What's your business worth?
Business Valuations
That’s a great question and one that’s not easily answered because there are so many variables. But this article should give you a good overview and we can always give you a custom valuation for your business. You can also check out our custom GPT Exit Advisor for an instant valuation of your business.
There are a number of factors that affect the valuation of a business. We’ll explain each one below starting from the main categories and drilling down from there so you can figure out where your business fits in.
Also, keep in mind that everything in this article relates to financial buyers. All buyers are financial buyers, meaning they make offers based on a multiple of either gross revenue or profits.
Sometimes, though, a buyer sees a benefit to acquiring a business beyond just the number. For example, they may be in a parallel or ancillary industry to yours and have an existing customer base they can immediately market your business’s products and services to. Or they may already be thinking of building your software and see a greater benefit to buying it instead. Sometimes, they might be a supplier to businesses like yours and want to move directly into retail.
In any of these cases, they become a strategic buyer and may be willing to pay more than what a purely financial buyer would, or what they would for a business they have no strategic interest in. So if you go through this article and think your business should be worth more, then you’re looking for a strategic acquirer. This is something we can also help with, but only some businesses have strategic acquisition potential. Please get in touch if you want to discuss this possibility.
Business Type
First, the type of business you own plays a big role in determining its valuation.
- Content sites (blogs, etc.) generally get the lowest multiples, ranging from 1 – 3.5x annual net profits on average.
- Ecommerce / FBA sites get slightly higher multiples, ranging from 2 – 4x annual net profits on average.
- Digital Agencies trade slightly higher still, with multiples ranging from 3 – 5x annual net profits on average.
- And SaaS business get the highest multiples, ranging from either 4 – 6x annual net profits on average, 1 – 3x ARR (annual recurring revenue) on businesses doing under $3m ARR, and 3 – 8x ARR for businesses between $3m – $10m ARR, depending on other factors.
A number of other factors determine where specific businesses fall inside this range, or if they fall outside it on either side.
Business Size
The next factor affecting valuation is the size of the business in terms of revenue and profit. Smaller businesses get multiples at the lower end of the ranges above, and bigger businesses skew to the upper end of the range.
Generally, we see multiples increases as businesses move through these ranges of annual net profits:
- Under $250K
- $250K – $500K
- $500K – $1m
- $1m – $3m
- $3m – $10m
The same size ranges of ARR apply to SaaS business multiples based on ARR.
Above $10m per year in either net profits or ARR, puts businesses in a different multiples category. Once you get to this size, you become a target for institutional buyers and the multiples can easily be 10x or higher.
Growth
As should be expected faster growing businesses get higher multiples than businesses that are flat or declining. In fact, a declining business most likely falls below the ranges listed above, if it’s sellable at all.
In general, a business should be both growing (in terms of revenue year over year) and profitable to be highly desirable and get the highest multiple. The exception to this is a fast-growing SaaS. It’s acceptable for a SaaS that’s growing more than 40% YoY to have no profit, and that’s when they trade a multiple of ARR instead.
Other Factors
A number of other factors contribute to a smaller degree to both the valuation and the sellability of a business. The following impact a case by case to some degree:
- Industry
- Competition
- Barrier to entry
- Seasonality
- Traffic sources
You can get an instant valuation here. It talks about all the factors and how to position yourself for the best results.
We get this question all the time, so we thought it made sense to write an article about it. We hope you’ve found it useful, and if you’re serious about selling your business and want to know what it’s worth, the best thing to do is say hello.
Testimonials
What our clients say
in my career you get to deal with a lot of service providers. There are the below average, the average the the above average. Then there is one category that no one talks about which is the exception. I have had the pleasure of meeting Dustin at an event. We then engaged him to source acquisition targets for us. The communication, Personal service, attention to details, availability, interaction with him and his team has been nothing short of exceptional. If ANYONE wants further in-depth conversation about the exceptional experience please reach out.
