Valuing a Wholesale Trade Business
Demand for wholesale products greatly depends on the performance of the economy. Part of this is because the wholesale trade industry is affected by the price of commodities. These commodities can include oil, cotton, steel, lumber, etc… When these prices fluctuate, it affects the economy’s ability to purchase such goods. As the Covid-19 pandemic raged, many sectors in the wholesale trade suffered. However, the need for medical supplies surged. This helped the industry stay afloat while the other sectors struggled. Over the next five years, sectors like apparel or crude oil are expected to increase. These, and many other factors impact the value of a wholesale trade business. Whether you plan on buying or selling a wholesale trade business, it is important to understand the fair market value of a wholesale business. A business appraisal will determine this and factors they consider when valuing a wholesale trade.
At Peak Business Valuation, we can help you understand what goes into valuing a wholesale trade. We work with dozens of individuals who are buying or selling wholesale trade businesses. The first step in either of those processes is obtaining a business valuation. As part of this process, we will discuss some of the key factors used when determining the value of a wholesale trade business. While these factors below are only a guide, we are happy to discuss specifics with you. Schedule a free consultation below.
Market Multiples for Wholesale Trade
- SDE Multiple Average: 2.68x – 3.75x
- EBITDA Multiple Average: 3.62x – 4.43x
- REV Multiple Average: 0.33x – 0.72x
**Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
The above are average market multiples for wholesale trade. A valuation expert uses multiples when valuing wholesale trade businesses. A business appraiser will compare similar companies that recently sold and apply an applicable market multiple to your wholesale trade business. Understanding the value of your wholesale trade will help you learn how to increase its worth. This will benefit your company whether you are expanding, acquiring, or growing your wholesale trade business. Here are a few helpful ideas to help increase your wholesale trade value. For a more detailed valuation, schedule a free consultation with Peak Business Valuation, business appraiser.
Key Success Factors
Peak Business Valuation, business appraiser, values wholesale trade businesses on a regular basis. To increase the value of your business, focus on these success factors. It is a simple way to learn the ins and outs of your wholesale business while increasing its fair market value.
Limit Inventory
Wholesale trade is all about supplying large quantities of products to consumers. However, it does not mean you should offer too many products or brands. Costco is a great example of this. Costco offers plenty of inventory for the customer to choose from. But, they do not offer more than a couple of brands of each product. This enables Costco to supply a variety of products without wasting time and money on several different brands of the same product. If a wholesale trader offers too much inventory, they will end up not selling their product which hurts profit.
Prioritize Customer Service
Wholesale trade has plenty of competition. A big competitor is a company like Amazon. Some consumers may enjoy the convenience of purchasing online and skip the wholesale option. However, a wholesale trader like Costco has something to offer that Amazon cannot. An in-person customer experience can be very beneficial to the consumer. Costco has mastered this principle and many choose to shop in person for this reason. Prioritize customer service and your customers will keep coming back. For more information read The Value of Customer Loyalty.
Become the Primary Supplier – Create Recurring Revenue
To become a consumer’s primary supplier takes time, trust, and quality products. However, when you do earn that trust, your company will start to earn recurring revenue from these consumers. Recurring revenue is the best way to earn revenue because it is consistent. Wholesale traders like Sam’s Club or Costco have a great way of doing this. Buying in bulk brings the price per unit down. Wholesale traders can then require the customer to purchase a membership. With this membership, the customer has access to bulk supplies at a lower cost. This is a great way to become a primary supplier and incur recurring revenue. When valuing a wholesale trade business, a valuation expert will look at your revenue streams. Recurring revenue is most valuable because it is easily transferable and consistent. Focusing on this can increase the value of your wholesale business.
Summary
In conclusion, there are many more factors that go into valuing a wholesale trade business. These success factors are important to know whether buying, selling, or growing your wholesale trade business. To better understand the fair market value of your business, consider obtaining a business valuation from Peak Business Valuation, business appraiser. A business valuation will also identify opportunities to maximize the value of your wholesale trade business.
Peak Business Valuation, business appraiser, values businesses across the country, including wholesale trade businesses. We are happy to answer any questions you may have about the value of your wholesale trade business. Understanding the fair market value of wholesale trade is best done through a business valuation. Please reach out below to schedule a free consultation. We look forward to hearing from you.
Be sure to also check out Valuation Multiples for Wholesale Trade, as well as Value Drivers for Wholesale Trade and How to Value a Wholesale Trade.
