Revenue multiples value a business as a multiple of annual turnover (or ARR for SaaS). They are most commonly used for high-growth, recurring-revenue businesses where current profitability is suppressed by reinvestment.
SaaS businesses, fast-growing service firms, and platforms where growth and retention metrics matter more than near-term EBITDA.
— How it works
Step by step
01
Define the revenue base
Use ARR (annual recurring revenue) for subscription businesses, or trailing 12-month revenue for others.
02
Apply a sector-relevant multiple
SaaS multiples typically range from 2× to 10× ARR depending on growth, retention, and gross margin.
03
Adjust for quality of revenue
Net revenue retention, churn, and gross margin all materially affect the multiple.
04
Sense-check with profit metrics
Even high-growth businesses are increasingly valued with reference to a path to profitability.
— Strengths
Works for pre-profit growth businesses
Highlights recurring revenue quality
Easy to compare with public SaaS peers
Captures growth optionality
— Limitations
Can dramatically over-value low-margin businesses
Highly sensitive to growth assumptions
Less relevant in tighter capital markets
Buyer scrutiny of unit economics has increased
— Our insight
"Improving net revenue retention from 95% to 110%+ typically expands a SaaS revenue multiple far more than equivalent improvements in raw growth rate."
Take the next step
Find out what your business could be worth before buyers do.
If you are considering a sale now or in the next few years, a confidential valuation call can help you understand where you stand, what buyers may look for, and what could improve your outcome.
