As a rough guide:

Amazon aggregators typically offer valuations (or multiples) based on the following annual profits.

• • $100k to $800k annual profit = a valuation of 3-4 times profit
  • $800k to $1.5m annual profit = a valuation of 4-5 times profit
  • $1.5m to $5.0m annual profit = a valuation of 5-8 times profit

So, using the guidelines above, a business generating $1m in annual profit could expect to achieve a valuation of somewhere between $4m-$5m.

A more important question, however, is “what number do they multiply?”.

Here’s why:

There are several different types of profit.

1. Gross profit
2. Net profit
3. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
4. SDE (Sellers Discretionary Earnings)

The last one, SDE, is probably the more commonly used by Amazon aggregators.

But what exactly is it?

Let us explain.

SDE is your net profit plus ‘add-backs’.

Add-backs are costs associated with the day to day running of your business (rent, R&D, staff costs etc) that the buyer will typically not incur once they have acquired it.

Fact:

Amazon aggregators already have large operational, storage and production facilities so your add-backs are often considerably more than you might think.

It is for this reason that we suggest using gross profit as a starting point for your SDE calculation.

By doing so, your valuation will be substantially higher than using net profit or EBITDA, for example.

But ultimately:

The profit figure and multiple used are, frankly, irrelevant.

To put that another way.

If one aggregator uses EBITDA with a 4x multiple and another uses SDE with a 4.5x multiple, the only figure you need to concern yourself with is the total (bottom line) valuation in dollar terms.

Interested in finding out more?

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