Manufacturing Business Valuation Benchmarks

Business owners, prospective buyers, and industry investors rely on a diverse set of financial benchmarks to assess the value of a business. We have compiled data from current BizBuySell listings and sold businesses to provide insight into the business for sale market and important benchmarks for pricing and evaluating manufacturing businesses relative to industry standards.

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Highlights of Manufacturing Businesses Sold on BizBuySell

Manufacturing businesses listed and sold on BizBuySell engage in the manufacture and sale of a wide range of products. These are small businesses that typically have annual sales below $10MM and generate some of the highest profits among Main Street businesses. Common areas of manufacturing include metal products and machining, sign manufacturing, paper and related products, food manufacturing, lumber and wood manufacturing, electronic equipment manufacturing, and more.

Manufacturing Business Transaction Trends

Average values of manufacturing businesses sold have been growing slowly but consistently, relative to other sectors. Sale prices spiked in 2020, due to global supply chain issues leading to increased demand for domestic manufacturing. Prices dipped in 2022 as increasing interest rates lead to more costly business acquisition financing and have since settled around $700,000.

Manufacturing Business Valuation Multiples

Valuation, or pricing, multiples are financial tools that allow for comparisons between businesses that have different levels of sales and income. They represent the sales price of a business relative to its financial performance, and given enough individual business sales data, they represent what the market is willing to pay for a business given its revenue and earnings.

Valuation Trends

Business values and associated multiples fluctuate over time, influenced by a variety of macroeconomic factors such as interest rates, inflation, consumer spending, and overall economic growth. For manufacturing businesses reported sold on BizBuySell, the average earnings multiple rose through the pandemic as domestic manufacturing increased, then returned to pre-pandemic levels as interest rates increased. Relative to other sectors, manufacturing business valuation multiples remain fairly consistent over time.

Earnings Multiples

Earnings multiples represent the value of a business relative to its owner’s discretionary earnings or "cash flow". Arguably the most important valuation metric - as the seller's discretionary earnings will often dictate how much a buyer is able to borrow to finance the business acquisition - most valuations will hinge on a reasonable earnings multiple.

Revenue Multiples

Revenue multiples represent the value of a business relative to its overall annual sales or revenue. In conjunction with an earnings analysis, revenue multiples are commonly used to value a business based on its top line sales.

How to Interpret These Multiples

Recent Listings vs. Sold Businesses

We calculate and provide valuation multiples from two sources: Current and recent listings of manufacturing businesses for sale, and our database of "comparable" businesses sold on BizBuySell. Multiples based on listing data are usually higher due to owners setting asking prices above what their businesses might typically sell for. This occurs either intentionally as a negotiation strategy, or incidentally due to business owners’ common tendency to overvalue their own businesses. When current listing multiples are lower, that signifies decreasing values or previously inflated values of sold businesses.

Multiples based on comparable businesses - "comps" in business broker parlance - are much more useful as they represent the prices at which businesses ultimately get sold. Business brokers and valuation professionals will always turn to local comps when pricing businesses for sale or evaluating businesses for acquisition. We provide both sets of data at the national level to offer general context.

Quartiles, Median, and Average

No two businesses are identical, and as such, valuation multiples exist in a range. We have carved out four common values within this range: Lower quartile represents the value under which the lowest 25% of valuation multiples fell. Upper quartile represents the value above which the highest 25% of multiples fell. Median is the middle of the range, and average is the mean of the set. Mean is almost always higher than the median, driven by a minority of high volume, high value businesses sold at multiples above the upper quartile.

Businesses with consistent financial performance, above average revenue and earnings, demonstrable growth potential, low owner involvement, unique competitive advantages, and a seller willing to finance will command a multiple at or above the upper quartile. Smaller businesses with thin profit margins, full-time owner involvement, and many direct competitors will trade at or below the lower quartile. Most businesses will fall somewhere in the middle.

Based on this data, half of manufacturing businesses are valued and sold between 2 and 3.6 times their annual seller discretionary earnings, with 25% of exceptional, larger businesses trading above this range, and 25% of smaller, less desirable businesses trading below.

Financial Benchmarks

To determine how a business compares in terms of revenue and earnings performance relative to industry peers, it’s necessary to have some insight into industry standards. "Benchmarking" describes the practice of comparing a business’s financial performance to typical industry standards to determine where a business falls relative to other businesses in the same industry. These benchmarks can help guide owners and investors towards appropriate valuation multiples from the range above.

To that end, we have aggregated manufacturing business financial ranges useful for comparing an individual business to its peers sold and for sale.

Manufacturing Business Revenue and Earnings Trends

Median revenue and discretionary earnings of manufacturing businesses sold on BizBuySell increased 52% and 25%, respectively, in 2020 before returning to previous growth rates. In the four years from 2021 through 2024, median earnings for these businesses fell 9% while median revenue increased 9%, indicating pressure on profit margins, though they remain a healthy 21.6%.

Earnings Ranges

Discretionary earnings (used interchangeably with the terms "cash flow" and seller's discretionary earnings or SDE) is often the crux of business valuations, so it is important to benchmark it relative to similar businesses traded on the market. Below you will find owner's discretionary earnings ranges for manufacturing businesses sold over the past five years, as well as from recent manufacturing business for sale listings.

Revenue Ranges

Sales volume plays a large role in business valuation, as it measures the size of the potential income opportunity for new ownership. It's not uncommon for buyers to select an earnings multiple range based on overall revenue. The table below includes revenue ranges of manufacturing businesses sold over the past five years and recent businesses listed for sale.

How Revenue and Earnings Level Affects Business Values

Clearly higher levels of earnings lead to higher valuations, even given the same multiple. However, valuation multiples also tend to rise with business sales volume. Manufacturing businesses that generate higher sales (and maintain reasonable profit margins) tend to sell for earnings multiples on the higher end. So, a manufacturer generating over $2MM may sell for an earnings multiple of 3-3.5, where a manufacturing business with sales below $600k may trade around 2 times earnings.

This tendency for higher sales volumes to fetch higher valuation multiples is largely driven by the economics of business acquisition financing. Higher volume businesses give buyers more cushion to cover debt service obligations and still have enough left over to pay the new owner a reasonable return on the purchase price.

Sector Comparisons

For a more complete understanding of the market and valuation standards, consider comparisons within the manufacturing sector. The chart and table below include key metrics from sales of manufacturing businesses on BizBuySell between 2020 and 2024. Note the tight correlation between median revenue and average earnings multiple.

Manufacturing business valuations do not vary materially between individual categories but correlate tightly to sales volume. Because all these categories tend to have similar labor and capital requirements, the main criterion driving valuation is financial performance. Manufacturing business owners looking to sell would do well to take action as early as possible to affect revenue and earnings, and ensure financials reported to the IRS can reflect their full income and benefits.

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