Modeling approach

Build the forecast from operating drivers rather than applying one headline growth rate
to total revenue:

[
Net Revenue
Gross Orders \times AOV

 Discounts

 Returns

 Refunds
]

For your business, forecast DTC website, marketplaces and wholesale separately.
The U.S. wellness market has an estimated value of $480 billion and is growing at
approximately 5%–10% annually, while U.S. online retail sales grew 9.8% year over
year in Q1 2026. These figures are useful market anchors, but the company’s growth
should ultimately be supported by its own traffic, conversion, repeat-purchase and
distribution data.[1][2]

The assumptions below are a starting underwriting case, not a substitute for your
historical cohort data.

Revenue build by channel

DTC website

[
DTC Gross Revenue
Sessions
\times Conversion Rate
\times AOV
]

[
DTC Net Revenue
DTC Gross Revenue
\times (1-discount rate-return/refund rate)
]

Line item Downside Base case Upside Modeling

rationale

Website sessions 5% 12% 20% Reflects paid

growth, Year 1 media capacity,
SEO, content and
brand awareness.

Website sessions 3% 8% 15% Growth should

growth, Years 2–5 gradually
converge toward
market and brand
maturity.

Conversion rate -10% +3% +8% Driven by landing

change pages, trust
signals, product
reviews, checkout
and
merchandising.

AOV growth 0% 3% 6% Comes from price

increases,
bundles, cross-sell
and premium
products.

Discount rate 12% 8% 5% Higher discounts

often indicate
weak demand or
excess inventory.
 Returns/refunds 8% 5% 3% Use category-
specific historical
data;
consumables
generally differ
from apparel or
equipment.

Subscription/ 5% 15% 25% Appropriate only

replenishment where products
share have a credible
replenishment
cycle.

Repeat-purchase Flat +5 percentage +10 percentage Retention should

rate points over five points over five be measured by
years years cohort and
reorder window,
not by aggregate
orders alone.

Example: If sessions rise 12% and conversion rises 3%, orders increase by
approximately:

1.12 ×1.03 −1=15.4 %

If AOV then increases 3%, gross DTC revenue grows approximately:

1.12 ×1.03 ×1.03 −1=18.8 %

This illustrates why revenue growth should be decomposed into traffic, conversion and
AOV rather than assumed as one percentage.

Marketplace revenue

[
Marketplace Revenue
Marketplace Traffic
\times Marketplace Conversion
\times AOV
\times (1-returns)
]

Line item Downside Base case Upside

Marketplace traffic 0% 8% 15%

growth, Year 1

Marketplace traffic 2% 6% 12%

growth, Years 2–5

Conversion-rate change -5% +2% +5%

AOV growth 0% 2% 4%

Marketplace revenue Increase by 5 points Stable Reduce by 5 points

concentration

Platform advertising as 12% 9% 7%

% of marketplace
revenue

Platform fees and 25% 22% 19%

fulfilment as % of
marketplace revenue

Marketplace revenue should be discounted for account-health risk, algorithm

dependence, reviews, platform fees and the fact that the company does not fully own the
customer relationship.

Wholesale revenue

A practical model is:

[
Wholesale Revenue
Active Accounts
\times Average Revenue per Account
]

or, where data is available:

[
Wholesale Revenue
Doors
\times Units per Door
\times Wholesale ASP
]

Line item Downside Base case Upside

New active wholesale 5% 15% 30%

accounts, Year 1

Account attrition 12% 8% 5%

Same-account growth 0% 5% 10%

Wholesale price growth 0% 2% 4%

Wholesale 5% 3% 2%
returns/allowances

Average collection 60 days 45 days 30 days

period

Wholesale can accelerate revenue, but it usually carries lower gross margins and
increases accounts receivable. Model sell-in and sell-through separately where possible
so that distributor inventory loading is not mistaken for genuine consumer demand.

Customer-acquisition assumptions

Paid marketing should be modeled by channel and customer type.

[
New Customers
\frac{Acquisition Marketing Spend}{CAC}
]

[
Blended CAC
\frac{Paid Acquisition Spend}{New Customers Attributed to Paid Activity}
]

Line item Downside Base case Upside

Paid-media spend 5% 12% 20%

growth

CAC inflation, Year 1 10% 3% -5%

CAC inflation, Years 2–5 6% annually 2% annually 0% to -3% annually

Organic/direct share of Declines Stable Increases 3 points

new customers annually

Influencer/affiliate Stable Increases moderately Increases materially,

share subject to compliance

CAC payback target 15 months 12 months 9 months

Do not assume that higher advertising spend produces proportional revenue. Apply
diminishing returns once the company moves beyond its historically tested spend level.

A useful constraint is:

[
Maximum CAC
First-year contribution profit per customer
\times Acceptable payback factor
]

For example, if first-year contribution profit is $80 and management requires payback
within 12 months, a CAC materially above $80 would generally require confidence in
repeat purchases.

Retention and cohort assumptions

For consumable wellness products, retention is often the most important growth driver.

[
Revenue from Existing Customers
Prior Customers
\times Retention Rate
\times Orders per Retained Customer
\times AOV
]

Line item Downside Base case Upside

90-day repeat-purchase -5 points from current Current level +5 points from current
rate

180-day repeat- Flat or declining +3 points over five +8 points over five
purchase rate years years

Orders per repeat Flat +2% annually +5% annually

customer

Subscription churn 8% monthly 6% monthly 4% monthly

Subscription Low Moderate Strong

pause/reactivation

Loyalty/email/SMS Flat +2 points annually +4 points annually

revenue share

Use actual cohorts by acquisition month, product, channel and first-order offer. Avoid
using an indefinite LTV assumption; cap the forecasted customer life at the period
supported by observed retention data.

