How to Value a SaaS Business in 2026

SaaS valuations are different from traditional businesses. Instead of earnings multiples, buyers pay multiples of revenue — sometimes very high multiples.

But SaaS valuations have come back to earth since the 2021 peak. Here's what you need to know about selling a software business in 2026.

The Current Market

After peaking at crazy levels in 2021, SaaS multiples have normalized:

• Public SaaS companies: 6-7x revenue median
• Private SaaS (venture-backed): 4-6x revenue
• Private SaaS (bootstrapped): 2-5x revenue
• Small SaaS (under $1M ARR): 2-4x profit (SDE), not revenue

The "grow at all costs" era is over. Buyers now want to see a path to profitability, not just growth.

Revenue vs. Profit Multiples

Here's the key distinction most SaaS founders miss:

Above $1M ARR: Buyers typically pay revenue multiples. Your growth rate, churn, and margin profile determine the multiple.

Below $1M ARR: Buyers usually pay profit multiples (2-4x SDE). At this size, the business is often owner-operated, and buyers are paying for cash flow, not growth potential.

This is a critical difference. A $500K ARR SaaS with $100K profit might sell for $300-400K (3-4x profit), not $1.5-2.5M (3-5x revenue).

What Drives SaaS Multiples

ARR growth rate is the biggest factor. Buyers pay more for growth:

• Growing 50%+ annually: Premium multiples (6x+ revenue)
• Growing 20-50%: Good multiples (4-6x revenue)
• Growing under 20%: Lower multiples (3-4x revenue)
• Flat or declining: Profit multiple instead

Net Revenue Retention (NRR) measures expansion vs. churn within existing customers. NRR above 100% means customers grow over time even without new sales.

• NRR 120%+: Premium multiples
• NRR 100-120%: Good multiples
• NRR under 100%: Discounted multiples

Gross margin affects value. True SaaS should have 70-80%+ gross margins. Lower margins (hosting costs, support costs) reduce multiples.

Churn rate is a killer. Monthly churn above 3-4% destroys value — you're replacing your customer base every 2-3 years.

Valuation by Size

$100K - $500K ARR:

• Likely buyers: Individuals, small acquirers, indie hackers
• Typical multiple: 2-4x annual profit (SDE)
• Valuation range: $50K - $300K

$500K - $2M ARR:

• Likely buyers: Small PE, strategic acquirers, search funds
• Typical multiple: 3-5x revenue (if growing) or 3-4x profit
• Valuation range: $1M - $8M

$2M - $10M ARR:

• Likely buyers: Growth PE, strategic acquirers
• Typical multiple: 4-7x revenue depending on metrics
• Valuation range: $8M - $50M+

$10M+ ARR:

• Likely buyers: Large PE, strategics, potentially IPO
• Typical multiple: 5-10x+ revenue for strong performers
• Valuation range: $50M+

The Rule of 40

The "Rule of 40" is a benchmark combining growth and profitability:

Growth Rate + Profit Margin = 40+

Examples:

• 40% growth + 0% margin = 40 ✓
• 20% growth + 20% margin = 40 ✓
• 10% growth + 10% margin = 20 ✗

Businesses scoring above 40 command premium multiples. The idea is you can trade off growth for profitability — both are valuable.

What Buyers Care About in 2026

Profitability or clear path to it. The days of "we'll figure out margins later" are over. Show you can be profitable.

Capital efficiency. How much did you spend to get here? Bootstrapped businesses with good metrics often fetch better terms than VC-backed competitors.

Defensibility. What's your moat? Switching costs, network effects, proprietary data, deep integrations. "We're better" isn't enough.

Customer concentration. If your top customer is 20%+ of ARR, that's a risk. Diversification matters.

Technical foundation. Technical debt affects value. Buyers will assess code quality, architecture, scalability.

Common Mistakes

Overvaluing based on peak revenue. If you hit $1M ARR but churn brought you back to $700K, buyers value the $700K.

Ignoring profitability. For smaller SaaS, buyers pay for cash flow. Reinvesting everything into growth doesn't help if you're selling.

Waiting too long. SaaS businesses can decline quickly. Better to sell when growth is strong than after it stalls.

Not tracking the right metrics. If you can't produce accurate MRR, churn, and cohort data, you'll struggle in due diligence.

Preparing to Sell

Clean up your metrics. Know your MRR, ARR, churn (logo and revenue), LTV, CAC, NRR. Have cohort data available.

Reduce owner dependence. If you're doing all the sales, support, and development, the business is riskier for a buyer.

Document everything. Technical documentation, processes, customer success playbooks. Make the business transferable.

Address technical debt. You don't need to fix everything, but understand what you have and be prepared to discuss it.

Consider timing. Sell when metrics are strong and trending up, not after growth stalls.

Where to Sell

Marketplaces: Flippa, Acquire.com, MicroAcquire. Good for smaller SaaS ($100K-$2M range).

Brokers: FE International, Quiet Light. Useful for $1M-$20M range.

Investment banks: For $10M+ deals.

Direct outreach: Strategic acquirers in your space. Often the best outcomes but requires relationship building.

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Want to see where your SaaS business fits? Check the valuation guide or reach out to discuss your specific situation.