How a small SaaS business is valued.
A price is a multiple of something, adjusted for risk, and paid in a certain way. Understand all three before you compare offers.
Contents9.1How is a small SaaS valued?1 / 6
§ 9.1
How is a small SaaS valued?Profit first, then quality.
Small SaaS businesses are usually priced as a multiple of annual profit, such as seller’s discretionary earnings or EBITDA. Some buyers use a multiple of recurring revenue. The multiple moves with retention, growth, concentration and how much the business depends on its founder.
- Know which measure a multiple uses before you compare it.
- Retention and founder dependence move the number most.
- Compare offers by the cash you receive and when.
§ 9.2
Start with the base.Which profit, and how clean.
Seller’s discretionary earnings (SDE) is profit before the owner’s pay and personal expenses. It is common for businesses run by their founder. EBITDA includes the cost of paying someone to run the business.
The same business has a higher SDE than EBITDA. So an SDE multiple and an EBITDA multiple are not comparable.
Buyers then normalise the profit: they remove one-time items and add costs that will continue. Every adjustment needs evidence.
§ 9.3
What moves the multiple.Six factors.
- Factor 1
Retention
Customers who stay make future cash more certain.
- Factor 2
Growth quality
Growth from organic demand is worth more than growth bought with advertising that barely pays back.
- Factor 3
Founder dependence
If the business needs the founder every day, a buyer must pay someone else to do that work.
- Factor 4
Concentration
Revenue spread across many customers and channels carries less risk.
- Factor 5
Records
Clean, checkable records reduce uncertainty, and uncertainty lowers prices.
- Factor 6
Platform risk
Dependence on one app store, search engine or marketplace adds risk.
§ 9.4
Compare offers by what you receive.The headline is only the start.
| What it is | What to check | |
|---|---|---|
| Cash at close | The part paid when ownership changes. | This is the most certain part. Compare it first. |
| Deferred payment | Part of the price paid later, on a schedule. | Who guarantees it, and what happens if the buyer cannot pay? |
| Earn-out | Part of the price paid only if targets are met. | Who controls the results that decide it? |
| Escrow or holdback | Part of the price kept back for claims. | How much, for how long, and for which claims? |
| Working capital | An adjustment for short-term assets and liabilities. | How are prepaid annual plans treated? |
| Fees and costs | Broker, legal and accounting costs. | What remains after all fees? |
§ 9.5
How Playbook Media prices.Plainly.
We start from the cash the business generates after it pays a fair cost for the work it needs, including the work the founder does today.
A business must make sense at realistic operating costs before we count any improvement. We do not pay for improvements we have not made.
Proposed terms follow a review of commercial, technical and operational records. Our search profile is not a valuation.
§ 9.6
Founder questions.Short answers.
What multiple will I get?
There is no single answer. Multiples depend on the measure, the business and the terms. Two offers with the same multiple can pay very different amounts.
Should I use ARR or profit?
For a small, profitable business, most buyers anchor on profit. Recurring revenue is a strong signal of quality, but it is not cash.
Is the search profile an offer or a valuation?
No. The ranges are search preferences for a first subscription acquisition. Proposed terms and a transition plan follow a review of commercial, technical and operational records.
- 1This guide is general information. It is not legal, tax or financial advice. Talk to your own advisers before you sign anything. ↩
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