To value a SaaS business, calculate clean ARR (recurring only, excluding one-off fees and sales tax), measure growth, net and gross retention, gross margin and profitability, then choose a method: an ARR multiple for growing companies, a profit multiple for small or mature ones. Start from a current benchmark, adjust for quality and risk, cross-check with a second method, and give a range.
Key takeaways
- Start with clean ARR: recurring revenue only, excluding setup fees, services and GST or sales tax.
- Small, founder-run SaaS is usually valued on profit (SDE); growing SaaS on an ARR multiple; mature SaaS on EBITDA or cash flow.
- In September 2026 the public SaaS median was 4.2x run-rate revenue. Private companies usually trade below that.
- Adjust for growth, retention, margin, size, concentration and founder dependence. Each can move the multiple meaningfully.
- Always cross-check with a second method, and present a range, not a single number.
When I wrote The Subscription Playbook, Superhuman was valued at $825 million.
It had engineered product/market fit better than almost anyone, and I told the story of how Rahul Vohra did it. Users loved the product and paid a premium for it.
In July 2025, Grammarly announced it was acquiring Superhuman. Terms weren't disclosed. By then, Superhuman reportedly had about $35 million in annual revenue. Even against that later revenue, its 2021 valuation was about 24 times. (You can read what happened in the Superhuman case study.)
We don't know what Grammarly paid. But the story teaches the first rule of valuing a SaaS business: a valuation is a moment, not a fact. It depends on your numbers, the market at the time and who's buying.
So let's build a valuation that holds up in the 2026 market. Here's the nine-step method I'd use, with a full worked example at the end. It's general information, not financial advice.
Step 1: Calculate clean ARR
Everything starts here, and most sellers get it wrong.
| Include in ARR | Exclude from ARR |
|---|---|
| Monthly subscription fees × 12 | Setup, onboarding and implementation fees |
| Annual and multi-year subscription fees (annualized) | Consulting and custom development |
| Committed minimums on usage plans | GST, VAT and sales tax |
| Recurring add-ons | One-off usage spikes or overages you can't rely on |
| Contracts signed but not yet started (report separately) | |
| Tax refunds, grants and R&D offsets |
If your billing system reports tax-inclusive revenue, strip the tax out. If you're unsure, my guide to calculating ARR covers the edge cases. And if you bill through Stripe, the Stripe export analyser will rebuild your MRR and churn from a CSV in your browser.
Step 2: Measure the metrics a buyer will ask for
Calculate each of these for the last 12 months, and monthly if you can.
| Metric | Why it matters | A 2026 reference point |
|---|---|---|
| ARR growth | The biggest driver of the multiple | Median bootstrapped SaaS ($3M–$20M ARR): 15% |
| Net revenue retention | Does the base grow on its own? | Bootstrapped median: 103% |
| Gross revenue retention | How much leaks out? | Bootstrapped median: 91% |
| Gross margin | How much of each dollar is profit at scale? | Classic SaaS is high; AI products often lower |
| Profit or burn | Can it fund itself? | Rule of 40 is the usual shorthand |
| CAC payback | How efficiently does it grow? | Shorter is better |
| Customer concentration | Single-customer risk | No client over 10%, top five under 25% |
The reference points come from SaaS Capital's 2026 survey of bootstrapped companies, and the concentration rule from the MOATS chapter of my book.
Step 3: Normalize profit
Even if you'll be valued on revenue, buyers will look at profit. Normalize it so it shows what the business would earn under a new owner.
- SDE (seller's discretionary earnings): profit before the owner's salary and personal benefits, plus one-off and non-cash items. Used for small, owner-run businesses.
- EBITDA: earnings before interest, tax, depreciation and amortization, after paying market salaries for management. Used for larger businesses.
Common add-backs include one-off legal costs, an owner's salary above or below market, and personal expenses run through the business. Keep evidence for every one. Buyers test them all.
Step 4: Choose the right method for your size and stage
| Your business | Common primary method | Cross-check |
|---|---|---|
| Small, founder-run, under about $1M ARR | Multiple of SDE | Revenue multiple from comparable small deals |
| Growing, $1M to $20M ARR, team in place | Multiple of ARR | EBITDA multiple; simple DCF |
| Mature, profitable, slower growth | Multiple of EBITDA | DCF; ARR multiple |
| Fast-growing, venture-backed | Multiple of ARR (sometimes forward) | Burn multiple; runway |
These are common patterns, not rules. A strategic acquirer may ignore all of them and pay for what your product does for their business.
