SDE vs EBITDA: which earnings figure a small online business is priced on

EBITDA = net profit + interest + taxes + depreciation + amortization

SDE = EBITDA + one owner's total pay + the owner's discretionary, non-transferring costs

Both start from net profit and strip out the same financing and accounting items: interest depends on how the current owner funded the business, tax depends on their entity and jurisdiction, and depreciation and amortization are bookkeeping for money already spent. None of those tells a buyer what the business itself earns, so both measures remove them.

The difference is one line. EBITDA still deducts the cost of running the business — including a salary for whoever manages it, and when the books are normalized, a market-rate salary even if the owner actually paid themselves nothing. SDE adds that pay back for one full-time owner-operator. EBITDA answers “what does this earn after someone is paid to run it?”; SDE answers “what would this pay me if I ran it myself?” Our guide to seller's discretionary earnings goes through which of the SDE add-backs survive diligence.

Take a business whose books show $20,000 of net profit after paying its owner-operator a $45,000 salary, with $5,000 of interest, tax and amortization on top. Assume, for the example, that $45,000 is also roughly what it would cost to hire someone to do the owner's job.

• EBITDA is $20,000 + $5,000 = $25,000. The manager's pay stays deducted.
• SDE is $25,000 + $45,000 = $70,000. The manager's pay is added back.
• At a price of $140,000, that is 2.0× SDE — and 5.6× EBITDA. Same business, same price, same day.

Neither multiple is wrong. They are measurements in different units, like a distance in miles and in kilometres. What is wrong is comparing them: a buyer told “businesses like this go for 5×” who then applies 5 to the $70,000 SDE figure arrives at $350,000 for a business the market prices at $140,000.

The question that decides it is not the size of the business but who will run it after the sale.

• SDE, when the buyer becomes the operator. If you are buying the work along with the asset — writing the content, answering support, running the ads — then the owner's salary is your salary, and adding it back measures what the deal pays you. This is the normal case for small online businesses, where there is usually no one else to run it.
• EBITDA, when the operator is a cost. If a manager or team stays on and the buyer is an investor rather than the operator, their pay is a real, continuing expense, and adding it back would price a business that does not exist.
• Neither, when there is nothing left. Subtract what it would cost to pay someone to run the business. If the answer is at or below zero, EBITDA is not a usable basis: what you are buying is a job plus an asset, and SDE is the only earnings figure that exists. That is not a flaw in the business — it is what a lot of small ones are.

“Adjusted EBITDA” sits between the two: EBITDA with one-off and owner-specific costs added back, but the operator's market pay still deducted. Its add-backs deserve exactly the same suspicion as SDE's, because they are written by the same party for the same reason.

We record the profit figure the source page states and do not relabel it. Small marketplace listings almost never say whether that figure is before or after the owner's pay, and none we have seen publishes an add-back schedule, so we cannot tell you which basis each seller used. What we can show is how large the stated figures are, which is often enough to answer the question in section 03 for yourself.

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“Middle half” is the 25th to 75th percentile of sale prices in the same sample. Categories below our comp floor, and categories whose sales publish no profit figure at all, are left out rather than shown with a number we cannot support. Every multiple we publish is sale price ÷ stated profit; see what a profit multiple actually means.

Hold the median stated profit for a category against what it would cost to pay someone to run a business in it. Where the stated figure would not cover that pay, the label stops mattering in practice: either nobody was paid to run it, and the figure is SDE-shaped, or someone was and the business earns little beyond a wage. Either way a buyer who will run it is buying on an SDE basis, and a multiple from that category belongs next to other SDE multiples — never next to an EBITDA multiple quoted for a larger acquisition.