A 35% margin store and a 20% margin store can have the same revenue. They will never have the same valuation.
I watched this play out last year. Two stores in the same niche. Both doing roughly $800,000 in annual revenue. One sold for $402,500. The other sold for $826,000. Same top line. Same platform. Same buyer pool. The difference was entirely in the margin structure—and what that margin told the buyer about the business they were acquiring.
The Math That Separates These Two Stores
Let me show you exactly how this works.
Store A: 20% margins.
Revenue comes in at $800,000. After cost of goods and operating expenses, profit lands at $160,000. Add-backs—owner salary, personal vehicle, a one-time legal fee—bring in another $15,000. SDE: $175,000.
The buyer looks at this and sees a business with thin margins. Every supplier price increase, every shipping cost surge, every ad auction that gets more expensive—any of these can push this store into unprofitable territory. There’s no buffer. The buyer prices that risk into the multiple: 2.3x.
Final valuation: $175,000 × 2.3 = $402,500.
Store B: 35% margins.
Same $800,000 revenue. But this store has pricing power. Its customers value the brand enough to pay a premium. After costs, profit sits at $280,000. Same add-backs: $15,000. SDE: $295,000.
The buyer sees a business that can absorb shocks. A supplier raises prices 5%? Margins compress to 30%—still profitable. Ad costs spike? The business survives. This resilience is worth real money. The buyer offers 2.8x.
Final valuation: $295,000 × 2.8 = $826,000.
The margin difference created $120,000 in additional SDE. But it also pushed the multiple up by half a point—and that half point alone was worth $147,500. Same revenue. Same niche. A $423,500 gap.
What Buyers See When They Look at Your Margins
A buyer doesn’t look at your margin as a single number. They read it as a story about your business.
A 35% margin tells them you have pricing power. Customers don’t buy from you because you’re the cheapest option. They buy because they want what you sell specifically. That’s a moat—competitors can copy your products, but they can’t copy the willingness of your customers to pay a premium. Moats command higher multiples.
A 20% margin tells a different story. You’re competing on price. Your customers are loyal to the discount, not the brand. The moment a competitor undercuts you, your revenue is at risk. Price-competitive businesses get disrupted faster. Buyers know this and pay accordingly.
Beyond pricing power, buyers see margin as a proxy for operational competence. High margins usually mean you’ve negotiated good supplier terms, managed costs tightly, and built efficient operations. Low margins suggest the opposite—waste, poor negotiation, or a business model with structural problems you never fixed. The margin is your management report card. Buyers grade it.
What to Fix Before You List
If your margins are below where you want them, you have time. Three to six months is enough to change the story.
Start with your COGS. Go through every supplier invoice from the last 12 months. Flag every line item that increased without explanation. Call your suppliers and renegotiate. Most will offer better terms to keep a steady buyer. A 5% reduction in product cost flows directly to your SDE—and gets multiplied.
Then test your prices. Raise prices 5-10% on your top three products. Watch conversion rate for two weeks. Most Shopify stores underpriced themselves into a corner and never tested whether customers would pay more. A dollar of price increase is a dollar of pure profit with zero additional cost. Even if volume dips slightly, the margin gain usually more than compensates.
Finally, audit your product mix. Identify every product with margins below your store average. Either fix the unit economics on that product or remove it. A cleaner catalog with higher average margins tells a better story to a buyer than a bloated catalog full of low-margin filler.
Want to see how your current margin structure affects your valuation? Run your store through our free valuation tool. The report breaks down exactly what’s driving your number—and what’s holding it back.
Frequently Asked Questions
What margin do buyers consider “good”?
Above 25% is solid. Above 35% is strong and will push your multiple higher. Below 20%, expect buyer scrutiny and a lower multiple. The exact threshold varies by niche—a beauty store and an electronics store aren’t held to the same standard—but the direction is universal.
Can I fix my margins before selling?
Yes. Supplier negotiation, price testing, and product mix cleanup can all be done in 3-6 months. The key is starting early enough that the improved margins show up in your trailing 12-month data before a buyer reviews it.
Do buyers care more about margin or revenue growth?
Both matter. But at equal revenue, the higher-margin store always wins. Margin is a signal of business quality. Growth is a signal of momentum. Buyers pay for both, but they discount growth without margin every time.