Step 5: Pick a benchmark multiple
For ARR-based valuations, start from current public data and adjust down for private company risk.
- The SaaS Capital Index median was 4.2x run-rate revenue at 30 September 2026.
- By growth: 2.3x under 10%, 4.4x at 10–20%, 5.5x at 20–30% (my analysis of the index data).
- SaaS Capital's 2025 model predicted private multiples at roughly 70–75% of the public figure.
So a private company growing 20–30% might start around 4x (5.5x × roughly 0.72). That's an extrapolation for illustration, not a quoted market price. The full data is in SaaS valuation multiples in 2026.
Step 6: Adjust for quality and risk
Now move the starting multiple up or down. These are the factors I'd score, honestly.
| Factor | Pushes the multiple up | Pushes it down |
|---|---|---|
| NRR | Above 110% | Below 100% |
| GRR / churn | Above 90%, stable cohorts | Rising churn, short customer lifetimes |
| Gross margin | High and stable | Falling, or heavy AI compute costs |
| Profitability | Rule of 40 above 20, self-funding | Large losses, short runway |
| Size | Larger ARR, more customers | Small ARR, few customers |
| Concentration | No client over 10% | One client paying a third |
| Founder dependence | Team runs sales and delivery | Founder holds every relationship |
| Moat | Switching costs, integrations, data | Easy to copy, seat-based pricing exposed to AI |
| Compliance | Clean terms and cancellation | Flows a regulator would question |
There's no formula for the size of each adjustment. That's judgment, and it's what you'll negotiate.
Get your indicative range in two minutes
Enter your ARR, growth, retention and margin into the free Subscription Business Valuation Estimator and see where you land.
Step 7: Cross-check with a second method
If your ARR multiple says $12 million, test it.
- Implied EBITDA multiple. Divide the value by normalized EBITDA. If it's 40x, ask whether your likely buyer would ever pay that. A strategic acquirer might. A private equity buyer probably won't.
- Customer base value. Annual gross profit from existing customers ÷ (annual churn + required return). This is a floor-style check on what the current base alone is worth.
- Simple DCF. Five years of cash flow plus a terminal value. Useful if the business is profitable and predictable.
If the methods disagree wildly, your assumptions need work, not your spreadsheet.
Step 8: Convert enterprise value to what you actually get
Multiples usually give enterprise value: the value of the business before cash and debt. What lands in your account is closer to equity value.
Equity value ≈ Enterprise value + Cash − Debt ± Working capital adjustments
For SaaS businesses, watch deferred revenue. Customers who prepaid annual plans are owed service the buyer will have to deliver. Some buyers treat part of that balance as debt-like and reduce the price. Agree how it's handled early.
Step 9: Present a range, not a number
A single number invites a fight. A range, with the reasons behind each end, invites a conversation.
"Between $10.5 million and $13 million, depending on how a buyer values our net retention and founder transition" is more credible than "$12 million" and gives you room to negotiate.
A full worked example
These numbers are illustrative.
Valuing a B2B SaaS company with $3.2 million ARR
The business
- Clean ARR: $3.2 million, growing 20%
- NRR 105%, GRR 90%
- Gross margin 78%
- EBITDA $320,000 (10% margin), so Rule of 40 score of 30
- Largest customer 7% of ARR; founder is CEO, sales team in place
- Cash $600,000, debt $200,000, deferred revenue $900,000
Benchmark: growth band 20–30% → public median 5.5x → private starting point about 4.0x
Adjustments (judgment):
- NRR slightly above the bootstrapped median: +0.2x
- GRR in line: 0
- Gross margin a little below classic SaaS: −0.2x
- Small scale: −0.3x
- Concentration and team: 0
Adjusted multiple: about 3.7x → enterprise value about $11.8 million Range: 3.3x to 4.1x → $10.6 million to $13.1 million
Cross-check: $11.8 million ÷ $320,000 EBITDA ≈ 37x EBITDA. Plausible for a strategic or growth buyer. A profit-focused buyer would anchor much lower, which tells you who to sell to.
