Guide · 3 min read ·
How small SaaS businesses are valued, and a rough way to estimate yours
Whether you are thinking of selling, raising money or just curious, one question comes up: what is my software business worth? There is no single right answer, but there are widely used ways of thinking about it. This guide explains the reasoning, how the calculator above arrives at its range and why you should treat the result as a conversation starter.
Why revenue multiples are the usual starting point
Subscription businesses are often priced as a multiple of their annual recurring revenue. A buyer is paying for a stream of future income, and recurring revenue is the most predictable kind. A business with 100,000 dollars of ARR sold at three times ARR would be priced at 300,000 dollars.
For very small businesses, especially those run by one person, buyers often look at profit instead, usually the annual earnings the owner takes home. The right method depends on size and on who is buying, which is one reason a single calculator can only ever be approximate.
What pushes the multiple up or down
Two businesses with the same revenue can be worth very different amounts. The biggest drivers are these.
- Growth: a business growing fast is worth more than a flat one.
- Churn: sticky customers make revenue more predictable and more valuable.
- Profit: a business that makes money today is safer than one that does not.
- Customer concentration: if one client is a large share of revenue, buyers pay less.
- Age and stability: a longer track record lowers the risk.
- Dependence on the founder: a business that cannot run without you is harder to sell.
How this calculator reaches its range
The tool starts from a base multiple of three times ARR. It adds to the multiple for fast growth and for low churn, and subtracts for slow growth and for high churn, then keeps the result between one and eight. The range shown is that multiple plus or minus 25 percent. The adjustments appear next to the result, so you can see exactly what moved the number and by how much.
This is deliberately simple. It uses only three inputs, and it ignores profit, concentration and the buyer. That is why it works as a first estimate and why it should never be quoted as a valuation.
What to do to raise your number
The same things that make a business healthier make it worth more. Cutting churn raises the multiple and the revenue at once. Spreading revenue across more customers removes a major discount. Documenting how the product and support run makes the business less dependent on you. Even a few months of steady growth and clean financial records can change how a buyer sees you.
What the estimate cannot tell you
A real sale price comes from negotiation between a particular buyer and seller. It reflects profit, the quality of your code, the strength of your brand, how much work the buyer must do and the state of the market that month. Market conditions change multiples a lot, so figures that were typical a few years ago may not apply today.
If you are serious about selling or raising money, talk to a broker, an advisor or an accountant with experience in software businesses. Use this calculator to go into that conversation with a rough idea, not to replace it.
Get your inputs right first
The estimate is only as good as the numbers you enter. Work out your recurring revenue with the MRR calculator and your churn with the churn calculator. If you want to grow before you sell, getting in front of new customers is the quickest lever, and a listing on CircleSaaS is a low cost place to start.