Loading...
Answers
MenuI'm trying to compute a future value for my SaaS company for my financial projections. Can anyone help me find what to use as an earnings multiple?
I'm seeing in differnt articles on the Internet that my earnings multiple could be anywhere from 3-9 times revenue. How can I get a better defined number? For example, if my business was making 1 million in revenue and I sold it off at a 5x multiple it would be worth 5 million (excluding discounts). I just don't know what multiplier to use.
Answers
The answer really depends on many factors. You are correct that many SaaS companies valuation falls into the range of 3 to 9 times revenue. I would say that companies that have a very high net income % (25%+) would fall more to the range of 7x-9x and companies that are closer to breakeven or low single digit net income percentages would fall to on the lower range.
Also you need think look at how your company will be viewed from a competitive perspective. If you dominate your market but many many new competitors are entering that may discount the overall valuation. But if you are increasing market share within new market with little or no competition the future looks brighter from a valuation / cash flow perspective due to lower overall cost per acquisition of new customers.
Hope this help. Let me know if you need anymore help.
You will need to provide more information in order to try and assess a reasonable value. The valuation metric and stage of your company will both be key drivers in trying to assess the value of your business. Earlier-stage SaaS models will typically be valued on a revenue multiple basis, but these valuations are more of an art than a science. Other factors include industry/sector-related KPIs, recent funding activity of similar companies and even geography. When you move into more mature SaaS models, EBITDA becomes a much bigger part of the equation. Happy to discuss further if you want to provide additional information.
It depends on what vertical you are in. There are pointers available by industry. You can either define that future value based on internal data or external data. Either way, it depends on what you think you will be worth - financial 'thumb suck' models will only get you so far...
Related Questions
-
What will be the pros and cons of equity crowdfunding? Will crowdfunding give a startup a higher valuation? How will valuations be determined?
After shepherding 300 equity crowdfunding raises through our platform I'd say all of them have a higher valuation. Reason is it is the entrepreneur that is calling the shots. It is the entrepreneurs offer on their terms on an equity crowdfunding platform. Once you get outside investors involved shaping the deal the valuation will most certainly go down. Agreed it may then be more realistic as everyone believes their company is more valuable than it is. My advice? Treat early investors fairly. Money is the lubricant to get your idea into reality. Give them a fair share of the business and they will reinvest when need be.PN
-
What are the pros/ cons of outsourcing app development vs. building an internal development team? Would this affect the value of the company?
Don't Outsource. Period. While there are big drawbacks with outsourcing related to building internal expertise the real reason I would never outsource at your stage is the need for speed and flexibility. Per your description, you are an early stage start-up with a MVP that is gathering data. Congratulations as that is a big accomplishment! However, you inevitably have a ton to learn about what your prospective customers need most and what customers deserve your attention most. The means you will be tweaking your product constantly for the foreseeable future and having to submit ideas to an outsourced team, make sure they understand what you want, wait for the new feature to be scheduled, etc is just too slow and too expensive. You should have your developers literally sitting next to you and (if you have one besides yourself) your product person so you can quickly and constantly share information. Good luck! You are in for a fun ride...GH
-
Share of Market calculation. TAM, SAM and SOM?
SOM refers to the portion of the market that your business COULD actually capture, as you stated: "[the] % [you] can realistically achieve from the SAM." Let's use an analogy to break this down - and pretend you are talking about fishing instead of project management software. TAM refers to all the fish (that manage projects) in the sea. SAM are all the fish (that manage projects) within casting range of the dock you fish from (ie your solution is viable for them). SOM are the number of fish (that manage projects) you can reasonably catch within the amounts of time, energy, and bait you can allocate to fishing. The question within a question you ask about guidelines on believability is a great one. And, while I don't have a guideline or benchmark to share, I can confirm your instinct; ensuring that your projected SOM is reasonable is absolutely critical. The best way to project this is by having at least some of the equation variables grounded in reality - ie, actually catching some fish. If you can show how much it costs to acquire a customer, how much it costs to service that customer, and how much you'll make from that customer over a lifetime, you've got some great empirical evidence to show how you'll achieve growth within your SOM. I don't think of SOM as a target - it is rather the theoretical maximum number of customers or revenue I can achieve within the (sub)universe where my product or service adds value. In the end - the number is important - but not as important as how you present it, and how you'll approach it with your product. As an investor, you want to see more than just the answer - you want the thought process behind the answer. Was the founder thoughtful in their approach, did they look beyond the obvious while remaining pragmatic? Do they understand clearly why the SAM (macro-environment) and SOM (micro-environment) break out of the TAM in the proportions they've listed? More than happy to dive deeper on this.RR
-
Does anyone know of a good SaaS financial projection template for excel/apple numbers?
Here is a link to a basic model - http://monetizepros.com/tools/template-library/subscription-revenue-model-spreadsheet/ Depending on the purpose of the model you could get much much more elaborate or simpler. This base model will help you to understand size of the prize. But if you want to develop an end to end profitability model (Revenue, Gross Margin, Selling & General Administrative Costs, Taxes) I would suggest working with financial analyst. You biggest drivers (inputs) on a SaaS model will be CAC (Customer Acquisition Cost, Average Selling Price / Monthly Plan Cost, Customer Churn(How many people cancel their plans month to month), & Cost to serve If you can nail down them with solid backup data on your assumption that will make thing a lot simpler. Let me know if you need any help. I spent 7 years at a Fortune 100 company as a Sr. Financial Analyst.BD
-
How did WhatsApp go from a valuation of $1.5 billion in Feb 2013 to $19 billion in Feb 2014?
In short, someone was willing to pay $16bn, therefore it's worth $16bn. Trying to tie intrinsic value to private companies is tough, and doesn't follow a logical path. If you look at Facebook's angle, it becomes pretty clear: When you have 1 billion users, but still want to grow, you have to pay for it. FB looked at the WhatsApp acquisition purely from a user acquisition perspective, they paid $45 per user, which is a justifiable fee on their end. What makes it crazy is there were a lot of users involved. Because Facebook has become a mobile app company, and WhatsApp adds to the company portfolio, it makes long-term sense. Additionally, much of WhatsApps user base was international, which is a huge untapped chunk of the world for Facebook. Acquiring WhatsApp allowed FB to make a big international splash in no time.MN
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.