How much is your business worth? Sale multiples for online businesses

Deciding whether to sell your business relies heavily on how much you can get for it.

That’s probably why you’re asking: How much is my business worth?

Founders who go digging for answers typically end up looking for common multiples for their type of business. But multiples for online, digital and tech-enabled businesses are different from main street or brick-and-mortar stores.

That’s why we’ve compiled a guide on multiples for online businesses, which covers these types of businesses:

• SaaS
• Media & content
• Agencies & services
• E-commerce

Download our Multiples Guide

Sale multiples for online businesses

Bigger picture, we want to help you understand how multiples work, and how you should – and shouldn’t – use them to value your business.

In this post, we’ll cover:

• What is a business valuation multiple?
• How can you use common multiples for your industry to figure out an approximate valuation for your business?
• Why are some business valuations based on an EBITDA multiple, while others are based on a revenue multiple?
• What are the common multiples for your industry?

Business valuation multiples: What do they mean?

A multiple in the business valuation world, also known as a revenue multiple or an EBITDA multiple, is a financial metric used to evaluate the value of a company based on its revenue or EBITDA.

Once you know the common multiples for your industry, you can multiply that by your company’s revenue or EBITDA to develop an approximate valuation for your business.

That calculation gives you a sense for how much you might be able to sell your business for.

Here’s an example of how multiples work:

Say your business brings in $1 million in revenue, and you sell your business for $3 million. That means you sold for a revenue multiple of 3x.

Likewise, if that same business sees EBITDA of $300,000, your EBITDA multiple is 10x.

But figuring out what multiple your business might sell for isn’t as straightforward as most sellers would like it to be. We’re about to explain why.

Why valuation multiples should be a guide, but not a hard rule

Here’s the tricky part about multiples: They should only be used as a rough guide for valuing your business, not a hard rule. That’s because they’re generalizations, and not specific for your situation.

Also, common multiples are really a range, not just one number. If someone says your type of business typically sells for 3x EBITDA, for example, they’re overlooking essential nuances. A better way to understand common multiples is through ranges. So common multiples for that same business, for example, might be 1x to 5x EBITDA.

Plus, it’s common for businesses to sell for well above or well below the common multiple for that industry. This could happen for a variety of reasons: maybe there’s something about the business that makes it high risk for a buyer, which results in a lower multiple. Or perhaps the growth trajectory of a company is so fast that it commands a higher multiple.

“Of course, there will be outliers on both the high and low sides,” said Tom Howard, broker with The Cornerstone Team at Website Closers. “Each business is uniquely valued so it helps to really understand the individual factors that are driving value.”

How strategic buyers affect multiples

Contributing to this complexity is the fact that strategic buyers typically pay a higher multiple than other types of buyers.

This is why most sellers go into the sale process looking for a buyer who has some strategic angle, one that would see a synergistic value in an acquisition — and therefore pay more for it than buyers who are strictly looking at your financials.

But strategic deals happen most frequently when the buyer approaches the seller, not the other way around. While every seller wants a strategic buyer, in reality, it’s rare for sellers to pitch potential buyers who see the deal as strategic and are willing to pay an above-average multiple.

Strategic deals tend to get the most media coverage, which can warp a founder’s expectations around how likely it is to be acquired by a strategic buyer. As a result, some sellers are disappointed at common multiples for their industry.

Of course, you might be the exception and command a higher-than-average multiple. But you also might be on the lower end. There’s no way to know until you look at all the factors that affect your valuation. Let’s talk about that next.

Variables that affect valuation multiples

Lots of variables affect valuation multiples, which is why asking “what’s the valuation multiple for my type of business?” won’t get you a clear-cut and accurate answer.

Some of the variables that affect your multiple include:

Growth rate

Buyers want to buy businesses that are growing, so they’ll pay more for a fast-growing company than one that’s growing slowly or plateaued.

This is why you should aim to sell your business when you’re still on an upward trajectory, rather than waiting until you’ve tapped out the opportunity and business growth slows.

“Multiples are very growth dependent,” according to Einar Vollset of Discretion Capital. “Because growth dominates all other factors when it comes to valuation multiple, you should sell your business when there’s still some growth left.”

Market conditions

Most advisors say you shouldn’t try to time the market, and should instead sell when the timing is right for your business and for you personally.

