How to Calculate the Value of a Business?

[Bruncher]

Hello everyone,

How do you calculate the value of an online business?

I am considering selling my small business and do not know how to calculate its value.

If an online business generates an average $2500-$3000 net profit per month, what is its real price?
Profitability for 2 years or for 3 years?

Responses much appreciated.

 

[JohnLocke]

If you want an exact valuation of your site or an estimate of its potential selling price, I’d recommend signing up on Flippa.com and getting an appraisal there. That’s probably the closest you’ll get to the actual market value

 

[diatessaron]

If you want to go with an income based valuation then the formula would be as follows:

Value = net profit / cap rate

If you''re doing ecommerce then a 25% cap rate would be okay to go for. You gave a range so I'll take the upper part into calculation.

Netprofit = 36000 (totale revenue) - 10000 (total expense, random number) = 26000. Then from here we do:

26000 (net profit) / 25% (cap rate) = 104000 (business value).

This is the easiest calculation you can do by yourself and it's pretty much math based (elementary school math). Other factors are important too, such as type of business, growth rate, brand etc.

 

[Bruncher]

If you want to go with an income based valuation then the formula would be as follows:

Value = net profit / cap rate

If you''re doing ecommerce then a 25% cap rate would be okay to go for. You gave a range so I'll take the upper part into calculation.

Netprofit = 36000 (totale revenue) - 10000 (total expense, random number) = 26000. Then from here we do:

26000 (net profit) / 25% (cap rate) = 104000 (business value).

This is the easiest calculation you can do by yourself and it's pretty much math based (elementary school math). Other factors are important too, such as type of business, growth rate, brand etc.

Amazing! The calculator for valuation of Flippa and this formula gave almost the same valuation of my online software business - $105,000. But I think the price is a bit high if there is interest in a quick sale.

 

[uranio]

Hi, which kind of business is it?

 

[Bruncher]

Hi, which kind of business is it?

Own e-commerce software

 

[EliasIT]

Most of the website marketplaces can do the calculation for you such as flippa and what else they are.

 

[ArcRaptor]

It usually comes down to a monthly profit multiplier. For small online businesses, a common range is 24-36x your average monthly net profit. So if you're making $2.5k-$3k per month, you might be looking at something between $60k and $108k.

Buyers tend to pay more (closer to 36x) if the business is stable, has diversified traffic/sales, and doesn’t require too much owner involvement.