eCommerce Valuation Metrics That Drive Worth
eCommerce businesses are becoming a very attractive SBA 7(a) transaction candidate, however, buying or selling an eCommerce business can be confusing. Download our eCommerce Market Intelligence Report on the right side of this page to learn what valuation metrics determine the value of an eCommerce business so you can make an informed decision. Looking to learn more about business valuations? Download our Free Business Valuation Guide to learn how to approach your business’s value through fair and reasonable consideration.
What is eCommerce? And what are valuation metrics?
eCommerce is sometimes referred to as electronic commerce or internet commerce. All of those terms describe businesses that sell goods or services on the internet. You could probably think of more than a handful of eCommerce businesses at the drop of a hat. The industry has grown rapidly, especially over the past couple of years. 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 for an eCommerce business include but are not limited to revenue volume (size), number of distribution channels, and total product SKUs.
What factors besides eCommerce valuation metrics decide my company's worth?
There are a few factors that can make your eCommerce business stand out compared to peers. They are:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 a business requires technical knowledge, but also human wisdom and experience to ensure that less tangible variables are considered appropriately. At GCF, we wrote the book on SBA 7(a) business valuations. If you have questions about valuing your business, reach out to us and a GCF appraiser will get in touch.
Business Valuation Accreditation
Your GCF Business Valuation appraisal team has one or more of the following business valuation accreditations:
- Accredited Senior Appraiser (ASA) - is recognized as having achieved the highest level of education, training, and report writing for business valuations. The ASA designation is the gold standard for a business valuation professional. (source: American Society of Appraisers)
- Certified Business Appraiser (CBA) - a very prestigious credential in the eyes of all who are familiar with it as it earned the reputation of being a difficult credential to obtain. (source: National Association of Certified Valuators and Analysts®)
- Certified Valuation Analyst (CVA)
- Accredited in Business Valuation by the American Institute of CPAs (ABV by AICPA) - a credential granted exclusively by the AICPA to qualified valuation professionals to who demonstrate expertise in valuation through knowledge, skill, experience and adherence to professional standards. (source: American Institute of CPAs)
- Accredited in Business Valuation (ABV) - credential is granted exclusively by the AICPA to CPAs and qualified valuation professionals who demonstrate considerable expertise in valuation through their knowledge, skill, experience and adherence to professional standards. (source: American Institute of CPAs)
- Certified Public Accountant (CPA)
Over 25 years of experience and expertise in business valuations and appraisals. An accredited appraiser receives extensive training, remains in good standing, and follows specific industry practices to determine the value of a business.
GCF's Machinery and Equipment Appraisal Accreditations
- Expert Equipment Certified Appraiser (EECA) - Our appraisers are recognized with a deep understanding of valuation principles and extensive experience by the Institute of Equipment Valuation.
- Certified Machinery and Equipment Appraiser (CMEA) - a CMEA professional has the expertise and certification to conduct a third party machinery and equipment appraisal.
The GCF Business Valuation Process