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SaaS valuation calculator
The valuation process for a SaaS business can be complex, usually considering various factors unique to the industry. In the below calculator, only Annual Recurring Revenue and Growth rate are factored into your valuation.
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SaaS valuation calculator FAQs
We answer some of the most frequently asked questions about SaaS businesses.
There are multiple methods by which you can calculate a valuation for your SaaS business. Let’s get into a few of those below.
Multiple of Recurring Revenue = This method involves applying a multiple to the company’s recurring revenue, such as Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR). The multiple is often based on industry benchmarks or the company’s growth, profitability, and other factors.
Net Profit Multiple = Some investors use the net profit (after all expenses) and apply a multiple to calculate the valuation.
Market Multiples = Valuation can be derived by comparing the SaaS company to similar publicly traded companies or recent transactions in the industry. This may involve using metrics like the Price-to-Earnings (P/E) ratio.
For our calculator above, we used David Cumming’s formula for SaaS valuation:
SaaS valuation = 2 x ARR + ARR x (1+ 2.5 x Growth Rate)
The Rule of 40 is a metric commonly used to evaluate the balance between a SaaS company’s growth and profitability. The rule is expressed as the sum of the company’s growth rate and profitability margin, and the goal is for this sum to be equal to or greater than 40%.
The formula for the Rule of 40 is as follows:
Rule of 40 = Revenue Growth Rate + Profit Margin
The Rule of 72 is a formula used to estimate the number of years it takes for an investment to double in value, given a fixed annual rate of return. The formula for the Rule of 72 is as follows:
Years to Double = 72 / Annual Return Rate (ARR)
Return on Investment is a metric that allows you to quantify the success of a campaign, product or strategy as a percentage. The formula for ROI is:
Return on Investment = (Net Profit / Investment Cost) * 100