Learn more about strategy with this collection
Conducting market research
Analyzing data to make informed decisions
Developing a product roadmap
2. Sustainability
Scaling your revenue (MRR) is great, but it needs to be done efficiently.
A business with high MRR won’t be worth as much if the churn rate is through the roof and your retention rate is poor. Buyers pay attention to your LTV, churn rate, and conversion rate optimization.
Investors will also look at how efficient your operations are at acquiring new leads. Organic lead generation is highly attractive because there are no expenses involved; if you have other customer acquisition channels (CACs), the conversion rates will indicate whether these marketing channels are worth maintaining.
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It’s a Valuable Asset
Whether you created your SaaS product to help solve a problem you had or because you wanted some extra income, the truth is that your SaaS business is a valuable asset.
Whether you’re an early-stage founder or you’ve built up an established B2B SaaS business, it's crucial to understand how ...
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EBITDA for Businesses Valued Above $5 Million
Businesses that make over $5 million in ARR will likely use EBITDA, as the business will have a high growth velocity and a more fleshed-out infrastructure.
The owners tend to be thought leaders in their industry and operations are developed with department heads and teams working under the...
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1. Transferability
Investors look for businesses that can be easily transferred. To prepare your business for a sale, focus on making the transition as seamless as possible. Payment processing can cause huge headaches for buyers if the account can’t be transferred.
Payment processing aside, you’ll need to do...
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Other Factors That Affect the Sales Multiple
- Competition - is there enough differentiation from existing software companies?
- Product lifecycle - does your product need any major updates to stay relevant?
- Technical knowledge - does the new owner require deep technical programming knowledge to be a...
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3. Scalability
The most exciting prospect of SaaS businesses is their room for growth.
Buyers will be looking at how scalable your business is based on a number of factors, such as the LTV/CAC ratio.
A low LTV/CAC ratio may indicate that more capital is needed than expected to scale a business; on t...
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The Three Key Elements of Attractive Assets
No matter which valuation formula is used, investors look for proof of these three characteristics in a business:
- Transferability
- Sustainability
- Scalability
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Valuing SaaS Companies Based on SDE, EBITDA, and MRR
There are three ways to look at SaaS valuations:
- Seller discretionary earnings (SDE)
- Earnings before interest, taxes, depreciation, and amortization (EBITDA)
- Monthly recurring revenue (MRR)
No matter which formula you use, they boil down to how much money yo...
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SDE for Businesses Valued at Less Than $5 Million
SDE reflects how much money your business makes after all expenses are paid and any salaries are added back into the business.
The figure is one way to indicate a business’s earning potential and is often confused with EBITDA.
Businesses valued with SDE tend to earn less than $2 mil...
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MRR for Fast-Growing SaaS Companies
MRR is a popular way to value SaaS businesses because it’s a key indicator of revenue growth.
Investors prefer looking at MRR rather than ARR because annual recurring revenue doesn’t provide proof of churn.
Big SaaS brands generating high MRR can raise a lot of money during seed fundi...
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ぬ-shaped person: Passionate learner having diverse interests. Tech entrepreneur. Obsessive optimizer. Uncomfortably skeptic and curious. Suffering from tsundoku.
If you're thinking an exit strategy from your SaaS startup, you have to be prepared for it.
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