SaaS Multiples

April 12, 2022

by a searcher from San Diego State University - College of Business Administration in Albuquerque, NM, USA

How would you value a company with $0 SDE and 150k yearly revenue? Is it really 10x on revenue even though there are no profits? I'm having a tough time stomaching that! Even 4x revenue, 600k for a company that has no profits and only 38 customers, seems insane. Thinking an offer of 1x revenue might make more sense here. Anyone have experience?

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Reply by a searcher
from Pomona College in Las Vegas, NV, USA

I don't think the traditional 3 - 5x EBITDA would apply here either simply due to size (not sure if xrevenue is common in this industry). If it were me, I would value it based on the value of the assets, which I take to be the domain, the customer list, intangibles like brand and growth potential (though I personally wouldn't value a business based on what it is PROJECTED to make after I own too heavily). Other things to consider are return on investment, and risks of owning such a business. At the end of the day, a price is agreed upon between buyer and seller, and if they agree on a price they are both comfortable and happy with, then that's the price. A lightning bolt won't come shooting from the sky if its not 4.312x EBITDA. Just my thoughts, I don't know anything about this industry so hopefully someone with that background can chime in.

Reply by a professional
from Georgia Southern University in Atlanta, GA, USA

The two key criteria beyond ARR and EBITDA that drive multiples in SaaS are generally (but not limited to) the growth rate and the gross margin. Higher growth rate and solid gross margins result in high multiples. Just because the because is classified as "SaaS" doesn't automatically place it in the 10x revenue bucket. Growth rate and gross margins are key to developing your path to profitability.

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