Formulas matter. Use the wrong one and you’ll either overprice your business into months of silence or underprice it into leaving serious money on the table.
This guide is the complete reference for both valuation formulas: Shopify’s SDE Multiple Method and Amazon FBA’s Net Profit + Inventory Method. Every component explained. Every adjustment documented. Every step shown with examples.
Master Both Valuation Formulas
The Core Difference
The formula difference stems from the ownership difference. Shopify stores own customer relationships. Amazon FBA businesses rent them.
This single distinction cascades through every component of the valuation:
Shopify uses SDE because the owner’s discretionary earnings include salary, personal expenses, and add-backs—reflecting the true cash flow the buyer will inherit from a business that owns its customer base.
FBA uses Net Profit because there are fewer add-backs—the owner typically doesn’t draw a formal salary—and because net profit is what Amazon’s reporting makes verifiable. Buyers can cross-check FBA net profit against Amazon’s own dashboards.
Shopify gets a higher multiple because owned customers are durable assets. FBA gets a lower multiple because Amazon customers are rented access. But FBA adds inventory value, which Shopify doesn’t include in the base calculation.
Shopify Valuation Formula
The complete Shopify formula, broken down component by component:
Shopify Value = Annual SDE x (2.5x + Factor Adjustments)
Component 1: Annual SDE
- Net Profit (from P&L)
- + Owner Salary (documented)
- + Personal Expenses (with receipts)
- + One-Time Costs (non-recurring)
- = Annual SDE
For a detailed walkthrough, read our SDE guide and add-backs guide.
Component 2: Factor Adjustments
- Growth Rate: 30%+ YoY = +0.4x / 10-20% = +0.2x / Flat = 0x / Declining = -0.4x
- Traffic Diversification: 3+ channels with owned majority = +0.5x / 2 channels = 0x / Single = -0.5x
- Owner Hours: Under 10 = +0.4x / 10-20 = 0x / 30+ = -0.4x
- Store Age: 36+ months = +0.3x / 12-36 = 0x / Under 12 = -0.3x
- Margin Quality: Stable 25%+ = +0.3x / 15-25% = 0x / Under 15% = -0.3x
Amazon FBA Valuation Formula
The complete FBA formula:
FBA Value = (Annual Net Profit x 2.0x + Factor Adjustments) + Inventory Value
Component 1: Annual Net Profit
- Total FBA Revenue
- – COGS
- – Amazon Referral Fees (8-15%)
- – FBA Fulfillment Fees
- – Storage Fees
- – PPC Advertising
- – Other Operating Costs
- = Annual Net Profit
Component 2: Factor Adjustments
- Ranking Stability: 12+ months stable = +0.2x
- Review Profile: 1,000+ reviews at 4.5+ = +0.2x
- Product Diversity: 10+ SKUs = +0.2x
- Account Age: 3+ years = +0.1x
- Competition: Crowded niche = -0.2x
Component 3: Inventory Value
- FBA inventory (in Amazon warehouses): 70-100% of cost
- Based on age: under 60 days = 100% / 60-180 days = 70-85% / 180+ days = 0-30%
Side-by-Side Comparison Table
| Formula Component | Shopify | Amazon FBA |
|---|---|---|
| Earnings Base | SDE (with add-backs) | Net Profit (no add-backs) |
| Base Multiple | 2.5x | 2.0x |
| Maximum Adjustment | +1.5x (to 4.0x) | +0.7x (to 2.7x) |
| Inventory | Not in formula (separate sale) | In formula (70-100% of cost) |
| Verification | Bank statements + P&L | Amazon dashboard + bank statements |
Which Sells for More?
Worked examples with both formulas:
Example 1: $80,000 Earnings Base
Shopify: $80,000 SDE x 3.0x = $240,000
FBA: ($80,000 Net Profit x 2.5x) + $20,000 Inventory = $220,000
Shopify wins by $20,000.
Example 2: $150,000 Earnings Base with Heavy FBA Inventory
Shopify: $150,000 SDE x 3.0x = $450,000
FBA: ($150,000 Net Profit x 2.5x) + $100,000 Inventory = $475,000
FBA wins by $25,000 due to inventory inclusion.
The crossover point depends on inventory levels. Heavy inventory favors FBA. Light inventory favors Shopify.
Hybrid Models
For hybrid businesses, apply both formulas separately and combine:
Hybrid Formula:
Hybrid Value = (Shopify SDE x Shopify Multiple) + (FBA Net Profit x FBA Multiple) + FBA Inventory + Shared Assets
Shared assets (email list, content library, brand equity) are added once—not twice.
2026 Market Data
Current benchmarks:
- Shopify formula: 2.5x-3.5x SDE, premiums to 4.0x
- FBA formula: 2.0x-3.0x net profit, premiums to 3.5x for strong brands
- Inventory treatment: FBA inclusion remains standard at 70-100% of cost
- Trend: FBA multiples climbing as sellers build brands and diversify
Frequently Asked Questions
Why doesn’t FBA use SDE?
FBA businesses rarely have significant owner salaries or personal expenses. Most FBA sellers take distributions rather than salary, and business expenses are typically minimal beyond Amazon fees and PPC. With few add-backs, net profit is the cleaner metric.
Can I negotiate a higher multiple using the Shopify formula for FBA?
You can try—if you have strong brand presence. FBA businesses with 1,000+ reviews, low return rates, and diversified product catalogs can justify 3.0x-3.5x by arguing that brand strength mitigates platform risk. But you need data to support the argument.
How do I verify FBA net profit?
Amazon’s dashboard provides detailed financial reports: revenue, fees, advertising spend, and net proceeds. Buyers cross-reference these against bank statements. Keep both clean and consistent.
What inventory value should I expect?
70-100% of cost for inventory under 60 days old. 70-85% for 60-180 days. Near zero for 180+ days. Fast-moving inventory commands the highest valuation.
Should I use a broker for formula accuracy?
A broker applies the correct formula and validates it against comparable sales. For businesses over $100K, this often justifies the commission. See our broker guide.
Master Both Valuation Formulas