What is a declining online business worth?

A trailing-twelve-month (TTM) profit figure adds up the last twelve months. When those months are roughly level, that total is a fair description of what the business earns. When they are falling, the total is dominated by the older, larger months, and it describes a business that no longer exists.

Nothing in that example is unusual or dishonest. The TTM figure is accurate; it is simply an answer to a different question. The buyer is paying for the next few years of profit, and a falling business's next year is, unless something changes, below its last one.

Each sale in our database carries one stated annual profit figure and one stated annual revenue figure — whatever the listing reported — alongside the sold price. There is no month-by-month series behind those figures, so we cannot tell which of the businesses in our sample were growing, flat or shrinking when they sold. We do not publish a "decline discount", because we have no way to measure one, and we would rather say so than invent it.

That has a direct consequence for how to read the medians below. Each one is an average over growing, flat and declining businesses in proportions we cannot observe. It is a reasonable starting point for a business with a level year. It is not evidence about what declining businesses specifically sell for.

The first two columns cover every non-demo sold deal of that type with a stated profit. The last column is measured over the paid report's window — the most recent 200 priced sales of that type — so it can rest on a smaller sample. A dash means we hold fewer than five comparables on that basis and publish nothing.

There are two places to account for a falling business: the annual figure you multiply, and the multiple you multiply it by. Doing both is the most common way buyers overcorrect, and doing neither is the most common way they overpay.

• Start from the recent run-rate, not the TTM. The average of the last three months, times twelve, is closer to what you are actually buying than the twelve-month total. It is noisier, so check it against the same three months a year earlier before trusting it — a business with a seasonal pattern can look like it is declining every year after its peak. We cover that case in valuing a seasonal online business.
• Treat the TTM as a ceiling. If the seller's ask is a reasonable multiple of TTM profit, it is a generous multiple of what the business earns today. Say that in the negotiation; it is arithmetic, not an opinion.
• Then use an ordinary multiple. Once the denominator already reflects the lower profit, cutting the multiple as well only makes sense if you expect the decline to continue, and you should be able to say why. If you cannot name the cause, you are not pricing a risk — you are pricing a feeling twice.
• If you do expect it to continue, say by how much. "Profit falls another 30% next year" is a forecast you can argue about. "I'll knock a turn off the multiple" is not. Write the forecast down and price the profit you expect, not the profit you fear.

A falling line on a chart is a symptom. What it is worth depends almost entirely on the cause, and the cause decides whether the next owner inherits the slope or can stop it.

• Lost search traffic. A step down in organic visits on a specific date usually means rankings changed. Ask for the traffic source breakdown month by month and see whether the fall is in one channel or all of them.
• A platform or policy change. An ad network, marketplace, affiliate programme or app store changed its rules or its rates. Whether that comes back is not in the seller's gift or yours — see platform dependence and online business value.
• Owner neglect. Publishing stopped, support slowed, the product stopped shipping. This is the decline a buyer can most plausibly reverse — and the one sellers most often claim when the real cause is one of the others.
• The market moved. A competitor, a free alternative, or a fading trend. Rarely reversible by a new owner with a small budget.
• It is not a decline at all. Seasonality, a one-off spike in last year's figures, or a change in how costs were recorded can all draw a falling line. Compare each month with the same month a year earlier before concluding anything.

The money questions — whose dashboard the figures come from, and how to confirm them — are the same as for any business; we set them out in how to verify a seller's revenue and profit.

For a business whose profit is rising, the TTM figure understates the current run-rate, and the seller will reasonably ask you to price on the recent months instead. The arithmetic in section 01 runs in reverse. The asymmetry is in what you are being asked to believe: a run-rate in decline is something that has already happened, while a run-rate in growth is partly a forecast that the growth continues.

The usual way to bridge that gap is to pay for the profit that has been earned and put the rest into a payment that depends on the growth actually arriving. If you do, read what a headline sale price includes first: a contingent payment is a cap, not a price, and both sides should know which number they agreed to.