Multiple

What it means

A multiple is the number a business's profit gets multiplied by to reach a price. It is not a measure of anything in itself; it is shorthand for everything a buyer believes about how durable, transferable and verifiable that profit is. Two sites earning the same amount can sell at very different multiples, and the difference is entirely the buyer's assessment of risk.

Monthly and annual are both used

Small online businesses are conventionally quoted in monthly multiples and larger ones in annual, which causes constant confusion because the same deal can be described as 36x or 3x. Divide the monthly figure by twelve to get the annual one. Whenever you see a multiple quoted without a basis, establish which it is before drawing any conclusion, because a factor of twelve is a lot of room for misunderstanding.

What moves it

Four things account for most of the variation. Traffic concentration, because a single source is a single point of failure. Revenue concentration, for the same reason. Owner hours, because a business that needs its founder is harder to hand over. And verifiability, because a buyer discounts what they cannot check. Improving any of these raises the multiple applied to the profit you already earn, which is why they are the cheapest valuation gains available.

Why revenue multiples are different

Revenue multiples exist and are mostly used for software, where margins are predictable enough that revenue implies profit. For content, affiliate and ecommerce businesses they are close to meaningless, because a 40% margin and a 12% margin produce completely different businesses at the same revenue. If someone quotes you a revenue multiple on a non-software site, ask what profit it implies.