If you’re running a SaaS company, you already know that valuing it is about much more than just the numbers on paper. SaaS is a beast of its own: recurring revenue, scalable margins, and often razor-sharp growth potential. Buyers know it, too, which is why SaaS businesses tend to fetch some of the highest multiples around—when positioned correctly.

But here’s the thing: not all valuation multiples will work. Knowing the right one for your SaaS business is like having a road map to hidden value. Let’s break down the multiples that matter most, the factors driving them, and how to leverage them to get the best deal possible. 

This guide covers:

• Understanding SaaS Valuation Multiples
• The Four Pillars of Value
• Top Five Valuation Multiples
• Which Valuation Multiple Suits Your Business?
• Get a Tailored Valuation

Related Article: What is ODI vs SDE vs EBITDA Multiples in Business Valuation?

SaaS Valuation Multiples, Explained

SaaS businesses bring a unique appeal to buyers. They’re built for recurring revenue, which means predictability; buyers love that. But there’s more to it: in SaaS, things like customer churn, lifetime value (LTV), and acquisition cost (CAC) directly impact your valuation multiple. Here’s how these key drivers fit into the Four Pillars of Value:

• Growth: Predictable, scalable growth is the holy grail. SaaS companies with strong ARR (annual recurring revenue) and low churn tend to get higher multiples because buyers know the revenue won’t vanish overnight. 
• Risk: Lower risk, higher value. For SaaS, risks often center on customer concentration or dependency on a single market. But a well-diversified customer base and high LTV-to-CAC ratio can offset these risks, boosting your multiple. 
• Transferability: The question every buyer asks: “Can this business thrive without the founder?” In SaaS, transferability means having streamlined customer acquisition, automated onboarding, and thorough SOPs (standard operating procedures). If a new owner can step in without missing a beat, your value goes up. 
• Documentation: SaaS runs on data, and so does its valuation. Metrics around MRR (monthly recurring revenue), ARR, churn, and CAC all need to be transparent and easily accessible. The more data you can offer, the more confidence you instill in buyers. 

Mastering these four factors doesn’t just improve your multiple—it helps potential buyers see the real value behind your business model.

“In SaaS, things like customer churn, lifetime value, and acquisition cost directly impact your valuation multiple.”

Common Types of SaaS Valuation Multiples

For SaaS, the valuation game revolves around a few key methods. Let’s look at which ones make sense for different scenarios.

1. Revenue multiple 

A classic in business valuation, the revenue multiple calculates your business’s value by multiplying ARR by a set factor. If your business brings in $1 million ARR and the multiple is 5x, that’s a $5 million valuation. Revenue multiples are ideal for fast-growing SaaS companies investing heavily in growth. But keep in mind: they don’t account for profitability, so they’re best suited for businesses and buyers prioritizing scale over profit. 

2. EBITDA multiple

EBITDA (earnings before interest, taxes, depreciation, and amortization) is all about operational profitability, which matters to buyers who want a straightforward view of ongoing earnings potential. EBITDA is often used for established businesses that have “graduated” from high-burn growth to predictable profit. If your SaaS business has strong, steady margins, EBITDA may be worth considering. 

3. SDE multiple

For many SaaS companies, seller’s discretionary earnings (SDE) is where it’s at. SDE focuses on the owner’s benefit, stripping out personal expenses and one-time costs to give a clearer picture of the cash flow available to a single owner. It’s practical, particularly if your SaaS business is closely tied to the owner’s day-to-day. This method is ideal for SaaS businesses with active ownership. 

4. Gross profit multiple

Gross profit multiples are an option for SaaS companies with high gross margins and low operating costs, letting buyers see the revenue remaining after direct costs. This is a go-to for high-margin, high-growth SaaS businesses where operating expenses are minimal, focusing on profit potential. 

5. DCF analysis

Discounted cash flow (DCF) analysis takes a future-focused approach, calculating the present value of projected cash flows. It’s a complex model, but it can work for SaaS companies with predictable revenue growth and minimal churn. DCF is most applicable for larger SaaS businesses that want to illustrate long-term value. 

Which Valuation Multiple Should I Use for My SaaS Business?

Most SaaS companies lean toward revenue or EBITDA multiples, but here’s the real answer: it depends on where you’re at.

1. High growth, high revenue: If you’re in rapid growth mode, a revenue multiple makes sense—especially if you’re reinvesting profits to scale. Buyers value the revenue stream’s potential, and this model keeps it simple. 

2. Mature, profitable: For SaaS businesses that have reached a stabler phase, EBITDA could be the way to go. Buyers looking for consistent earnings will appreciate the focus on profit. 

3. Cash-flow focused: Smaller SaaS companies can benefit from the SDE method. It’s straightforward and puts cash flow front and center, which appeals to buyers looking at individual-owner businesses. 

While you can certainly forge your own path, an experienced valuation Advisor can help you determine the best approach by evaluating your SaaS’s strengths, growth potential, and market fit.

“An experienced valuation Advisor can help you determine the best approach by evaluating your SaaS’s strengths, growth potential, and market fit.”

Request a Free Valuation from Quiet Light

Curious how your SaaS business stacks up? At Quiet Light, we are a team of seasoned Advisors specializing in SaaS valuations tailored to ARR, growth potential, and churn. With more than a 95% client satisfaction rate, our team gives you a candid, no-nonsense evaluation based on today’s market landscape. 

Our free valuation doesn’t just throw out a number; it breaks down exactly how each of the Four Pillars impacts your value. Whether you’re looking to sell, scale, or simply understand your business’s worth, Quiet Light offers the insights you need—and none of the pressure you don’t. 

Get in touch today for a customized valuation that puts your SaaS on the right path to maximum value.