--- title: "SaaS valuation multiples: how revenue multiples work and what moves them" description: "How EV/revenue and EV/ARR multiples are calculated, worked through on two hypothetical companies and one real deal from filings, and the factors that move a multiple." canonical: "https://saascron.com/saas-valuation-multiples/" language: "en-US" author: "Ricardo Machado" author_url: "https://saascron.com/author/ricardo-machado/" published: "2026-10-22T07:00:00-04:00" updated: "2026-10-22T07:00:00-04:00" category: "Metrics & Pricing" tags: ["Valuation", "Revenue multiple", "ARR", "Mergers and acquisitions"] --- # SaaS valuation multiples: how revenue multiples work and what moves them > How EV/revenue and EV/ARR multiples are calculated, worked through on two hypothetical companies and one real deal from filings, and the factors that move a multiple. You read that a software company sold for "five times revenue", and you want to know what that means for your own company, or for one you are thinking of investing in. You also suspect that two people quoting a multiple are not always dividing the same numbers. They often are not, and the difference can move a valuation by millions. A SaaS valuation multiple is the price of a company divided by a measure of its size, most often revenue or annual recurring revenue (ARR). It is a shorthand for comparing companies of different sizes. If SaaS itself is new to you, start with [What is SaaS?](https://saascron.com/what-is-saas/). ## A revenue multiple in plain terms Think of houses priced per square foot. Two houses of the same size can sell for very different prices because of the street, the school district and the state of the roof. The price per square foot lets you compare them quickly. It does not explain why one is worth more. A revenue multiple does the same job for companies: it summarizes the price, and the reasons sit elsewhere, in growth, retention and margins. Three definitions come first: - **Equity value:** what the shares are worth, the share price times the number of shares, or the price paid for all of them in a sale. - **Enterprise value (EV):** equity value plus debt minus cash. It is the price of the business itself, whoever finances it. - **ARR (annual recurring revenue):** the yearly value of active subscriptions at a point in time. Revenue, by contrast, is what was recognized over a period and can include services and one-time fees. ## The formulas The common multiples divide enterprise value by a size measure: 1. **EV / revenue (trailing):** enterprise value divided by revenue over the last 12 months or the last fiscal year. 2. **EV / revenue (forward):** enterprise value divided by expected revenue for the next 12 months. 3. **EV / ARR:** enterprise value divided by current ARR, used often for private SaaS companies. 4. **EV / EBITDA:** enterprise value divided by earnings before interest, taxes, depreciation and amortization. It only works for companies with positive earnings, which many growing SaaS companies do not have. Use enterprise value, not equity value, on top. Revenue belongs to the whole business, whether it is financed by shareholders or by lenders, so the price you divide must include both. ## Worked example: two companies with the same ARR **Example:** two labeled hypothetical companies, each with $10 million of ARR. | Item | Company A (fast growth) | Company B (slow growth) | |---|---|---| | ARR today | $10.0M | $10.0M | | ARR growth, next 12 months | 40% | 10% | | Equity value | $60.0M | $28.0M | | Debt | $5.0M | $4.0M | | Cash | $15.0M | $2.0M | | Enterprise value | $60.0M + $5.0M - $15.0M = $50.0M | $28.0M + $4.0M - $2.0M = $30.0M | | EV / ARR today | $50.0M / $10.0M = 5.0x | $30.0M / $10.0M = 3.0x | | ARR in 12 months | $10.0M x 1.40 = $14.0M | $10.0M x 1.10 = $11.0M | | EV / forward ARR | $50.0M / $14.0M = 3.6x | $30.0M / $11.0M = 2.7x | Read the table from top to bottom. Same ARR, different prices. Company A's higher multiple is mostly paying for growth: on next year's ARR its multiple falls from 5.0x to 3.6x. Also look at equity against enterprise value. Company A's equity value of $60.0M divided by ARR gives 6.0x, a full turn higher than its EV multiple, because A holds $10.0M more cash than debt. Quote equity over revenue as if it were EV over revenue, and your comparison is wrong before it starts. ## How much one turn is worth