Ecommerce M&A glossary
Plain-English definitions of the terms that come up when buying or selling an ecommerce store, from SDE and valuation multiples to escrow and earnouts.
Seller's Discretionary Earnings (SDE)
SDE is a business's net profit with the owner's salary and discretionary or one-time expenses added back. It is the standard earnings base for valuing owner-operated ecommerce businesses under about $5M, because it shows the total financial benefit a single owner-operator receives.
EBITDA
EBITDA is earnings before interest, taxes, depreciation, and amortization — a measure of operating profitability that strips out financing and accounting decisions. Larger ecommerce businesses (roughly $5M+) are usually valued on an EBITDA multiple, while smaller ones use SDE.
Valuation multiple
A valuation multiple expresses a business's price as a ratio of its annual earnings — for example, asking price divided by trailing annual profit. On TrustProfit a 3.0x multiple means the price is three times trailing annual profit; most ecommerce stores trade in a 2.4x–3.8x band.
Revenue multiple
A revenue multiple prices a business as a ratio of its annual revenue rather than profit. It is common for high-growth or pre-profit brands, but most established ecommerce stores are valued on a profit or SDE multiple instead, because revenue alone ignores margin.
Add-backs
Add-backs are expenses added back to net profit to calculate SDE, because they won't transfer to a new owner — typically the owner's salary, one-time costs, and personal expenses run through the business. Legitimate, well-documented add-backs raise the earnings base and therefore the valuation.
Due diligence
Due diligence is the buyer's investigation of a business before closing — verifying revenue, profit, traffic, supplier terms, and legal standing against the seller's claims. On TrustProfit, verified revenue is confirmed by MerchantFlow, while self-reported profit and margin should be re-checked during due diligence.
Escrow
Escrow is a neutral third party that holds the buyer's funds until the seller transfers the agreed assets, then releases payment — protecting both sides from non-delivery and non-payment. TrustProfit acquisitions settle through Escrow.com.
Earnout
An earnout is a deal structure where part of the purchase price is paid later, contingent on the business hitting agreed performance targets after the sale. It bridges valuation gaps when a buyer and seller disagree on future performance.
Average order value (AOV)
Average order value is total revenue divided by number of orders over a period — the average amount a customer spends per transaction. Raising AOV increases revenue without needing more traffic, and it directly improves how much you can profitably spend to acquire a customer.
Customer lifetime value (LTV)
Customer lifetime value is the total profit a business expects from a customer across the whole relationship — typically average order value × purchase frequency × customer lifespan × contribution margin. LTV sets the ceiling on what you can afford to pay to acquire a customer.
Customer acquisition cost (CAC)
Customer acquisition cost is the total sales and marketing spend divided by the number of new customers it produced. Compared against LTV, CAC tells you whether growth is profitable — a healthy ecommerce business keeps LTV at least three times CAC.
Churn rate
Churn rate is the percentage of customers (or recurring revenue) lost over a period. Lower churn means a longer customer lifespan, which raises lifetime value and makes a business more valuable to acquire.
Non-disclosure agreement (NDA)
A non-disclosure agreement is a contract in which a buyer agrees to keep a seller's confidential information private. On TrustProfit, signing an NDA is what unlocks an anonymous seller's identity, domain, and full profit-and-loss detail.
Working capital
Working capital is the cash a business needs to fund day-to-day operations — chiefly inventory and outstanding bills minus what it owes suppliers. Deals often specify whether inventory is included in the price or paid for separately at closing.
Monthly recurring revenue (MRR)
Monthly recurring revenue is the predictable subscription revenue a business earns each month. Recurring revenue is valued more highly than one-off sales because it is more predictable, so subscription-heavy stores often command stronger multiples.
Fair-value band
TrustProfit's fair-value band is the estimated price range for a store, calculated as roughly 2.4x to 3.8x of its trailing annual profit. It is an automated estimate to frame negotiations — not a formal appraisal — and verified, growing stores tend toward the high end.
Put these to work with the free calculators or see verified ecommerce benchmarks.