SDE (Seller's Discretionary Earnings)
SDE is net profit plus the owner's salary and benefits plus one-time and personal expenses, the total economic benefit one working owner takes from the business. It's the standard earnings measure for owner-operated businesses selling for under roughly $5 million, and the number your multiple gets applied to. Ecommerce brands typically trade at 2.5x to 4.5x SDE depending on growth, channel mix and how defensible the brand is.
SDE exists because small-business P&Ls are shaped by owner choices. One owner pays herself $150,000; another pays himself nothing and takes distributions. Their net profits differ wildly while the businesses are identical. SDE normalizes that: net profit $220,000, plus $90,000 owner salary, plus $12,000 of addbacks gives $322,000 of SDE. At 3.2x, the asking price is just over $1 million.
Because every SDE dollar is worth three or four at exit, the cheapest value-creation work a seller can do is making SDE provable: accrual books, a maintained addback schedule and clean channel-level statements. Buyers pay premium multiples for numbers they can verify quickly and discount everything they have to reconstruct. The difference between claimed SDE and provable SDE is usually the difference between the multiple you were quoted and the one you close at. What verification looks like is covered in our QoE report guide.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
Monthly Ecommerce Bookkeeping→Related terms