When I decided that my future was investing in and operating online businesses, there was one huge problem I encountered. I couldn’t find good data to help define the relevant universe of opportunities. After wasting an enormous amount of time I ultimately stumbled upon Jock Purtle at Digital Exits.
Jock and his partner Robert Kale publish an amazing historical summary of valuations for all different monetization methods. Below is their most recent edition covering the last 10 years!
While you read this please notice:
1. The size of market transactions is growing but still small enough to be off the radar of Institutional money. Most transactions are less than $250,000.
2. Ecommerce is the largest category and a consistent performer with a large volume of businesses selling, and growing fast. It is, in my opinion, the easiest business to understand and train a new buyer on. With the ease of platforms like Shopify, they also often require fewer hours per week to maintain, and the owner can focus on marketing and growth.
3. Jock and Robert believe the reported numbers only capture 10-15% of total transactions. Most deals are done privately. How do you plan on accessing the 85%+ part of the deal flow?
So make your plans to can get involved in this exciting asset class and remember, you’re just a deal away.
What Will it Cost to Buy an Online Business in 2018?
You will see the term “multiple” a lot in this article. That is referring to a multiple of the business’s profit. We use that multiple to determine the valuation, or list price for the business. We calculate the profit for the business using SDE (Seller’s Discretionary Earnings) using this formula:
SDE = Net Profit + Owner Wages/Benefits, Or, in other words: SDE = Total Sales – Cost of Goods Sold – Expenses + Owners Wages/Benefits
WHAT ARE THE MARKET TRENDS?
WE ANALYZED 1,255 BUSINESSES FROM 7 BUSINESS MODELS
Where Can You Sell Your Online Business?
WHAT WE FOUND FROM OUR ANALYSIS
WHAT IS THE AVERAGE MULTIPLE PER BUSINESS MODEL?
ARE SMALLER OR LARGER BUSINESSES WORTH MORE?
How to interpret this graph: If your business is generating:
- 0-$125k per year in annual profit = valuation range of 0-$250,000
- $125k-$200k annual profit = valuation range of $250,000-$500,000
- $200k-$$380k annual profit = valuation range of $500,000-$1,000,000
- $380k-$650k annual profit = valuation range of $1,000,000-$2,000,000
- $650k-$2m annual profit = valuation range of $2,000,000-$7,000,000
- $2m-$10m annual profit = valuation range of $7,000,000-$100,000,000
- This will give you a pretty accurate range of where you business sits in the valuation spectrum.
HOW MANY TRANSACTIONS OCCURRED AT EACH PRICE POINT?
WHAT DO THE MULTIPLES LOOK LIKE ON A SCATTER GRAPH?