Two earnings measures dominate e-commerce valuation conversations — Seller's Discretionary Earnings (SDE) for smaller, owner-operated businesses, and EBITDA for larger or more institutionally-run operations. Choosing the wrong one, or applying it inconsistently, can materially misprice a sale.
What SDE measures and why it exists
Seller's Discretionary Earnings starts from net profit and adds back the owner's salary, discretionary or personal expenses run through the business, one-off costs, interest, tax, depreciation and amortisation. The purpose is to reveal the true economic benefit available to a single owner-operator, since many smaller e-commerce businesses pay their founder a below-market or above-market salary, or run some personal costs through the company, which distorts a straightforward net profit figure.
SDE is the standard measure used by brokers and marketplaces like Empire Flippers and FE International for businesses roughly under £3-5 million in enterprise value, because at that scale the buyer is typically expected to step into an owner-operator role, so understanding total owner benefit (salary plus profit) is more useful than a multi-manager EBITDA view.
What EBITDA measures and when it takes over
EBITDA (earnings before interest, tax, depreciation and amortisation) assumes a market-rate management structure is already in place, or will be put in place by the buyer, so unlike SDE it does not add back a reasonable owner salary — instead, an appropriate market salary for whoever runs the business is left in as a genuine operating cost. This makes EBITDA the more appropriate and more readily comparable measure once a business is large enough to be evaluated by private equity, trade buyers or aggregators who apply institutional valuation frameworks.
Normalising and adjusting earnings correctly
Whichever measure you use, the quality of the underlying adjustments matters more than the label. Common, defensible add-backs include one-off legal or professional fees, a genuinely non-recurring stock write-off, and personal expenses that are clearly not required to run the business going forward. Add-backs that stretch credibility — reclassifying core marketing spend as discretionary, or adding back a cost the buyer will clearly need to continue incurring — tend to be challenged hard in due diligence and can damage trust in the whole set of figures presented.
- Owner's salary and any family member salaries above or below market rate (added back for SDE, normalised to market rate for EBITDA).
- One-off legal, restructuring or relocation costs that genuinely will not recur.
- Personal vehicle, travel or insurance costs run through the business.
- Non-cash items such as depreciation and amortisation.
- Interest on debt that will not transfer with the business.
Applying the right multiple
Once you have a normalised SDE or EBITDA figure, a multiple is applied to arrive at enterprise value, and the appropriate multiple varies enormously by size, growth rate, margin quality, platform dependency (particularly reliance on a single marketplace like Amazon) and diversification of traffic and supplier base. Smaller SDE-valued e-commerce businesses in the UK and US markets typically trade in a broad 2.5x to 4.5x SDE range, while larger, better-diversified EBITDA-valued businesses can command anywhere from 4x to 8x or higher EBITDA depending on growth trajectory and strategic fit for the buyer.
Multiples are not fixed reference points — they move with market conditions, interest rates, and the specific competitive tension in a given sale process, so treat any multiple range as a starting orientation rather than a guaranteed outcome for your specific business.
UK-specific considerations in the valuation conversation
UK sellers should be aware that valuation conversations happen alongside, not independently of, tax planning — Business Asset Disposal Relief (formerly Entrepreneurs' Relief) can reduce Capital Gains Tax on qualifying business disposals to 14% up to a lifetime limit, and structuring a deal (asset sale versus share sale, timing, earn-out proportion) can materially affect the after-tax proceeds even where headline enterprise value is identical. Take professional tax advice early in the process, not after heads of terms are signed, since some of the most valuable structuring decisions need to be made before a deal is agreed.
Bringing SDE and EBITDA together in your own narrative
Many sellers benefit from presenting both figures side by side, particularly if the business sits near the size threshold where buyer type could go either way — a well-prepared information memorandum showing SDE for an owner-operator buyer audience and EBITDA under an assumed market management structure demonstrates sophistication and gives every type of prospective buyer a figure they can work with immediately, without needing to recalculate your numbers themselves.
Where This Fits Into Your Wider Strategy
As with most things covered in The Exit: Valuations, Mergers & Acquisitions, valuing an e-Commerce business using SDE or EBITDA works best when it's revisited periodically rather than decided once and forgotten. If you haven't already, Exit Planning and Valuing an E-Commerce Business: Preparing for a Future Sale, Even If It's Years Away is a useful companion read on this exact point.
For related reading: If you haven't already, Understanding Earn-Outs and Deal Structures in an E-Commerce Sale is a useful companion read on this exact point. Our companion guide, Pitching Your Business to E-Commerce Aggregators and Private Equity, goes into this in more depth.