How to value an online business that runs on paid ads

For a business that pays for most of its traffic, ad spend is usually its largest cost, and it rises with sales. Two businesses with the same revenue can have completely different profit if one buys every customer and the other gets them from search, word of mouth or repeat orders. A revenue multiple cannot see that difference; a profit multiple can, as long as the profit has had every advertising cost taken out of it.

So the first job is to make sure the profit you are pricing is after all ad spend — the platform invoices, any agency or freelancer running the campaigns, creative production and the tools used to manage them. Ask for the invoices, not a summary.

The ad platforms keep their own records of what was spent and when. Ask for read access, or a screen-share of each account, and check:

• Spend matches the books. The monthly spend in each account should match the advertising line in the profit and loss. A gap in either direction is a finding.
• Spend was not cut before the sale. Turning ads off in the last few months makes profit look higher while revenue drifts down more slowly. Look at spend and revenue month by month, side by side, for at least a year.
• Attributed results are not the whole story. A platform's own conversion figures measure what that platform credits to itself. Compare them with orders actually received — the store's order history or the payment processor's records — over the same period.
• Which customers came back. A business that wins a customer once through an ad and sells to them again for free is different from one that pays for every order. Ask what share of revenue comes from repeat customers.

How to verify a seller's revenue and profit covers where the other figures live.

Past results from paid acquisition were produced by a particular person, at particular prices, in a particular account. Each of those can change on handover:

• The cost of a customer moves. Ad prices are set by auction and vary with competition and season. Look at what it cost to acquire a customer each month over the last year, not the best month.
• The skill may be the seller's. If the seller writes the ads, tunes the bids and tests the audiences, part of the return is their labour. Cost it like any other owner work — see valuing an owner-dependent online business.
• The account may not transfer. Ad accounts are often tied to the seller's personal or business identity, and their history and standing do not always move with them. Check each platform's own help pages on transferring ownership, and plan for starting a new account if that is what they say. Transferring an online business after the sale covers the handover.
• Policy risk. Some product categories and claims are restricted on some ad platforms. A business whose ads are one review away from being disapproved has a single point of failure — the subject of platform dependence and online business value.

That sensitivity is the reason to price on a cautious profit figure. Run the numbers again with a higher cost per customer and ask whether the price still makes sense; if it only works when nothing changes, it is a bet on the ad auction.

• A history of stable acquisition costs across seasons, shown in the account data rather than described.
• Repeat revenue that does not need to be bought again.
• More than one channel that works, so one platform raising prices does not end the business.
• Documented campaigns — what was tested, what worked, which audiences and creative perform — that a new owner can actually run.
• Room to cut spend without revenue collapsing, which a short, agreed test during diligence can show.

None of these is guaranteed to be priced in by the market; they are reasons to place a business higher or lower within the range its comparables suggest. Why similar businesses sell for different prices covers the rest.

Each sale in our database records a sold price and, where the source stated them, one annual profit and one annual revenue figure. We do not record how much was spent on ads, what share of traffic was paid, or whether the stated profit was after all advertising costs — listings at this size rarely break it down. So we publish no "paid-traffic discount".

What the table does show is how many comparables we hold on each basis. Where you can, price on the profit basis: it is the only one of the two that has ad spend inside it, at least as the seller stated it.

The first two columns cover every non-demo sold deal of that type with a stated profit. The last two are measured over the paid report's window — the most recent 200 priced sales of that type — after the same trimming the report applies. A median is withheld (shown as a dash) below five comparables.