Ecommerce Seller's Discretionary Earningings (SDE)

Seller's Discretionary Earnings (SDE) is a measure of the total financial benefit that an owner can derive from a business. It’s typically used in the context of business valuation and reflects the profit a seller makes before deducting any discretionary expenses, such as the owner’s salary, personal expenses, and one-time or non-recurring costs. For ecommerce businesses, SDE is often used when valuing smaller businesses, especially those that are looking to sell or be acquired. It provides a clearer picture of the true profitability of the business by focusing on earnings that a new owner would have at their disposal.

SDE is especially useful for potential buyers because it highlights the actual income that a new owner can expect to earn, excluding personal expenses or adjustments made for tax benefits. For ecommerce businesses, calculating SDE accurately is essential when preparing for an acquisition or merger. Buyers and sellers alike should focus on SDE to understand how much they can expect from the business once all personal and discretionary expenses are removed. It's a crucial metric for business owners looking to exit or expand their operations, and is calculated using ecommerce accounting, in a pretty similar manner to EBITDA, taking discretionary items into account.

Read our in-depth article about Seller's Discretionary Earnings.