SDE vs Net Profit. These two metrics are the foundation of e-commerce valuation—and they’re not interchangeable. Shopify uses one. Amazon FBA uses the other. Understanding why—and how each is calculated—is the key to knowing what your business is worth.
This guide breaks down both valuation methods in detail, with the formulas, components, and adjustments that determine your final number.
Master Both Valuation Methods
The Core Difference
The methodological difference between SDE and Net Profit reflects a deeper difference in business structure.
SDE (Seller’s Discretionary Earnings) measures the total financial benefit the owner receives from the business. It includes not just profit, but everything the owner takes out: salary, personal expenses, one-time costs. SDE answers: “How much money does this business put in the owner’s pocket?”
Net Profit measures what’s left after all expenses. It doesn’t include owner compensation or personal items. Net Profit answers: “What does this business earn after paying all its bills?”
Shopify uses SDE because Shopify owners typically draw salaries and run personal expenses through the business. These are legitimate cash flows the buyer will inherit. Amazon FBA uses Net Profit because FBA owners rarely draw salaries—they take distributions, which are different—and have fewer personal expenses to add back.
Shopify Valuation Formula
The complete SDE-based formula:
Shopify Value = Annual SDE x Multiple (2.5x – 3.5x)
SDE Components:
- Net Profit: What your P&L shows after all expenses
- + Owner Salary: What you pay yourself formally
- + Personal Expenses: Phone, vehicle, insurance, meals—run through the business
- + One-Time Costs: Development, design, legal—non-recurring
- = Annual SDE
The add-back difference is significant. A Shopify store with $75,000 net profit might have $100,000 SDE after add-backs—a 33% increase in the earnings base that gets multiplied by the multiple.
For complete add-back documentation, read our SDE guide and add-backs guide.
Amazon FBA Valuation Formula
The complete Net Profit + Inventory formula:
FBA Value = (Annual Net Profit x Multiple 2.0x – 3.0x) + Inventory Value
Net Profit Components:
- FBA Revenue: Total sales on Amazon
- – COGS: Product costs
- – Amazon Referral Fees: 8-15% depending on category
- – FBA Fulfillment Fees: Pick, pack, ship
- – Storage Fees: Monthly inventory storage
- – PPC Advertising: Sponsored Products campaigns
- = Annual Net Profit
Inventory Components:
- FBA inventory under 60 days old: 100% of cost
- 60-180 days: 70-85% of cost
- 180+ days: 0-30% of cost
Side-by-Side Comparison Table
| Method Component | Shopify (SDE) | FBA (Net Profit + Inventory) |
|---|---|---|
| Earnings Base | SDE (with add-backs) | Net Profit (minimal add-backs) |
| Owner Salary | Added back (increases base) | Not applicable (distributions) |
| Personal Expenses | Added back (increases base) | Rarely applicable |
| Inventory | Separate sale | Included in total |
| Multiple | 2.5x – 3.5x | 2.0x – 3.0x |
Which Sells for More?
The method difference produces real sale price differences:
Worked example: $75,000 net profit equivalent
Shopify:
- Net Profit: $75,000
- + Add-backs: $25,000
- = SDE: $100,000
- x 3.0x multiple
- = $300,000
FBA:
- Net Profit: $75,000
- No significant add-backs
- x 2.5x multiple = $187,500
- + Inventory: $25,000
- = $212,500
Shopify wins by $87,500—the combined effect of add-backs and higher multiple.
Hybrid Models
Hybrid businesses use both methods separately:
Hybrid Value = (Shopify SDE x 2.5x-3.5x) + (FBA Net Profit x 2.0x-3.0x) + FBA Inventory + Shared Assets
The key: don’t mix the methods. Calculate each platform’s earnings separately using the right formula, then combine.
2026 Market Data
- SDE method: Still standard for Shopify, 2.5x-3.5x
- Net Profit + Inventory: Still standard for FBA, 2.0x-3.0x
- Trend: Some buyers applying SDE-style add-backs to FBA businesses with documented owner salaries
- Key insight: The method matters less than the accuracy of your numbers
Frequently Asked Questions
Can I use SDE for my FBA business?
Only if you have legitimate add-backs to document. If you draw a formal salary from your FBA business or have personal expenses run through it, those are valid add-backs. But most FBA owners take distributions, not salary—so add-backs are minimal.
Why doesn’t FBA include owner salary?
Because FBA businesses are typically owned by solo operators who take distributions rather than salary. Distributions aren’t an expense—they’re a withdrawal of profit. Since there’s no salary expense to add back, net profit is the cleaner metric.
Which method produces a higher valuation?
SDE typically produces a higher earnings base because of add-backs. Combined with a higher multiple, Shopify’s method usually yields a higher total valuation at the same underlying profit level.
Should I document add-backs even for FBA?
Yes. Any legitimate expense you can document—owner salary, personal items, one-time costs—increases your earnings base regardless of platform. Just be prepared to prove everything with receipts.
Should I use a broker for method selection?
A broker knows which method buyers in your niche accept and can help you document your earnings in the most favorable defensible way. See our broker guide.
Master Both Valuation Methods