How to Value a SaaS Company: A Step-by-Step Guide
To calculate the market value of your software subscription business, founders need to look at recurring revenue metrics, growth percentages, and efficiency ratios. From this, come up with a standardized financial number that will represent productivity. This is a necessary process that will establish a baseline for investment rounds, planning SaaS exit strategies, and internal equity benchmarking.
We wrote this guide to serve as an outline that explains SaaS valuation strategies used by professional analysts. This will assist SaaS founders in obtaining a data-driven valuation for their company.
Begin with the Right Methodology for Your SaaS
Before even considering any specific figures, decide on the valuation framework that will best match the current status of your business. Finding the most appropriate model is really an important piece because it affects the perception of the resulting figure once you are in professional due diligence.
- SDE (Seller’s Discretionary Earnings): This would be best suited for any solo-operated businesses or micro-SaaS where there is less than $500k ARR. In this instance, the primary focus is on the total financial benefit to one owner.
- 收入倍数： This is the industry standard for SaaS公司 valuation for businesses with $1M+ ARR and uses an approach where the emphasis is on scale and market share. This does correlate with current profit levels.
- EBITDA 倍数： This model is typical and geared towards more mature, slower-growth companies, based on the fact that the cash flow is the primary value driver.
Questions for self-assessment:
If you were to put a halt to all of your marketing activities today, would you still be generating significant cash for an owner (SDE)?
Or is your primary value found in the proprietary technology and growth potential (Revenue Multiple)?
Free SaaS Company Valuation Readiness Checklist
Learn how to value a SaaS company, audit your financial health and prepare for due diligence with this SaaS valuation checklist.
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Revenue normalization steps
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Rule of 40
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LTV/CAC ratio benchmarks
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Legal and contract audit items
Audit and Normalize Your ARR
The basis of how you should calculate your SaaS valuation can be found in your Annual Recurring Revenue (ARR). The first step in successfully doing this is to remove the noise from your financial statements. This will allow you to extract the true recurring core.
We suggest using a SaaS ARR calculator to be sure this calculation is done properly.
- Exclude non-recurring items: You’ll need to remove any one-time migration fees or training costs.
- Calculate TTM vs. Run-Rate: Analyze your trailing twelve months (TTM) revenue with your business’s current 月度经常性收入 (MRR).
- Verify by Retention: High-value companies usually have a strong Net Revenue Retention (NRR).
Professional buyers typically apply a cut to valuations when more than 15% of their revenue comes from non-recurring or from any professional services.
Free SaaS Company Valuation Readiness Checklist
Learn how to value a SaaS company, audit your financial health and prepare for due diligence with this SaaS valuation checklist.
-
Revenue normalization steps
-
Rule of 40
-
LTV/CAC ratio benchmarks
-
Legal and contract audit items
Determine Your Valuation Multiple
After you have validated your revenue, it is time to select your multiplier. It’s important to know that this is considered to be the most variable piece when considering how to value a SaaS company.
- Market Baseline: Private SaaS multiples typically fall in a range between 4x and 8x ARR.
- The Growth Factor: By all reputable industry benchmarks and standards, SaaS with a high growth rate will receive multiples that are close to double those of stagnant firms.
- The Churn Impact: Unsurprisingly, a high 客户流失率 reduces the multiple by about 1x–2x.
ConvertKit (now known as Kit) practiced transparency by using their real metrics to clearly prove how having a focused niche can produce high capital efficiency. By reaching approximately $30M ARR with strong retention, they were able to command a premium multiple compared to those generalist products with volatile churn.
Free SaaS Company Valuation Readiness Checklist
Learn how to value a SaaS company, audit your financial health and prepare for due diligence with this SaaS valuation checklist.
-
Revenue normalization steps
-
Rule of 40
-
LTV/CAC ratio benchmarks
-
Legal and contract audit items
Employ the "Rule of 40" and Efficiency Metrics
This step significantly affects the classification of your product and has the potential to take it from average to a top tier.
计算:
|
Annual Growth Rate (%) + Profit Margin (%) |
Benchmark: A score of 40 is the standard for high-performing SaaS.
使用一个 CLTV/CAC ratio calculator to check efficiency. A ratio of 3:1 is standard.
A “bottom-up” acquisition model was utilized by Expensify, which correlates with their 客户获取成本（CAC）. This efficiency corresponds with the maintenance of their valuation during periods of market volatility.
If your Rule of 40 score is below 20, investors may prioritize a valuation based on 净消耗率 and cash runway.
Free SaaS Company Valuation Readiness Checklist
Learn how to value a SaaS company, audit your financial health and prepare for due diligence with this SaaS valuation checklist.
-
Revenue normalization steps
-
Rule of 40
-
LTV/CAC ratio benchmarks
-
Legal and contract audit items
Conduct a Comparative Market Analysis
Research some recent exits for similar companies in your specific SaaS type.
Vertical SaaS: Will usually have higher multiples due to lower competition and high stickiness.
Horizontal SaaS: On average has 5x–7x higher multiples due to broader market competition risks.
Data Point: Industry reports indicate that companies with a high 客户留存率 maintain valuations 50% higher than those with average retention in the same sector.
- 1. Your valuation feels low because you just launched a major feature.
解决方案: Highlight your 潜在客户速度率 (LVR) to prove that future revenue will accelerate.
- 2. Inconsistent data is causing friction during due diligence.
解决方案: Utilize automated 订阅管理 that will provide real-time, verifiable financial reporting.
结论
To successfully value a SaaS company, it’s imperative that the correct methodology is identified. Also, normalize your ARR, and apply a multiple based on the Rule of 40 theory and on market benchmarks. Being cautious and intentional in these steps prevents the collapse of deals during the due diligence phase.
At the end of the day, knowledge of SaaS valuation methods may provide a data-supported perspective during negotiations.
常见问题解答
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The industry standard is the Revenue Multiple method. In the current market, most private SaaS companies see multiples between 5x and 8x, depending heavily on their growth rate and retention.
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The Rule of 40 is a benchmark stating that your growth rate plus profit margin should equal 40% or higher. Companies exceeding this threshold are viewed as high-efficiency “Centaurs,” often commanding premium SaaS valuation multiples above 10x.
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High-growth startups typically use ARR because it highlights future potential, whereas mature companies with stable revenue often use EBITDA. If your revenue is below $2M or your growth is stalling, buyers may pivot toward EBITDA or Seller’s Discretionary Earnings (SDE) models.
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To secure a top-tier valuation, a goal for an annual churn rate below 5–10% is appropriate. Investors look for a Net Revenue Retention (NRR) of over 110%, which says your existing customers are spending more over time.
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In 2025, Vertical AI has added approximately a 2x–5x premium, compared to a multiple with standard software. Alternatively, simple wrappers around third-party models are experiencing valuations discounted due to higher customer acquisition costs and low defensibility.
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Trailing Twelve Months (TTM) reflects your actual revenue over the past year, whereas Run-Rate (current MRR x 12) predicts future revenue. Investors usually use Run-Rate for fast-growing startups, but validate it against TTM to be consistent with revenue recognition.
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Yes, it certainly can. This is because companies based in North America usually see the highest multiples (8x–15x) due to market maturity. European firms tend to fall in the range of 5x–10x, while companies located in emerging markets are looking at about a 20% “liquidity discount” depending on their global payment infrastructure.
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