However, valuing an e-commerce company is not that simple because there are many factors that affect the value. In addition to e-commerce-specific factors such as marketing costs, automation, return rate, etc., there are 3 common methods used to value an e-commerce company.
The multiple method:
This method involves multiplying a key figure, such as net income, sales, or gross profit, by a multiple based on industry standards, historical sales, and market trends. The multiple can vary depending on the company’s size, growth, profitability, risk, and potential. A common multiple for e-commerce companies is 2-3 times net income per year.
Discounted Cash Flow (DCF)
This method is based on calculating the present value of the company’s future cash flows, that is, the money that the company generates after paying all costs and investments. To do this, assumptions must be made about the company’s growth, profitability, investment needs and discount rate, that is, the rate of return required to invest in the company. The DCF method is more complex and uncertain than the multiple method, but can provide a more accurate picture of the company’s value if reliable forecasts are available.
The asset method
This method is based on adding up the value of the company’s assets, such as inventory, inventory, customer records, brand and goodwill, and subtracting the value of the company’s liabilities, such as accounts payable, loans and taxes. The asset method is more suitable for companies that have low or negative profitability, or that are in liquidation. For e-commerce companies that have high or growing profitability, the asset method is usually not relevant, as it does not take into account the company’s earning capacity .
But as I said, there is more to consider when it comes to valuing an e-commerce company. If you want to value your e-commerce company, contact us for a free valuation. It provides valuable insights even if you do not intend to sell your e-commerce right now.