When a buyer values a plumbing business, the first question is not the multiple - it is which earnings number the multiple gets applied to. Two standard bases exist. SDE, seller’s discretionary earnings, measures the total financial benefit the business delivers to a single owner-operator. EBITDA, earnings before interest, taxes, depreciation, and amortization, measures the profit a business generates once a normal management team is paid. Same business, two different earnings figures - and which one a buyer uses depends mostly on the size and structure of the operation.
This is general education about how the two earnings bases work, not valuation, tax, or financial advice, and nothing here values any specific business. The right base, the right add-backs, and the right multiple for a real plumbing business all depend on facts only a qualified appraiser or CPA can weigh from your actual books. For how either base becomes an actual price - the earnings-times-multiple mechanics - see what is a plumbing business worth. Below is the plain-language difference between SDE and EBITDA and why a buyer reaches for one or the other.
What SDE is, and the business it fits
SDE - seller’s discretionary earnings - is built for the small, owner-operated business, and it answers a specific question: how much total financial benefit does this business deliver to one working owner? You start with the business’s net profit and add back the things that exist because of the current owner rather than the operation itself. The largest add-back is the owner’s own compensation - salary, and often benefits - because a new owner-operator would take that pay themselves. On top of that go discretionary and non-recurring items: interest, depreciation and amortization, and one-off or personal expenses run through the books that a buyer would not expect to repeat.
The result is a single figure that represents what the business would put in the pocket of a hands-on owner who works in it. That framing is exactly right for most owner-run plumbing shops, where the owner is also the lead plumber, the estimator, and the dispatcher, and where separating the owner’s labor from the business’s profit is artificial. Because SDE includes the owner’s pay, it is a larger number than EBITDA for the same business - a point that matters when you compare multiples, because a larger earnings base carries a lower multiple.
What EBITDA is, and the business it fits
EBITDA - earnings before interest, taxes, depreciation, and amortization - is built for the larger business that runs on a management team rather than a single working owner. It measures the operating profit the business produces after paying the people who run it, stripping out financing and accounting choices that vary from owner to owner. You take net profit and add back interest (a financing decision), taxes (which depend on structure), and depreciation and amortization (non-cash accounting entries), leaving a figure meant to reflect core operating performance.
The key difference from SDE is what EBITDA does not add back: the owner’s compensation. EBITDA assumes the business already pays a market-rate management team - a general manager, operations leaders, licensed supervisors - and that those salaries are a real, ongoing cost. That assumption fits a plumbing business large enough that the owner is no longer the one on every job. For a buyer of that kind of business - often a larger acquirer stepping into an existing management structure - EBITDA is the cleaner measure, because it reflects what the business earns as a standalone operation, not what it delivers to one owner-operator.
Add-backs: why the same business shows two earnings figures
The gap between SDE and EBITDA for the same business is almost entirely the owner’s compensation, and understanding that gap keeps an owner from comparing the wrong numbers. Picture a plumbing business that nets a modest profit after paying its owner a full salary. Its EBITDA starts from that profit and adds back interest, taxes, and depreciation. Its SDE does all of that and then adds the owner’s salary back on top. The SDE figure is therefore meaningfully larger than the EBITDA figure - not because the business earns more under one method, but because the two methods are answering different questions.
This is why you cannot mix an SDE multiple with an EBITDA figure, or the reverse. Each multiple is calibrated to its own base: SDE multiples are applied to the larger, owner-included SDE number, and EBITDA multiples to the leaner, management-paid EBITDA number. Cross the wires and the answer is nonsense. When you see a multiple quoted, the first thing to confirm is which earnings base it belongs to - and a careful appraiser is always explicit about that.
When a plumbing business crosses from SDE to EBITDA
There is no bright line where a plumbing business stops being valued on SDE and starts being valued on EBITDA; it is a spectrum tied to size and structure. The practical marker is whether the business depends on a single working owner or runs on a management layer. A shop where the owner is the lead plumber and the face of the business sits squarely in SDE territory. A business large enough to employ managers, supervisors, and office staff who run the operation while the owner steps back moves toward EBITDA, because the earnings no longer include the owner’s day-to-day labor in the first place.
Many growing plumbing businesses sit in the transition zone, where a buyer might look at both figures. What matters for an owner is knowing which lens a likely buyer will use, because it shapes how the business should be presented and even how it should be built. An owner planning to sell to a larger acquirer benefits from developing the management bench that makes EBITDA the right measure; an owner selling to another operator may well be valued on SDE. Neither path is better - but building toward the wrong one can leave value on the table.
The multiple, and one firm’s published benchmark
How a buyer turns either earnings base into a price is the multiple - the number the earnings figure gets multiplied by, covered in what is a plumbing business worth. Published benchmark ranges exist, but they must be read with care. One appraisal firm, Peak Business Valuation, publishes its own general benchmarks: it states that “SDE multiples for plumbing businesses range from 1.68x - 2.97x SDE” and that “EBITDA multiples for plumbing businesses fall between 2.43x - 4.45x EBITDA.” Those are one firm’s published benchmark ranges, not a market consensus or an external data source, and the firm itself cautions that they may not represent any particular business.
Read that way, the ranges are useful only as a rough orientation - and they illustrate the point of this whole post. The SDE range sits lower because SDE is the larger earnings number that already includes the owner’s pay, while the EBITDA range sits higher because EBITDA is the leaner figure. Do not average the ranges, extrapolate from them, or treat either end as the multiple your business would earn. Only an appraiser working from your actual financials can say which base fits, which add-backs hold up, and where - if anywhere - in a range a specific plumbing business falls. Nothing here says any business is worth a particular amount, because from the outside that cannot be known.
Which earnings base a buyer of your plumbing business will use
Whether a buyer values your plumbing business on SDE or EBITDA comes down to the same thing that drives so much of value: how the business is built. A smaller, owner-run shop will almost always be measured on SDE, because the owner’s labor is inseparable from the profit. A larger, management-run business will be measured on EBITDA, because the profit already stands on its own. Neither base is better; they are lenses matched to different businesses, and confusing them is the most common way owners misread what they are being offered.
The honest next step is to have a qualified appraiser or CPA look at your actual financials, choose the right base, defend the add-backs, and tell you where in a range a real business like yours might fall - none of which this post can do. For how either earnings base becomes a price, read what is a plumbing business worth. And when you want coverage that fits how your plumbing business actually operates today, whatever its size, start a quote and tell us how your crews work.
Real-World Scenario: An owner reads that plumbing businesses sell for a certain multiple and does the math on the figure he keeps in the business after paying himself - his EBITDA - using a multiple he saw quoted against SDE. The number looks disappointing, and he nearly walks away from a sale. An appraiser then restates the business on the correct base: because the multiple he found was an SDE multiple, it belongs on the larger, owner-included SDE figure, not the leaner one. Same business, same books - the mismatch, not the business, was the problem. Confirming which base a multiple belongs to is the difference between a realistic read and a costly misunderstanding.