However, there are certainly times when the market is willing to pay more for specific types of businesses. Economic downturns or industry-specific challenges can depress multiples, while booming markets can lead to inflated valuations.

“We have seen multiples take a dive for content focused businesses due to the mounting threats of Google and AI to the industry,” said Joe Burrill, who helps founders sell content businesses through Just Websites Brokerage. “The ones we see doing the best are the ones that are successfully using these newer tools to their advantage. Not to write the content for them, but to generate ideas and brainstorm.”

These shifts are always clearer in retrospect, but sometimes you can spot clues in the moment, too. If the market conditions are positive and your business is in a good position to sell at the same time, that’s when the magic happens.

For example, we saw high multiples for many online businesses in 2020-2021, as the pandemic made many online businesses desirable. Since then, multiples have declined. Sellers who sold during that time frame tended to have favorable exits, sometimes incredibly so.

Here are a few examples: Boardroom Insiders, which sold for 5x revenue in early 2022, and Hidden Levers, which sold in 2021 for 16x revenue.

Both of those companies benefited from the next variable as well…

Type of business

Different types of businesses tend to be valued differently. At the top of this pecking order in the world of online businesses is software businesses, which are called SaaS – Software as a Service – when they have recurring revenue.

SaaS businesses are incredibly in-demand, as buyers appreciate the predictability and scalability. Many of them also operate with high profit margins.

E-commerce businesses and agencies, on the other hand, tend to sell for lower multiples. That’s in part because both of those models rely heavily on elements that eat into profit. For e-commerce, the business has the cost of the product. And for agencies, employees eat into the bottom line (and are, of course, also essential to the business).

Size of business

Generally speaking, bigger companies tend to see higher multiples. And sometimes the size of the company even affects how the multiple is applied.

For example, SaaS companies with less than $1 million in revenue tend to be valued based on a multiple of seller’s discretionary earnings, said David Newell, an M&A advisor with Quiet Light brokerage. (SDE is a proxy for EBITDA used by smaller businesses.) Businesses with more than $1 million in revenue, however, tend to be valued based on revenue.

Because of this factor, some business owners who want to increase their sale price achieve that simply by growing the business. This is also why the roll-up model works. For example, a private equity firm might buy several agencies at one multiple, and once they bundle those agencies together to make a bigger firm, the PE firm can resell at a higher multiple.

“As we get into larger businesses,” said Christine McDannell, Principal at the Magnolia Firm, “the multiple also ticks upward, especially when these deals become turnkey with the owner removed from operations.”

Owner dependency

How much the business relies on its owner vs. having a successful team in place also affects the multiple.

“A business that can operate independently of the owner is more scalable and appealing to buyers,” said Marla DiCarlo, CEO of BizNavigators.

Revenue multiples vs. EBITDA multiples by industry

While some businesses sell based on a multiple of revenue, it’s more common in the world of online business to value a company based on a multiple of EBITDA.

EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” It paints a picture of how much the company earns, or how much cash flow it generates for its owners.

For smaller businesses, SDE, or seller’s discretionary earnings, can be a proxy for EBITDA.

EBITDA can be a better indicator of financial performance than revenue, because even if your company brings in a lot of revenue, if you spend all of that revenue to operate the business, as an owner you’ll have no cash to take home.

For that reason, buyers often prefer to base a business valuation on a multiple of EBITDA rather than a revenue multiple. However, it’s good practice to clarify, when someone refers to a “multiple,” whether they’re talking about EBITDA or revenue.

“[Buyers] are much more likely to buy things based on profit multiples,” said Gregory Elfrink, Director of Marketing at Empire Flippers. “Buyers are less about growth at all costs now, and more about the fundamental profitability of a business.”

“Revenue multiples can hide quite a lot,” he explained. “For example, a revenue multiple of 3x means two very different things if a business has a margin of 15 percent vs. 45 percent.”

Business valuation multiples by industry

Even with all of these factors, most business owners who are thinking about selling eventually want to understand what the multiples might look like for their business.

That’s why we put together this guide, which offers insight into what revenue multiples and EBITDA multiples are commonly used to value different types of online businesses.

We look at:

• Saas businesses
• Media & content businesses
• E-commerce companies
• Agencies & services companies

See common multiples for each of these industries in our guide:

Download our Multiples Guide

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