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Valuing a SaaS business under $1M ARR involves calculating seller's discretionary earnings and identifying a reasonable multiple.
When it comes time to part ways with your business, you may look to sell it to someone else. One of the first questions that comes to mind is “how much is my SaaS business worth?”. You might turn to public SaaS revenue multiples. However, multi-billion dollar enterprises with thousands of employees do not serve as particularly good indicators for small, potentially bootstrapped SaaS businesses. So how do you value your SaaS business doing under $1,000,000 in ARR?
Smaller SaaS businesses are valued based on a multiple of seller’s discretionary earnings (SDE), or the profit left after all business-critical costs and expenses have been deducted from gross income. It’s important to mention that your owner salary would be added back to arrive at SDE.
Once you have calculated your SDE for the last twelve months, you need to identify a reasonable multiple, which could fall within a range of 3 to 6. Defining the multiple to use involves knowing what to look for.
Last updated June 2026.
What factors are important when valuing a SaaS business?
Why are growth and stability crucial for a SaaS business?
Year-over-year and month-over-month growth are key to a strong multiple.
Year-over-year and month-over-month growth are the most important factors to a strong multiple. As an owner, it’s important to focus on five growth levers. These are: lead generation, conversion optimization, upgrades and upsells, pricing optimization, and churn reduction. Slow growing businesses do well in one or two of these areas. The fastest growing companies demonstrate outstanding results in all five.
Month-over-month revenue variance will impact your multiple as well. Even if your business is growing year-over-year, if it relies on fluctuating sales of annual subscription plans or unpredictable onboarding of large contracts, buyers will discount when comparing to a business predictably producing 100% in monthly recurring revenue (MRR) with a lower volatility in new contracts.
How does content and SEO impact SaaS business valuation?
It is worth noting that a higher Moz Domain Authority is correlated with higher SaaS multiples. Search Engine Optimization (SEO) has historically been the cornerstone for success of E-Commerce and Content sites, while many SaaS owners neglect it in favor of other traffic generation methods. Nonetheless, SaaS owners who successfully deploy a solid content and SEO strategy are rewarded handsomely for their efforts.
How does the time required to manage a SaaS business affect its valuation?
The amount of your time that is necessary to keep your business afloat represents the strongest negative correlation for the valuation multiple. A business that requires 40 hours of weekly input into management, development, technical onboarding, support or other high-value areas is a tough sell. How many hours per week is reasonable?
Assuming you don’t have a hired general manager on payroll, your SaaS business should run smoothly on anywhere from two to fifteen hours of your time every week. A business with less than two hours invested weekly is at risk of being perceived as neglected by the buyers. A business with more than fifteen hours may be perceived as selling a job as much as a business.
What factors are less important when valuing a SaaS business?
Is average revenue per user a good predictor of SaaS business valuation?
Average revenue per user (ARPU) is not a good predictor of the selling multiple. Trends in ARPU do eventually find their way onto the income statement and, by extension, the valuation. Nonetheless, comparing one business’ ARPU to the other tells you very little about their respective performance. Some buyers prefer low-touch B2C businesses with <$10 monthly ARPU. Others prefer enterprise software with ARPU in the thousands of dollars per month. Both run the multiple range.
Is age or speed more important for a SaaS business's valuation?
Age is less important than speed for SaaS businesses, with metrics like churn rates mattering more.
Age is not as important to selling multiple as many may believe. For e-commerce businesses, old age is critical. Years of successful operations tend to be a great indicator of the market fit. For SaaS, market fit can be demonstrated in a much shorter timeframe, using metrics like customer churn and visitor-to-signup conversion rates. Unfortunately, SaaS businesses that offer primarily annual subscription plans do not benefit from this acceleration. For monthly subscriptions model, each month provides a new data point on renewal rates and expected customer lifetime value (LTV). For annually recurring subscriptions, this data collection is slowed down significantly.
What other factors should be considered when valuing a SaaS business?
Why are transferability and transparency important for a SaaS business's valuation?
While the above are factors that directly impact the valuation of a business, it is always important to consider potential roadblocks to a smooth transfer. Undocumented code, sloppy financials, non-transferable agreements, competing interests, and ongoing legal issues may have effects ranging from a slowdown to a complete derailing of a potential sale. Moreover, be careful when choosing a payment processor. Some processors, like PayPal, do not allow the transfer of account ownership across borders. This limits the buyer pool and, by extension, the market demand. Going with a modern payment processor like Stripe allows transfer of the account, complete with all recurring subscriptions.
Knowing your numbers is one of the best ways to ensure a smooth presale and sale process for your business. Using Baremetrics will enable you to track key metrics you need to accurately value your SaaS business.
Written by Thomas Smale, from FE International. FE International provides M&A advisory services for mid-market SaaS, e-commerce and content businesses. The company has become the pre-eminent adviser and valuation thought-leader in the industry.
Frequently asked questions
How is a SaaS business valued?
A SaaS business is valued based on a multiple of seller's discretionary earnings, which is the profit left after deducting business-critical costs and expenses from gross income.
What is the range of multiples for valuing a SaaS business?
The range of multiples for valuing a SaaS business could fall within 3 to 6, depending on various factors such as growth and stability.
Why are public SaaS revenue multiples not suitable for small SaaS businesses?
Public SaaS revenue multiples are not suitable for small SaaS businesses because they are based on multi-billion dollar enterprises with thousands of employees, which are not comparable to small, potentially bootstrapped SaaS businesses.
How does the time required to manage a SaaS business affect its valuation?
The amount of time required to manage a SaaS business has a negative correlation with its valuation, with businesses requiring more time being less valuable.
What are some key metrics to track for accurate SaaS business valuation?
Key metrics to track for accurate SaaS business valuation include customer churn, visitor-to-signup conversion rates, and renewal rates, which can be tracked using tools like Baremetrics.
