Formula
SDE = Net Income + Owner's Salary + Owner's Benefits + Interest + Depreciation + Amortization + One-Time / Discretionary Expenses
Glossary definition
Seller's Discretionary Earnings (SDE)
The standard profit metric used to value small, owner-operated businesses — including junk removal companies.
Last updated: Feb 2026
Seller's Discretionary Earnings
Definition
SDE is the total financial benefit a single owner-operator extracts from a business in one year, including salary, perks, and non-cash expenses.
In Practice: Junk Removal Business SDE
$340,000SDE
Annual Revenue $620,000
Operating Expenses −$410,000
Net Income (reported) $210,000
Owner's salary +$85,000
Owner's health insurance +$12,000
Owner's truck (personal use) +$8,400
One-time equipment purchase +$15,000
Depreciation +$9,600
Used for
Small business valuation
Owner-operator businesses
Businesses under $5M revenue
Breakdown
What it means
Means
- The total cash benefit flowing to a single full-time owner-operator before taxes, interest, depreciation, and discretionary spending
- Includes the owner's salary, benefits, and any personal expenses run through the business
- Normalizes one-time costs (equipment purchases, legal fees, buildout) that won't recur under new ownership
- Represents the true earning power of the business if you're the one running it day-to-day
Used for
- Pricing an acquisition — buyers apply a multiple (typically 2–4×) to SDE to determine purchase price
- Comparing businesses of different sizes — SDE normalizes owner compensation differences
- Estimating what an owner-operator will actually take home from the business
Excludes
- Revenue from non-recurring windfalls (insurance payouts, PPP loans, asset sales)
- Income that requires hiring a replacement for the owner (that's where EBITDA is used instead)
- Capital expenditure needed to sustain operations — CapEx is separate from SDE
Why it matters
Operator impact
If you're buying or selling a junk removal business, SDE is the number both sides negotiate from — not revenue, not net income
A 2-truck operation doing $500K revenue with $180K SDE is worth roughly $360K–$720K (at 2–4× multiple) — that's the range you'll see in most deals
Knowing your SDE lets you benchmark against industry data: the median junk removal SDE margin is 25–35% of revenue
Mistakes
Common mistakes
Double-counting add-backs — adding back depreciation AND the full cost of a truck purchase in the same year
Claiming expenses are 'one-time' when they recur annually (truck replacements, insurance premium spikes)
Using an unrealistic owner replacement cost — if you pay yourself $40K but the market rate is $80K, SDE is overstated
Ignoring capital expenditure needs — SDE looks great until the buyer realizes they need $60K in truck replacements year one
Adding back expenses that directly drive revenue (marketing, key employee bonuses) — removing these would hurt the business
Mixing up SDE and EBITDA — SDE includes owner compensation, EBITDA does not. Using the wrong one changes the valuation by 30–50%
FAQ
What's the difference between SDE and EBITDA?
SDE includes the owner's salary and benefits as an add-back; EBITDA does not. SDE is used for small, owner-operated businesses where the buyer will replace the owner. EBITDA is used for larger businesses with professional management in place. For most junk removal companies under $5M revenue, SDE is the correct metric.
What multiple should I apply to SDE?
For junk removal businesses, typical SDE multiples range from 2× to 4×. A 2× multiple is common for single-truck operations with limited recurring revenue. A 3–4× multiple applies to multi-truck businesses with recurring commercial accounts, strong systems, and documented processes.
Can I use SDE to value a business with multiple owners?
SDE only adds back one owner's compensation. If the business has multiple owners, you'd add back only the primary operator's comp and use EBITDA for the rest. Alternatively, calculate the cost of replacing each owner with a hired employee and adjust accordingly.
How do I find comparable SDE data for junk removal?
Industry benchmarks suggest median SDE margins of 25–35% of revenue for junk removal businesses. For specific comparables, check BizBuySell, BizQuest, and industry-specific transaction databases. ScaleYourJunk's data reports also publish anonymized benchmarks.
Resources
Related Resources
Tool
Junk Removal Business Valuation Calculator
Explore a junk removal business valuation scenario using pretax profit, eligible deducted owner compensation, revenue, trucks, and operating structure.
Tool
Profit Margin Calculator
Calculate your SDE, gross margin, and net margin in minutes.
Feature
Reports & Analytics
Review recorded revenue, expenses, labor and truck results, and check that costs are complete.
Explore a junk removal business valuation
Use the business valuation calculator to explore a scenario with pretax profit, eligible deducted owner compensation, revenue, trucks, and operating structure.