The e-commerce landscape has undergone significant shifts in the past few years, creating both opportunities and challenges for buyers and sellers. At Robbins Pellegrino, we specialize in business brokerage with a focus on accurately valuing companies, including online retailers. One of the most frequent questions we receive is:
How do you value an e-commerce business?
Unlike traditional brick-and-mortar businesses, e-commerce companies operate in a digital environment where factors such as fulfillment, branding, and platform dependency all play major roles in their valuation. In this guide, we’ll walk through the key considerations when valuing an e-commerce business in today’s market, including how to account for the COVID-19 e-commerce boom and subsequent normalization.
Understanding E-Commerce Business Models and Their Impact on Valuation
Not all e-commerce businesses are created equal. Before determining a multiple, it's crucial to understand the business model and its scalability. Here are the primary types of e-commerce businesses and how they influence valuation:
Dropshipping Businesses
These companies operate without holding inventory, relying on third-party suppliers to fulfill orders directly.
Pros: Low overhead, easy scalability.
Cons: Thin margins, competitive markets, limited brand differentiation.
Typical Valuation Multiple: 1.5x – 3x Seller’s Discretionary Earnings (SDE)
Private Label & Branded E-Commerce
These businesses develop their own branded products, typically manufactured by a third party but sold under their own brand name.
Pros: Strong brand loyalty, higher margins, less competition.
Cons: Marketing and customer acquisition costs can be high.
Typical Valuation Multiple: 3x – 6x EBITDA (higher for well-established brands with strong recurring customers).
Fulfillment by Amazon (FBA) Businesses
Companies that leverage Amazon’s logistics infrastructure to store and ship their products.
Pros: Access to Amazon’s vast customer base and streamlined fulfillment.
Cons: High reliance on Amazon’s policies, fees, and algorithm changes.
Typical Valuation Multiple: 3x – 5x EBITDA, with a discount if the company is too dependent on Amazon.
Direct-to-Consumer (DTC) E-Commerce
Businesses that sell primarily through their own website (often using Shopify, WooCommerce, etc.), controlling customer experience and data.
Pros: Better customer retention, no reliance on a single marketplace.
Cons: Heavy dependence on digital marketing (Facebook, Google Ads, email campaigns).
Typical Valuation Multiple: 4x – 6x EBITDA, especially for strong, data-driven brands.
The COVID-19 E-Commerce Boom and the Post-Pandemic Reality
The 2020-2022 E-Commerce Surge
E-commerce businesses saw unprecedented growth during the COVID-19 pandemic due to lockdowns, supply chain disruptions, and increased online shopping habits. Many businesses reported record-breaking revenues in 2021 and 2022, with some growing at 2x or 3x their normal rates.
Buyers must recognize that these years were anomalies, and valuation multiples should be adjusted accordingly.
The 2023-2024 Normalization
As brick-and-mortar stores reopened and consumer behavior stabilized, many e-commerce businesses experienced a pullback in revenue. Companies that flourished in 2020-2022 may now face declining sales, not necessarily due to poor business practices but due to a return to pre-pandemic trends.
Buyers evaluating an e-commerce business today should look beyond the pandemic’s highs and assess whether the company has established a sustainable revenue baseline.
Key Financial Metrics That Determine E-Commerce Valuation
Revenue Trends & Profitability
A growing business with steady or increasing profit margins commands a higher multiple.
A declining business (even if it had previous growth) may see its multiple adjusted downward.
Gross Margins & Contribution Margins
Strong gross margins (50% or higher) indicate pricing power and brand strength.
Contribution margin (after ad spend) is crucial, as many e-commerce businesses rely on paid acquisition.
Customer Acquisition Cost (CAC) & Lifetime Value (LTV)
If a company has an efficient acquisition funnel with a strong repeat customer rate, it’s more valuable.
High CAC without recurring revenue is a red flag.
Amazon & Platform Dependence
Businesses that rely too heavily on Amazon (more than 70% of sales) are riskier due to potential account suspensions and fee changes.
Diversification through DTC, wholesale, and retail partnerships strengthens valuation.
The Role of Absentee Ownership & Operational Structure in Valuation
Owner Involvement
Absentee-owned businesses (where the owner is not actively involved) often attract more buyers since they require minimal effort to operate.
If a business is dependent on the owner’s personal branding, relationships, or expertise, it may require a discount.
3PL, FBA, & Logistics Setup
Businesses that use third-party logistics (3PL) or Amazon FBA (rather than self-fulfillment) are typically more scalable and appealing to buyers.
Investors prefer businesses that don’t require warehouse space, in-house fulfillment, or significant inventory management.
What Multiples Should You Use to Value an E-Commerce Business?
Given everything above, here are general benchmarks for e-commerce valuation multiples:
Business Model | Typical Valuation Multiple (SDE/EBITDA) |
Dropshipping | 1.5x – 3x SDE |
Private Label Brand | 3x – 6x EBITDA |
Amazon FBA | 3x – 5x EBITDA |
DTC Branded E-Com | 4x – 6x EBITDA |
Hybrid (DTC + Retail + Amazon) | 5x – 7x EBITDA |
For a business experiencing declining revenue, valuation is adjusted to reflect risk. A business that is still profitable despite a revenue drop may trade at 3x – 4.5x EBITDA, while one with deteriorating margins could drop to 2.5x – 3.5x EBITDA.
Positioning for a Strong Sale
If you’re looking to sell an e-commerce business, it’s important to be realistic about valuation. While 2021 and 2022 were strong years for e-commerce, buyers today are more cautious and prioritize long-term sustainability over historical spikes.
At Robbins Pellegrino, we help e-commerce business owners navigate the sales process, ensuring you get the best valuation while setting realistic expectations. Whether you’re looking to sell or simply exploring your options, our team is here to provide expert guidance.
If you’d like a no-cost, confidential valuation of your e-commerce business, contact us today.
About Robbins Pellegrino: Robbins Pellegrino is a Florida-based business brokerage firm led by Chandler Robbins and Joe Pellegrino, Jr. that is committed to redefining industry standards. We focus on creating meaningful partnerships and ensuring successful business transitions for both buyers and sellers. For more information, visit us at www.robbinspellegrino.com or call (239) 360-6273
.png)
Comments