What is SaaS ARR Multiple?  

SaaS ARR Multiple compares the annual recurring revenue (ARR)-based valuation of Software-as-a-Service (SaaS) companies.  Using this method, investors gain a clearer understanding of the expenses associated with each dollar of income generated regularly.  Future growth and profitability prospects can also be evaluated using the ARR Multiple. 

To calculate this SaaS metric, you can make use of this formula:  

SaaS ARR Multiple = Enterprise Value / 年間経常収益（ARR）

ここで： 

• Enterprise Value (EV) = Market Value of Equity + Total Debt – Cash and Cash Equivalents    
• 年間経常収益（ARR） = Monthly Recurring Revenue (MRR) x 12    

ARR is essential to a business’s capacity to obtain capital, particularly for SaaS or subscription-based enterprises.  This is the reason: 

• Risk Management: ARR consistency minimizes potential financial losses for investors, enhancing security in future earnings.
• Growth Factor: ARR growth can be a factor that investors consider when assessing a company’s potential and scalability. 

Focus on ARR Differs by Funding Stage 

• Early Stages (Seed Funding): Despite a low current ARR, investors place a higher priority on market opportunity and ARR growth potential. 
• Later Stages (Series B and Beyond): A clear route to profitability and a track record of consistent ARR growth become crucial. 

The growth pace, company size, and market circumstances all have a substantial impact on the ARR valuation of SaaS companies.  A 50% growth rate is used as the benchmark for valuation multiples for businesses with an ARR of $0–$3M.  The multiple may increase by 1x–2x with higher growth rates.

Growth rate, industry vertical, and financial success affect a company’s ARR multiple.  ARR multiples are often greater for high-growth businesses in industries with significant market potential and high profitability.  When evaluating a SaaS company, investors take into account elements like: 

• profitability 
• 解約率 
• customer acquisition costs 
• 顧客生涯価値.  

Cash flow management, profitability, and net revenue retention are other crucial criteria.  EBITDA and monthly recurring revenue (MRR) are other important considerations for well-established businesses. 

ARR multiples can also be impacted by market conditions, therefore, when evaluating a firm, it’s critical to take the competitive and general economic environment into account.