SaaS ARR Multiple Calculator

Think of the SaaS ARR Multiple as the price investors put on each dollar of your Annual Recurring Revenue.  It demonstrates how highly they regard your steady stream of income.

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    Utilize ARR Multiple

    Use the ARR multiple to compare your SaaS company with others.

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    Track Business Impact

    Extend the ARR multiple to track how business activities affect your company’s valuation.

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    Enhance Investor Attraction

    A high ARR multiple can make your company more attractive to investors seeking safe investments.

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SaaS ARR Multiple

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The SaaS ARR Multiple is calculated by dividing Enterprise Value by Annual Recurring Revenue (ARR). This metric helps evaluate the relative value of SaaS companies by comparing their enterprise value to their recurring revenue.

How to Calculate SaaS ARR Multiple

Follow these steps to compute your SaaS ARR multiple.

  1. Calculate the company’s enterprise value. This sums up the business’s overall worth.
  2. Determine the ARR or annual recurring revenue. This is the total amount of money a business anticipates making from recurring subscriptions over the course of a year.
  3. Calculate the annual recurring revenue (ARR) and divide it by the enterprise value. This will give you the SaaS ARR multiple. 

Note: Strong growth potential may be indicated by higher multiples, but this needs to be considered in the context of the analysis.

SaaS ARR Multiple = Enterprise Value / Annual Recurring Revenue (ARR)

Understanding SaaS ARR Multiple

Ioana Grigorescu

January 8, 2025

What is a SaaS ARR Multiple?

The SaaS ARR Multiple illustrates how many times the annual recurring revenue (ARR) equals the company’s valuation, which aids investors and business owners in determining the worth of a software company.

This measure is essential because it sheds light on a SaaS company’s financial health and room for expansion without becoming entangled in the more intricate day-to-day specifics. 

  • Determine what investors might be willing to pay based on recurring revenue to assess the company’s valuation.

  • Analyze your ARR multiple against industry standards to help guide strategic decisions.

     

  • By offering a transparent valuation metric, you can obtain advantageous terms for financing or acquisition.

Practical Examples of SaaS ARR Multiple

  • Example 1: The ARR for Company A is $5 million. The ARR multiple is determined to be 5x with a $25 million valuation. This is calculated by dividing $25 million by $5 million.
  • Example 2: Company B was purchased for $70 million, and its ARR is $10 million. Using the calculation $70 million / $10 million, this yields an ARR multiple of 7x.
  • Example 3: With a valuation of $2 million and an ARR of $500,000, Company C, a more recent company, claims an ARR multiple of 4x. This lower multiple, which is $2 million / $500k, indicates a young business model.
Period ARR ARR Change ARR Change (%) Multiple Valuation
Year 1 $500,000 – – 5 $2,500,000
Year 2 $750,000 +$250,000 +50% 6 $4,500,000
Year 3 $1,200,000 +$450,000 +60% 7 $8,400,000

SaaS ARR Multiple = $8,400,000 / $1,200,000 = 7

Different Ways to Calculate SaaS ARR Multiple

  • Trailing ARR Multiple: This is a valuable metric for measuring past performance and market conditions , which is calculated by dividing the current enterprise value by the ARR for the preceding 12 months.
  • Forward ARR Multiple: It is a common metric among investors, computed by dividing the current enterprise value by the anticipated annual rate of return for the upcoming year.
  • Adjusted ARR Multiple: This multiple offers a controlled comparison based on internal factors by adjusting for variables like growth projections and turnover.
  • Bookings ARR Multiple: This illustrates how concluded deals impact valuation by using booked revenue over the following 12 months rather than recognized revenue.

How to Improve Your SaaS ARR Multiple

  • Focus on Profitable Customers: To increase income and guarantee customer happiness, concentrate your sales and marketing efforts on the most lucrative client base segments.
  • Reduce Churn: Put tactics in place to retain your present clientele. This could entail improving customer service and success programs, which could include ongoing involvement and proactive onboarding.
  • Improve Customer Support: Create a customer success program that offers thorough instruction and rapid assistance to resolve customer concerns in a timely manner, guaranteeing improved product utilization and satisfaction.

More Calculators

  • SaaS Annual Recurring Revenue (ARR) Calculator

    SaaS ARR represents the predictable and recurring revenue stream generated from subscriptions, necessary for a company to continue operating. 
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  • SaaS Valuation Calculator

    Think of SaaS Valuation as the estimated worth of your software business. It reflects what investors believe your company is valued at based on its current performance and future potential.
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  • SaaS Bessemer Efficiency Score Calculator

    Think of the SaaS Bessemer Efficiency Score as a report card for your SaaS company. It shows how well you are balancing growth and spending. A high score means you are getting the most out of your money.
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