Valuation · E-Commerce

I see a lot of (smaller) web shops being purchased, how would you put the right price on a web shop?

Stefan Vermeulen

February 21st, 2016

Hi all,

I currently see a lot of (smaller / local) web shops being purchased - so it gets me inspired to write blog about it. Any tips welcome!

How do you valuate a e-commerce retail shop? What are the differences between shops with physical products or digital products / services? How do you valuate a customer base, give that most of the smaller shops have a rather small customer base (5,000 - 100,000 customers). What's the worth of infrastructure and inventory?

Thus, apart from the books. How do you do the due diligence of an e-commerce business?

Eric Sullivan CEO at FoundationLab

February 21st, 2016

Without IP you are worth about any size contracts you have. So any on-going retainers can help your valuation. The value of a service business is the people and they can leave at anytime. Service businesses also don't get big multipliers compared to someone with a product and a user base. At least this is my experience when we sold a service business of our own.

Michael Queralt President

February 21st, 2016

you have to look at the revenues, profits, growth & customer retention - a specific market segment or focus may increase its value but as Eric said, if they do not have a specific IP or differentiator, it gets valued by the same measurements as a professional services business..

Peter Bray CEO at Bray & Co

February 21st, 2016

As someone who sold one years ago the most popular calculation is a multiple of EBITDA. That multiple depends on the value of the ongoing contracts and IP. Cheers, Peter

sjehutch

February 22nd, 2016

Stefan which web shops are you referring too (any examples ??)

A. Andrew Chyne

February 23rd, 2016

Stefan Vermeulen, let me emphasize on the difference between physical stores and digital stores:-
The former is expensive. Having a physical store in a shopping mall with the highest number of footfall is out of reach for small manufacturers, retailers and startups. Digital stores are far more economical, it depends a lot on the right UI design as well as on the right quality of products being sold. Internet marketing needs to be invested heavily. It is always good to go for a paid marketing service because the number of reach is more, if the right content is being provided. Nothing can stop any retailer from increasing the number of sales if the right method of marketing is being implemented.