Ecommerce EBITDA Calculator

The calculation itself

EBITDA is earnings before interest, tax, depreciation and amortisation. Starting from net profit: add back interest, tax, depreciation and amortisation. Starting from revenue: revenue less cost of goods less operating expenses, excluding depreciation and amortisation from those expenses.

The four add-backs exist to strip out things that differ between businesses for reasons unrelated to trading. Interest reflects how the company is financed, tax reflects where it is registered and what reliefs apply, and depreciation reflects when assets were bought and what policy was chosen. None of them describes whether the operation works.

Running the numbers

Revenue $960,000, cost of goods $384,000, operating expenses $540,000 of which $18,000 is depreciation on equipment and $6,000 is amortisation of a software build.

Operating profit is $36,000. Adding back depreciation and amortisation gives EBITDA of $60,000, a 6.25% EBITDA margin. If the business also carries $9,600 of interest and $5,200 of tax, net profit is $21,200 and the net margin is 2.2%.

The gap between 6.25% and 2.2% is entirely capital structure and accounting policy, and an acquirer comparing this business against another will use the first figure precisely because the second is not comparable.

What gets missed

Depreciation is a real cost pretending to be an accounting entry. Equipment wears out and has to be replaced, and a business valued on EBITDA that ignores a substantial replacement cycle is being valued on a number that overstates what it can distribute.

For ecommerce specifically, EBITDA also ignores the working capital that growth consumes. A business with excellent EBITDA and a ninety-day cash conversion cycle is generating profit it cannot access, and no add-back reveals that.

What to do next

Use it for valuation comparisons and for talking to acquirers or lenders, who will ask for it. Use operating cash flow for deciding whether the business can fund anything, because that figure includes the working capital EBITDA excludes.

If the business has meaningful capital equipment, track capital expenditure alongside EBITDA. The pair, EBITDA less maintenance capital expenditure. Is much closer to what the business actually generates than EBITDA alone.

When EBITDA is the wrong measure entirely

For most small ecommerce businesses, EBITDA is not the figure a buyer will use. Businesses below roughly a million in revenue are typically valued on seller discretionary earnings, which adds back the owner's salary and personal expenses on top of the EBITDA add-backs.

The distinction matters when preparing for a sale. A one-person business reporting $60,000 of EBITDA while the owner draws $48,000 has $108,000 of SDE, and quoting the EBITDA figure to a buyer who expects SDE understates the business by nearly half.

Above roughly two million in revenue, or wherever the business has real management rather than an owner-operator, the convention flips and EBITDA becomes the right measure. In between, both get quoted and the multiple applied differs accordingly, which is why the figure and the multiple have to be stated together to mean anything.

For internal use, the more informative variant is EBITDA less maintenance capital expenditure; what the business generates after replacing the equipment it wears out. That figure is much closer to distributable cash and much harder to flatter.

It is also the number worth tracking through a growth phase, because heavy investment periods depress it in a way that is genuinely informative rather than an accounting artefact.