I'm seeing in differnt articles on the Internet that my earnings multiple could be anywhere from 3-9 times revenue. How can I get a better defined number? For example, if my business was making 1 million in revenue and I sold it off at a 5x multiple it would be worth 5 million (excluding discounts). I just don't know what multiplier to use.
The answer really depends on many factors. You are correct that many SaaS companies valuation falls into the range of 3 to 9 times revenue. I would say that companies that have a very high net income % (25%+) would fall more to the range of 7x-9x and companies that are closer to breakeven or low single digit net income percentages would fall to on the lower range.
Also you need think look at how your company will be viewed from a competitive perspective. If you dominate your market but many many new competitors are entering that may discount the overall valuation. But if you are increasing market share within new market with little or no competition the future looks brighter from a valuation / cash flow perspective due to lower overall cost per acquisition of new customers.
Hope this help. Let me know if you need anymore help.
Answered 10 years ago
You will need to provide more information in order to try and assess a reasonable value. The valuation metric and stage of your company will both be key drivers in trying to assess the value of your business. Earlier-stage SaaS models will typically be valued on a revenue multiple basis, but these valuations are more of an art than a science. Other factors include industry/sector-related KPIs, recent funding activity of similar companies and even geography. When you move into more mature SaaS models, EBITDA becomes a much bigger part of the equation. Happy to discuss further if you want to provide additional information.
Answered 10 years ago
It depends on what vertical you are in. There are pointers available by industry. You can either define that future value based on internal data or external data. Either way, it depends on what you think you will be worth - financial 'thumb suck' models will only get you so far...
Answered 10 years ago
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