Product and pricing assumptions

Line item Downside Base case Upside

Price increase 0%–1% 2%–3% 4%–6%

New-SKU contribution 5% 15% 25%

to Year-5 revenue

Product discontinuation 10% annually 5% annually 3% annually

rate

Premium-product mix Flat +2 points annually +4 points annually

Product-launch success 40% 60% 75%

rate
 Stockout days 30+ 10–15 Less than 10

New products should not be modeled as immediate full-year revenue. A more defensible
method is:

[
New-SKU Revenue
Launch Month
\times Monthly Run Rate
\times Ramp Factor
]

Illustrative ramp factors might be 25% in the launch year, 60% in the second year and
100% once the product reaches a mature run rate.

Pricing assumptions should also be separated between list price, realized selling price,
promotional discounts and wholesale price.

Cost-of-goods assumptions

[
Gross Profit
Net Revenue

COGS
]

Line item Downside Base case Upside

Product COGS as % of Increases 2 points Improves 1 point Improves 3 points

net revenue

Inbound freight and 4%–8% of product cost 3%–6% 2%–4%

duties

Packaging cost inflation 5% 2% 0%

Manufacturing savings None 1% annually 2%–3% annually

 Expired/obsolete 3% of inventory 1.5% 0.5%
inventory reserve

Model COGS at SKU level where the business has substantial product concentration. A
small change in the top five SKUs’ costs can materially affect valuation.

Variable operating expenses

Line item Downside Base case Upside

Fulfilment cost per +8% annually +3% annually Flat

order

Payment-processing Stable percentage Stable percentage Improves through

fees mix/negotiation

Customer service cost +5% annually +2% annually Flat

per order

Marketplace fees Stable or higher Stable Improves through

fulfilment mix

Technology expense 15% 10% 8%

growth

Corporate overhead 12% 8% 5%

growth

Do not treat fulfilment, payment processing, marketplace fees, refunds or customer

support as “below-the-line” expenses. They are variable costs and should be included
when calculating contribution margin.

EBITDA bridge

Use this sequence:

Net Revenue − COGS=Gross Profit

Gross Profit − Variable Selling and Fulfilment Costs=Contribution Profit

Contribution Profit −Fixed Operating Expenses=EBITDA

For a base case, model the EBITDA margin as a gradual improvement rather than an
immediate jump:

Year Base-case assumption

Current year Actual normalized margin

Year 1 Current margin + 1 percentage point

Year 2 Current margin + 2 points

Year 3 Current margin + 3 points

Year 4 Current margin + 4 points

Year 5 Current margin + 4–6 points, subject to scale

economics

This improvement must be supported by measurable drivers such as lower CAC, better
product mix, procurement savings and fixed-cost leverage. Do not increase EBITDA solely
because revenue grows.

Working-capital assumptions

Line item Downside Base case Upside

Inventory days 120 75 60

Wholesale receivable 60 45 30
days

Payable days 30 45 60

Inventory write-off 3% of inventory 1.5% 0.5%

Safety stock 90 days 60 days 45 days

Annual capex as % of 3% 2% 1.5%

revenue

A company can show strong EBITDA growth while consuming cash if inventory grows
faster than sales. The valuation model should therefore include:
[
FCF
EBITDA

 Cash Taxes

 Capex

 Increase\ in\ Net\ Working\ Capital

]

Regulatory and valuation assumptions

For health and wellness products, create a separate risk schedule for:

 Product claims substantiation.

 FDA-compliant labels and structure/function claims.

 Good manufacturing practice records.

 Certificates of analysis and batch traceability.

 Product-liability insurance.

 Recall exposure.

 FTC-compliant influencer and testimonial disclosures.

The FTC requires appropriate substantiation for health-related claims, and FDA guidance
addresses supplement labeling, claims and current good manufacturing practices. Weak
documentation should therefore be reflected through a lower valuation multiple, a
purchase-price escrow or a specific indemnity. [3][4][5]

Recommended base-case structure

For valuation, I would use the following base-case pattern unless your actual history
supports something different:

 Revenue growth: driven separately by DTC traffic, conversion, AOV, marketplace

growth and wholesale account additions.

 Total revenue growth: approximately 12%–18% initially, moderating as the

business scales.
  Gross margin: stable to improving by 1–3 percentage points over five years.

 CAC: rising 2%–3% annually unless organic and retention channels offset paid-
media inflation.

 Repeat-purchase rate: improving by 3–5 percentage points over five years.

 EBITDA margin: improving gradually by 4–6 percentage points over five years,
only where supported by operating leverage.

 Inventory days: maintained below approximately 75 days in the base case.

 New-SKU revenue: capped at 15% of Year-5 revenue in the base case until the
company has demonstrated repeatable product-launch performance.

These assumptions should be replaced with the company’s actual last 24–36 months of
monthly data. The most valuation-sensitive variables are usually repeat-purchase rate,
CAC, contribution margin, inventory days, channel concentration and
normalized EBITDA—not the top-line market-growth estimate.

1. [Link]
the-1-point-8-trillion-dollar-global-wellness-market-in-2024

2. [Link]

3. [Link]

4. [Link]
supplements

5. [Link]
compliance-guide-current-good-manufacturing-practice-manufacturing-packaging-labeling

6. [Link]

7. [Link]

8. [Link]

9. [Link]
10. [Link]

11. [Link]

12. [Link]
[Link]

13. [Link]

14. [Link]

15. [Link]

16. [Link]

17. [Link]

18. [Link]

19. [Link]