What is a business valuation?

A valuation is the estimated value of a company. The process of determining the value of a business is typically a very complicated process, including a lot of numbers, equations and calculation. Nevertheless your company’s price is what a buyer will pay for it.

There are hundreds if not thousands of different ways to calculate the worth of a business. Most of them have one thing in common, and that is, that they are developed for large or even public companies.

The most popular way, is the so-called multiplier method, in which you multiply your result or your revenue with X to find the value of the business. Another method is the asset based approach, which is based on the value of the total assets in your company.

An e-commerce valuation is a bit different. Non of the existing models take work hours, uniqueness or traffic into consideration, which means that they do not work for e-commerce websites and online based businesses.   

How do you valuate your website or ecommerce business?

E-commerce businesses has become one of the most popular ways to be an entrepreneur during the past years. Probably due to the fact that it is so cheap and easy to start up an online based business. That, of course, means a boom in the number of e-commerce businesses and websites. And when more businesses is started, more businesses is sold, which means that more business owners need a valuation of their website or e-commerce business.

But how do you actually know the value of your website? That is actually not an easy question to answer. What you want is a fast, easy and accurate valuation, at a reasonable price, since a lot of ecommerce businesses are quite small.

If you have a ‘regular’ business, anything but an online business, you have several opportunities to get a valuation report. Obviously you could use a business broker. The problem with business brokers, is that there are very few of them, who know anything about websites and ecommerce. Furthermore it would often be too expensive for a small e-commerce business.

Another option is the accountant. Many business owners trust their accountants to evaluate their business, which very rarely is a good idea. Most accountants would use some sort of formula or equation, which is made to be used on public companies with a worth of billions. You do not want them to evaluate your online business.

Then what? The last option right now, is to use one of the online valuators. They are cheap/free, easy and made for websites. The problem with all of them, is that they are way too simple. They are simply not accurate enough, to be used for anything.

So all current options are inaccurate. Some are expensive, some are cheap. But none of them are accurate enough to be used when selling the business or changing the circle of owners.

Easy online website valuation tool

So, what are you really looking for, when you want your e-commerce business valuated? The most important thing, is that the tool is designed for e-commerce. Because e-commerce is very different from other types of businesses. It doesn’t need a lot of physical assets, but that does not mean, that an online business can’t be worth a lot of money.

There are a number of advantages, when running an online business. The costs are generally lower than other types of businesses, and it is possible to create a business that does not require a lot of work. Those two factors, are a very essential part of why online businesses are so interesting. You want to use a valuation tool, that takes this stuff into consideration.

We have more than 10 years of experience in selling websites, webshops, apps, e-commerce stores and other online businesses. We have analyzed more than a thousand acquisitions of online business, and with the results in mind, we made this valuation tool, which we believe is the best in the world.

Who is the valuation tool developed for?

As all the brokers and consultants has their core industries, where they are really good, we do too. Our tool is developed only for businesses that operate online, like:

  • E-commerce (webshops, online stores, etc.)
  • Websites (Affiliate, blogs, forums, etc.)
  • Online business (Apps, webapps, etc.)

We do not recommend that you use the tool for businesses that are not under these three categories. The valuation is based on factors like traffic and SoMe followers, so if that is not a part of your core business, you will get an inaccurate result.

Why/when do I need a valuation?

There are many situations where a valuation is needed, but especially when you are:

  • Selling your business.
    This is obvious. When you want to sell your business, you need to know the worth of it. Not only will the valuation tell you what your business is worth, but it can also be a tool for you in the negotiation with the buyer.
  • Changing the ownership of the company.
    If you want to buy out one of your co-owners or maybe get one more co-owner in the company, it is necessary to know what the shares are worth.
  • Considering to recieve funding.
    When you consider to have an investor join the the ownership of your company, you need to know how much he/she has to pay.

There can be a ton of other reasons why you need a valuation, but these three are the most popular.

What is important, for the value of an e-commerce business?

Some of the parameters which are important for your e-commerce/online business, are the same as you would use to evaluate any kind of business, such as:

  • Revenue
  • Costs
  • Profit/loss

These metrics alone would give a decent idea of what a company is worth, but to get a much more accurate valuation, customized for online e-commerce business, the following metrics are also taken into the equation:  

  • Traffic on your website or app
  • SoMe followers on different social media channels
  • Work hours you put into the business
  • Uniqueness of the business

These metrics are much more significant in an online business than in any other types of business.

So, what is my e-commerce business worth?

As mentioned earlier, your business is worth exactly what a buyer will pay for it. That does not mean that you shouldn’t prepare for the negotiations and try to get the best price possible. Get the valuation report and get off to a flying start.