Dustin and his team at Hello Exit are simply incredible! Their expertise and support throughout the entire process of selling my company were a game changer. Dustin’s expertise and guidance throughout the entire process was invaluable. He took the time to truly understand my needs and goals, and helped me navigate every step of the way with ease. His team at Hello Exit is exceptional, and they truly go above and beyond to ensure their clients are not only satisfied, but actually excited about their exit!! I cannot recommend Hello Exit enough! Their professionalism, knowledge, and dedication to their clients are unmatched. If you’re looking for a top-notch company to help you sell your business, look no further than Hello Exit. Thank you, Dustin and team, for all that you do!
I worked with Dustin [from Hello Exit] for the sale of a business and everything went smoothly. He was very hands-on and provided a lot of guidance throughout every part of the process. He took the time to get to know my business well and was able to communicate our operation effectively to potential buyers. The sale was a success and I couldn’t have done it without him.
Dustin [from Hello Exit] was great working with me to help sell my software company. He made everything clear, was patient, never over pressured me, but kept a strong sense of urgency. I would recommend him to anyone looking to sell their business and plan on working with him again in any capacity that I can.
Dustin added tremendous value for our portfolio of companies. He made a complex sale process easier and significantly more efficient. We received 5 offers (two above ask) and were extremally happy with the outcome. As a serial trouble maker that has acquired 7 companies and sold 4 we will be using Dustin for future exits.
With Hello Exit, Dustin has built one of the best online business brokerages out there. As a buyer, Dustin’s company has continuously provided us with acquisition targets that have been very well qualified. Every opportunity has fit directly into the criteria we’ve been looking for which has saved a ton of time on due diligence. If you want to get a jump start on your acquisition pipeline, it’s easy to recommend Dustin and Hello Exit.
Dustin is one of the most knowledgable business broker out there for tech & web businesses. We used him to buy a significant business operated by 15+ employees. Our work in diligence was substantially reduced given the strong & accurate information package he provided. All questions were proactively answered, all supporting data was there and presented in the right format, and everything was accurately represented. This saved us weeks of work! In discussions & negotiations, Dustin played a fair role & helped resolved issues by understanding the issue from the perspective of both buyer & seller. With his knowledge and experience, he was able to make smart suggestions and helped everyone reach a common ground quickly. I would surely work with Dustin again. He is super!
Dustin is one of the smartest SaaS model minds in the business. We compare notes about technology, business models and how to level-up companies in today’s fast changing markets. He is on point with a great approach and I am always happy to send recommendations. Cheers, Tim
What can I say other than Dustin delivered on everything he promised… and then some. At first, I didn’t believe him when he said he would sell my agency in a few months. But he was so passionate about working together, a part of me believed he would deliver. And he did. We had 3 offers in 30 days and went under contract with the highest offer. In 3 months later we closed on the sale at the price he evaluated us on. During the entire process, his knowledge and experience helped immensely. Any time there was confusion or a hurdle that myself or the buyer had, Dustin and his team stepped in and smoothed every over. Selling a business is one of the most invigorating yet stressful experience I’ve ever went through and I’m so grateful that I picked the right broker to help me through it. I’d use him again in a heartbeat.
Dustin and his team were great to work with. They helped increase our deal flow with strategic deals. If someone is looking to increase their targeted deal flow I would definitely recommend working with Dustin.
Dustin was awesome to work with on the deal. He and team provided great support and advice all through – from initial interest discussions, negotiations, contract closure to execution. He is very prompt and proactive which sails the deal making through. He also provided great support and mediation help post transition on some key contract payout clauses, which is highly appreciated. I recommend Dustin highly to SAAS business owners and entrepreneurs.
I’ve known Dustin for over 10 years, and actually acquired a SaaS company he founded. I’ve always found Dustin to be extremely sharp, fair and honest, reasonable to deal with, and the kind of person you would want to do business with again in the future (which is rare these days). I’m currently mentoring and incubating over 150 international startup companies, and have already talked with Dustin about bringing him these businesses to broker to sell once they are profitable and solidly into their momentum phase.
Dustin is one of the best and most trustworthy SaaS advisors and brokers in the industry, and a great person! If you run a SaaS business, and Dustin contacts you, you should definitely talk to him! Even if you decide not to sell, it will be a very worthwhile and fruitful conversation.
