Most buyers spend pre-LOI diligence looking at revenue and EBITDA. Both numbers are correct and both are nearly useless without context. Here are the 12 metrics that actually tell you what you're buying.
Revenue Quality
1. Revenue by channel (LTM and prior year). Amazon, Shopify, wholesale, and any other channel should be broken out separately. Channel concentration above 80% in a single marketplace is a risk flag — one policy change can crater revenue overnight.
2. Repeat purchase rate. For DTC brands, what percentage of revenue comes from returning customers? A brand with 40%+ repeat rate has a fundamentally different risk profile than one riding paid acquisition.
3. Customer acquisition cost vs. lifetime value (CAC:LTV). If CAC is rising and LTV is flat, the unit economics are deteriorating. This won't show up in the P&L until 12–18 months after the trend starts.
Margin Structure
4. Contribution margin by SKU. Overall gross margin obscures which products are actually profitable. A 50-SKU catalog where 8 SKUs generate 90% of contribution margin is a concentration risk that looks like diversification.
5. Landed cost as a percent of revenue. For physical goods businesses, total landed cost (product + freight + duties + prep) should be modeled by SKU, not blended. This exposes which products are vulnerable to shipping cost increases or tariff changes.
6. Return rate by channel. DTC return rates of 15–25% are normal; above 30% signals product-market fit issues. Amazon return rates above 10% can trigger listing suppression.
Operations
7. Inventory turn by SKU. Slow-moving inventory ties up working capital and often ends up liquidated at a loss. Ask for the current aged inventory report.
8. Supplier concentration. What percentage of COGS comes from the top supplier? If one factory accounts for more than 60% of product, a disruption — quality issue, capacity constraint, geopolitical event — can halt operations.
9. Ad account performance trend (90 days). Pull ROAS, click-through rate, and cost-per-purchase for the last 90 days. Declining ad efficiency signals that growth is getting more expensive — or that the seller has pulled back on spend to inflate EBITDA.
Platform and Operational Risk
10. Amazon account health metrics. Order defect rate, late shipment rate, and valid tracking rate should all be within Amazon policy thresholds. An account with elevated metrics is a ticking clock.
11. Review velocity and rating trend. Are reviews accumulating at a normal rate? A sudden slowdown in review velocity sometimes indicates suppressed listing traffic. Rating trends matter more than the absolute rating.
12. Team dependencies. Who actually runs this business? If the answer is "the owner plus two VAs in the Philippines," what happens to institutional knowledge at close? Map every key function to a person and ask what their transition plan is.
How to Get This Data Pre-LOI
You won't get audited financials before LOI. But you can ask for:
- A seller-prepared P&L with channel breakdown
- Shopify or Amazon Seller Central screenshot exports
- A supplier list with concentration percentages
- The last 90 days of ad account performance
Most motivated sellers will provide this. If they won't, that's a data point too.