VALUATION METRICS FOR E-COMMERCE BUSINESSES

If you're considering buying or selling an eCommerce business, obtaining a business valuation is more important now than ever. Valuation metrics are simply the ratios and key financial models that analysts use to decide how much an eCommerce company may be worth, combined with some more qualitative factors in reaching a final valuation conclusion.

Key Metrics that decide an ecommerce company’s value are:

1.    Traffic: 

One of the most important parts of an eCommerce valuation is traffic and sales. Without traffic, sales can't be made. Without sales, the business is practically worthless.

2.    SEO Presence: 

SEO, or search engine optimization, determines how high a website ranks in internet search results. SEO is becoming increasingly important for eCommerce businesses because better SEO will result in more traffic to the site.

3.    Customer Loyalty: 

Customer loyalty is a key component of eCommerce valuation. Often, a potential buyer is really looking to attain the customer base of a company, not the company itself. Recurring revenue is favorable to value.

4.    Revenue Streams:

Revenue is obviously important when it comes to valuing a new business, but where that revenue comes from is equally as important. Multiple streams of revenue and the number of distribution channels generating that revenue results in higher growth potential for a business.

5.    Owner Involvement: 

The less dependent a business is on its owner, the more valuable that business is. This is because replacing a highly involved owner and transitioning to a new owner takes time, especially when establishing relationships with key employees and suppliers/customers. Acquiring a company that already has day-to-day management in place requires limited transition time.

6.    Financial and Operations: 

Finally, valuation experts will always take a look at the financials and operations of a company to determine the company's strengths and weaknesses. This drives risk, which is a key component in determining value when compared to other eCommerce companies.

Valuing an ecommerce business requires technical knowledge, but also industry experience to ensure that intangible variables are considered appropriately. If you have questions about valuing your ecommerce business, reach out to a professional appraiser by CLICKING on the button below.