Data Shot is a new series that gathers and reviews data from The Hatchit Marketplace. You will be able to use it as a guide in your business transaction process, and as a way of identifying useful insights.
Profitability by Category
This Data Shot reviews profitability by category, based on 400+ posts.
| Avg. Adj. Net Margin | Avg. Revenue | Avg. Adj. Profit | |
| Software & Platforms | 63% | $645,717 | $410,013 |
| Other Digital & Tech | 32% | $1,575,025 | $506,721 |
| Web Businesses & Sites | 25% | $1,573,345 | $400,392 |
| Brick & Mortar | 20% | $3,296,521 | $661,975 |
Businesses in Software & Platforms have the lowest gross revenue but the highest margins. Likewise, Brick & Mortar businesses have the highest gross revenues with the lowest net margins. Web businesses & Sites and Other Digital & Tech have much more comparable gross revenue and net margins.
In looking at how companies in these categories are priced for sale, Software & Platforms leads the way again. The remaining three categories are much closer in their profit multiples. Distorting outliers were removed.
| Avg. Adj. Profit Multiple | |
| Software & Platforms | 5.37 |
| Other Digital & Tech | 3.96 |
| Brick & Mortar | 3.73 |
| Web Businesses & Sites | 3.34 |
Questions to consider with a qualified business broker or other specialist
-What do higher profit multiples mean for buying or selling a business?
-How do businesses within these categories compare in terms of being replicable or occupying a larger moat? Does it influence the profit multiple in a sale?
- Brick & Mortar businesses still command a respectable profit multiple despite a lower net margin. Why?
-Are businesses with higher profit multiples indicative of better profitability potential or is it just what buyers want?
Read our Data Shot article on deal multiples for Amazon FBA and Shopify stores or price multiples for e-commerce businesses.
Image from Pixabay
