What Is My SaaS Business Worth?

SaaS businesses command some of the highest multiples in the small business market. The recurring revenue model, high margins, and scalability make software companies extremely attractive to buyers — from individual acquirers to PE firms to strategic acquirers.

But the range between a struggling SaaS product and a high-growth platform is enormous. Here's how valuations work.

Typical Valuation Ranges

SaaS businesses are valued primarily on Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR):

• Small SaaS (under $500K ARR, low growth): 2x to 4x ARR
• Mid-size SaaS ($500K–$3M ARR, moderate growth): 4x to 7x ARR
• Growth SaaS ($3M+ ARR, 30%+ growth): 7x to 12x+ ARR

For profitable SaaS businesses, buyers also evaluate SDE or EBITDA multiples:

• Bootstrapped, profitable SaaS: 4x to 8x SDE
• Larger profitable SaaS ($1M+ EBITDA): 8x to 15x+ EBITDA

Factors that push toward the higher end:

• ARR growth above 30% year-over-year
• Net revenue retention above 110%
• Monthly logo churn below 2%
• Gross margins above 75%
• Low customer acquisition cost relative to LTV
• Vertical-specific (deep moat in a niche)
• Low code complexity and modern tech stack

Factors that push toward the lower end:

• Flat or declining ARR
• Monthly churn above 5%
• Heavy dependence on a few large customers
• Low gross margins (below 60% — may indicate services disguised as SaaS)
• Single-threaded customer relationships (one technical founder manages everything)
• Legacy technology stack requiring significant investment

Why SaaS Commands Premium Multiples

Recurring revenue. Subscriptions renew automatically. Revenue is predictable, stackable, and compounds over time. This is the single most important factor in SaaS valuations.

High margins. Software businesses typically run 70–85% gross margins — dramatically higher than most industries. Incremental revenue drops almost entirely to the bottom line.

Scalability. Serving the next 100 customers costs a fraction of serving the first 100. The unit economics improve with scale.

Low capital requirements. No inventory, no equipment, no physical locations. The primary investment is in engineering and go-to-market.

Defensibility. Switching costs, data lock-in, integrations, and workflow dependencies make SaaS products sticky. Once embedded in a customer's operations, they're hard to replace.

Key Metrics Buyers Evaluate

Monthly Recurring Revenue (MRR) and Growth Rate

The foundation of any SaaS valuation. Buyers want to see consistent MRR growth — ideally 20–40%+ year-over-year for premium multiples.

Net Revenue Retention (NRR)

NRR measures whether existing customers are spending more (expansion) or less (contraction/churn) over time. NRR above 100% means revenue grows even without new customers. Above 110% is excellent. Below 90% is a concern.

Logo Churn

What percentage of customers cancel each month? Monthly logo churn below 2% (24% annually) is acceptable for SMB SaaS. Below 1% monthly for mid-market/enterprise.

LTV:CAC Ratio

Lifetime Value relative to Customer Acquisition Cost. Healthy SaaS businesses target LTV:CAC above 3:1. Below 2:1 suggests unsustainable customer acquisition economics.

Gross Margin

True SaaS (not services with a subscription wrapper) should have gross margins above 70%. If hosting, support, and implementation costs drive margins below 60%, buyers may reclassify the business.

Customer Concentration

No single customer should represent more than 5–10% of ARR. Concentration risk is amplified in SaaS because losing one large customer can significantly impact recurring revenue metrics.

How to Increase Your SaaS Business's Value

1. Grow ARR. Revenue growth is the dominant valuation driver. Focus on acquisition, expansion, and retention in that order.
2. Reduce churn. Every point of churn reduction compounds into higher valuations. Invest in onboarding, customer success, and product stickiness.
3. Improve net revenue retention. Upsell paths, usage-based pricing tiers, and add-on modules drive expansion revenue from existing customers.
4. Document your tech stack. Clean code, automated testing, CI/CD pipelines, and technical documentation reduce buyer risk. A codebase only the founder understands is a liability.
5. Diversify customer acquisition. Build organic channels (content, SEO, community) alongside paid acquisition. Channel diversification reduces risk.
6. Build a team. SaaS businesses run by a single technical founder face a significant valuation discount. Even hiring one engineer and one customer success person demonstrates operational maturity.

Ready to Find Out What Your SaaS Business Is Worth?

Browse the valuation multiples guide for current industry data, or schedule a free call for a confidential assessment.