDE adds the owner's pay back, so the profit looks like what an owner could take if they also did the work. The Deal Flow Source's illustration: a founder salary of USD 200,000 makes SDE USD 200,000 higher than EBITDA for the same period. EBITDA means earnings before interest, tax, depreciation and amortisation. At 4x, that add-back is USD 800,000 of purchase price. The page says sellers of owner-operated businesses benefit from SDE framing. Treat the USD 200,000 and the 4x as arithmetic, not as a typical salary or a going multiple. The same sum works in pounds: at 4x, every 1 of add-back is 4 of price.

DueDilio, a due-diligence service, states the incentive. A price set as a multiple of earnings turns each added-back dollar into several dollars of price for the seller, and into a larger fee for a broker paid a percentage of that price. An add-back is a cost the seller says the buyer will not have to pay. Some of those costs will stop. Others will still be there after completion.

The test is recurrence. A personal cost the new owner will not pay can stay added back, if the statements show it was personal. A cost that continues comes back out before you apply the multiple: ads labelled as a growth push, a contractor the seller says will leave, software, a freelancer. If you will hire someone to do the seller's job, the salary add-back is a cost again. If you will do the job, decide whether your time is free in this price, or whether you want the multiple to sit on profit after a salary.

Contribution profit and operator profit

SDE, in FE International's definition, starts from net income and adds the owner's pay back. That is not what the store keeps after the costs of selling the goods. The rebuild in the next section is this article's calculation. It uses cost lines Flippa, a marketplace, tells buyers to assess: ad spend, supplier payments, platform fees and fulfilment costs. Returns come off revenue first, so the multiple is not applied to money the store has given back.

Contribution profit, as used here, is net revenue after returns, minus supplier payments, fulfilment, platform fees and ad spend. Those supplier payments are cash purchases. FE International adds inventory at landed cost to provable earnings, so the earnings base needs an accrual cost of goods sold. If supplier payments include stock still on hand, deducting them and paying landed cost for the same units at closing counts that stock twice. This figure does not add the owner's salary back. Operator profit, as used here, is contribution profit minus the salary of the person who runs the store. That salary is a hire, or a figure you put on your own time. Leave it at zero only if you are willing to be paid entirely from the contribution profit, and you know the multiple then includes your labour.

A return on ad spend can look acceptable while contribution profit is thin, because that return does not subtract supplier cost, fees and fulfilment. That split is the subject of whether paid media should be judged on ROAS or profit. Marketing can also continue outside the ad account, in retainers, influencers or email tools. Those costs are not in the four lines above. What a board-level MER report counts as marketing spend is the closer question for that boundary. Do not add a cost you have not seen in the accounts.

An invented file you can recalculate

Every figure in this section is invented, so the arithmetic can be checked. It is not a real listing and not a market rate.

The listing shows average monthly profit of USD 19,750 and a multiple of 36.

• Earnings asking price: 19,750 times 36 = USD 711,000
• Annual seller profit: 19,750 times 12 = USD 237,000
• Annual multiple, if that monthly figure holds for the year: 711,000 / 237,000 = 3.0x

The seller calls USD 237,000 SDE. In this file the seller has added back USD 60,000 of ad spend called a one-off growth push, USD 15,000 of personal costs, and USD 12,000 for a contractor the seller says will not return. 60,000 + 15,000 + 12,000 = 87,000, and 237,000 minus 87,000 = 150,000. That 150,000 is SDE after those three amounts are removed. Personal costs and the contractor are not supplier payments, fulfilment, platform fees or ad spend, so removing them from SDE does not calculate contribution profit. The USD 60,000 add-back is also a different figure from the ad spend deducted in the revenue table.

The revenue route is built to land on the same USD 150,000. On a real listing the two routes will not meet this neatly. Tie each add-back to a line in the accounts before you subtract it.

| Line | USD | | --- | --- | | Net revenue after returns | 900,000 | | Supplier payments | 360,000 | | Fulfilment | 90,000 | | Platform fees | 45,000 | | Ad spend deducted | 255,000 | | Contribution profit | 150,000 |

900,000 minus 360,000 minus 90,000 minus 45,000 minus 255,000 is 150,000.