To equity: add $600,000 cash, subtract $200,000 debt, and agree how the $900,000 of deferred revenue is treated. If a buyer treated half as debt-like, equity value at the midpoint would be roughly $11.75 million.
Notice how much of the final number depends on who's buying. That's why the sale process matters as much as the valuation.
Mistakes that ruin SaaS valuations
- Using 2021 multiples. The public median was 16.9x in August 2021. It was 4.2x in September 2026.
- Inflating ARR with setup fees, services or tax.
- Hiding churn behind new sales. Buyers will find it in the cohorts.
- Comparing with venture rounds. They price minority stakes, not whole businesses.
- Ignoring deferred revenue and working capital.
- Valuing a services business as SaaS. If people deliver most of the value, it's services.
- Forgetting tax. What you keep after tax is the number that matters.
For Australian founders, there are local factors on top of these, including GST, R&D refunds and the 2027 CGT changes. See valuing an Australian SaaS business.
What to do next
Work through steps 1 and 2 this week. Most founders discover something about their own business when they do. Then put your numbers into the estimator for an indicative range.
Subscription Business Valuation EstimatorEstimate a revenue multiple range from growth, retention and margin.Open the free tool →For the bigger picture, including non-software subscription businesses, start with valuing a subscription business.
Free Subscription Profit Review
Australian business owners can book a free 30-minute review with a BPAG Accountants adviser. An honest conversation about:
- whether a subscription model could work for your business
- how recurring revenue could cover your fixed costs each month
- how it could lift what your business is worth
No cost, no obligation. General information only until we understand your situation.
Frequently asked questions
What metrics do buyers ask for first?
Usually ARR and its monthly movements (new, expansion, contraction, churn), revenue growth, net and gross revenue retention, gross margin, and profit or burn. Close behind come customer concentration, CAC and payback, and cohort retention tables. If you can produce all of these from your billing data in a day, you'll look more credible than most sellers, and the process will move faster.
Should I use ARR or MRR to value my SaaS business?
Multiples are normally quoted on annual figures, so use ARR (or run-rate revenue, which is current monthly revenue times 12). MRR is the same information at monthly scale. What matters is consistency: compare your ARR multiple with benchmarks that use ARR or run-rate revenue, not trailing twelve months or next year's forecast, or you'll be comparing different things.
How do you value a SaaS business that isn't profitable?
On revenue, with heavy weight on growth, retention and how efficiently the business turns cash into new ARR. Buyers will look at your burn multiple and runway, because a business that needs funding to survive is worth less to a buyer who has to supply it. If growth is slow and losses are large, expect a low multiple or a buyer focused on your customers or technology rather than the business.
What is a DCF and do I need one?
A discounted cash flow values a business by forecasting its future cash flows and discounting them back to today at a rate that reflects risk. It's useful as a cross-check, especially for stable, profitable businesses, but it's very sensitive to growth and discount rate assumptions. For most small SaaS sellers, a market multiple plus a simple cross-check is more persuasive to buyers than an elaborate model.
How much does a professional valuation cost?
It varies with the size and complexity of the business and why you need it. A valuation for a sale negotiation can be lighter than one needed for tax, a legal dispute or a shareholder agreement. Ask for a fixed quote and a clear scope. If tax is involved, such as Australia's 2027 CGT changes, make sure the valuer understands why the valuation is needed.
General information only, current as at October 2026. It isn't legal, tax or financial advice and doesn't consider your circumstances. Speak to a qualified adviser before acting.
Talk it through with a BPAG adviser
Free for Australian business owners: a 30-minute Subscription Profit Review on whether a subscription suits your business.
Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- SaaS Capital Index, data as of 30 Sep 2026 (downloadable dataset)
- SaaS Capital, 2025 Private SaaS Company Valuations (24 Jan 2025)
- SaaS Capital, 2026 Benchmarking Metrics for Bootstrapped SaaS Companies (24 Apr 2026)
- SaaS Capital, What is a good retention rate for a private SaaS company in 2025? (18 Sep 2025)
- DestinationCRM, Grammarly to Acquire Superhuman (Jul 2025)
- David Sacks, The Burn Multiple (23 Apr 2020)
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.