The earnings price divided by contribution profit is 711,000 / 150,000 = 4.74x. Contribution profit is the revenue-table figure, so the personal USD 15,000 and the contractor USD 12,000 do not move it. If those two costs continue and only the personal USD 15,000 stays added back, adjusted SDE is 237,000 minus 60,000 minus 12,000 = USD 165,000, and 711,000 / 165,000 = 4.309x on that adjusted SDE.

Contribution profit of USD 150,000 still pays nobody to run the store. This file then subtracts USD 55,200, a figure chosen so the division is exact rather than a recommended wage. Operator profit is 150,000 minus 55,200 = USD 94,800. The earnings price divided by that operator profit is 711,000 / 94,800 = 7.5x.

The same USD 711,000 is 36x on the monthly label, 3.0x on the seller's annual SDE, 4.74x on contribution profit, and 7.5x on operator profit after USD 55,200. Change the salary and the last multiple changes. At USD 80,000, operator profit is USD 70,000, and 711,000 / 70,000 = 10.157x.

Stock on top, and cash that is not stock

Saleable stock is paid on top of the earnings price, at landed cost, not at retail. In this invented file the counted saleable stock is USD 85,000. Aged stock of USD 22,000 is left out. This article cannot tell you whether a UK listing that adds stock uses the same landed-cost rule. Match that line to the stock documents rather than to the adviser wording here.

FE International illustrates the same structure at another multiple. USD 400,000 of SDE at 3.5x is USD 1,400,000, and USD 140,000 of saleable inventory at landed cost brings that example to USD 1,540,000. Keep that example separate from the invented file.

Iconic settles the stock figure at a final count, usually at cost, net of stale or damaged units. A seller may still want to be paid for aged stock. You are the one asking for a discount, or for those units to come out, if you cannot sell them on normal terms.

Cash still has to run the store after completion. FE International and DueDilio price working capital separately from the earnings multiple, and DueDilio ties the amount to target levels. This file sets its own buffer at USD 40,000, for ads, fees and the next supplier bill before customer cash arrives. It does not include the USD 85,000 of stock already in the price. If cash in the bank transfers to you, reduce the buffer by the cash you will actually receive. Do not fund the same float twice.

Cash in this file: 711,000 + 85,000 + 40,000 = USD 836,000. The aged USD 22,000 is not in that sum. If the earnings multiple covered only one channel, do not add the whole company's stock to a partial earnings price without matching stock to the earnings you priced.

That USD 836,000 is the cash at risk in the example. What the same money would need to earn inside a store you already run is a separate sum. The sources here do not price that choice.

Run the checks in this order

1. Write down the asking price, the profit it is multiplied by, and whether the multiple is monthly or annual. Divide a monthly multiple by 12 before you compare it with anything annual.
2. Ask which revenue the profit covers. A price on one channel is not a price for the whole store.
3. Rebuild SDE from net income, owner pay, personal costs and one-off costs. Keep an add-back only if that cost stops for a new owner.
4. Rebuild contribution profit from net revenue after returns, then supplier payments, fulfilment, platform fees and ad spend. That rebuild is the calculation above, not a figure the listing will hand you.
5. Subtract a salary if someone, including you, has to be paid to run it. Divide the earnings price by the profit you are using as the base. That is the multiple you are paying.
6. Add saleable stock at landed cost after a final count. Exclude or discount aged, excess, stale or damaged stock.
7. Set any cash buffer on top, and check it does not repeat the stock or the cash you are already receiving.

Siteflip, a marketplace, tells buyers to get direct access to payment dashboards such as Stripe, PayPal or the merchant account. Screenshots alone are not enough. Check reported revenue against bank statements and tax returns for at least the past 12 to 24 months.

Ad spend in the account that spent it. Flippa includes ad spend among the costs to assess, and a heavy reliance on one platform for traffic or conversions is its own risk, which sits next to CT Acquisitions' point on channel mix, margin durability and owner dependence. Ask for read access to that history. Whether Meta, Google Ads, Shopify or Amazon will transfer an account is not covered here. Check the platform's own rules before you price a migration as certain.

Stock, counted. Iconic's closing step is a final count. Separate saleable units from aged stock, and tie the saleable units to landed-cost records rather than a retail valuation.

Do not treat the asking price as tested until you have seen the payment processor, the bank statements and a stock count tied to landed cost.