A "turn" is one point of multiple. On a company with $10 million of ARR, each turn is $10 million of enterprise value. For Company A, whose cash exceeds its debt by $10.0M, the shareholders' value is enterprise value plus that $10.0M. | EV / ARR | Enterprise value ($10.0M ARR) | Equity value for Company A (EV + $10.0M net cash) | |---|---|---| | 3.0x | $30.0M | $40.0M | | 5.0x | $50.0M | $60.0M | | 8.0x | $80.0M | $90.0M | The jump from 3.0x to 8.0x more than doubles the equity value, from $40.0M to $90.0M, with no change in ARR. That is why the factors behind the multiple matter more than the multiple itself. ## A real deal, with the arithmetic shown Public filings let you rebuild a multiple yourself. In May 2025, Salesforce agreed to acquire Informatica. Salesforce's quarterly report on Form 10-Q states that Informatica's Class A and Class B-1 holders would receive $25 in cash per share. It adds that the transaction "represents an equity value of approximately $8 billion", net of the Informatica shares Salesforce already held ([Salesforce Form 10-Q, quarter ended July 31, 2025](https://www.sec.gov/Archives/edgar/data/1108524/000110852425000088/crm-20250731.htm)). Informatica's results for fiscal 2024, filed with the SEC, give the denominators ([Informatica Q4 and full-year 2024 results, Exhibit 99.1](https://www.sec.gov/Archives/edgar/data/0001868778/000186877825000004/infa-2024q4x8k_ex991.htm)): - Total revenue for 2024: $1,640.0 million. - Total ARR at December 31, 2024: $1,725.5 million. - Net debt at December 31, 2024: $1,823 million term loan minus $1,232 million of cash and short-term investments = $591 million. **Example:** an approximate multiple from those figures. - Enterprise value: $8,000M equity + $591M net debt = $8,591M. - EV / 2024 revenue: $8,591M / $1,640.0M = 5.2x. - EV / ARR: $8,591M / $1,725.5M = 5.0x. - Equity value / revenue, for comparison: $8,000M / $1,640.0M = 4.9x. Treat these as approximations. The equity value is rounded in the filing and excludes the shares Salesforce already owned, and the balance sheet is from December 2024, five months before the agreement. This is one deal's price, not a benchmark for the market or for your company. ## What moves a SaaS multiple The multiple summarizes what buyers believe about future cash. These factors explain most of it: - **Growth.** Faster ARR growth means more revenue in later years, as Company A shows. - **Retention.** Net revenue retention above 100% means existing customers grow on their own. Low retention means growth has to be bought again each year. - **Gross margin.** More of each dollar is left after hosting and support. - **Profitability.** A common heuristic, the Rule of 40, adds the growth rate and the profit margin. In two labeled hypotheticals, 40% growth with a -5% free cash flow margin and 10% growth with a 25% margin both score 35. The score is the same; the businesses are not. - **Revenue quality.** Recurring subscription revenue is more predictable than services and one-time fees, which is why EV / ARR and EV / revenue can differ. - **Size and market conditions.** Buyers price scale and the cost of borrowing at the moment of the deal, and both change outside your control. For the retention and unit economics behind these factors, see [LTV in SaaS](https://saascron.com/saas-ltv/) and [the SaaS business model](https://saascron.com/saas-business-model/). For the share of subscription revenue at five large public companies, see [What is a SaaS company?](https://saascron.com/saas-company/). ## Common mistakes 1. **Dividing equity value by revenue and calling it a revenue multiple.** In the example, Company A shows 6.0x on equity and 5.0x on enterprise value. Why it happens: the share price is the number in the headline. Instead: compute EV first, then divide. 2. **Mixing trailing and forward multiples.** A forward multiple looks lower for a growing company. Why it happens: reports do not always say which one they quote. Instead: label every multiple with its denominator and period. 3. **Applying a public company's multiple to a small private one.** Public shares can be sold any day; a small private stake cannot, and its size and risk differ. Why it happens: public multiples are the only ones easy to find. Instead: use them as context and discount for size and liquidity, with the reason stated. 4. **Counting services and one-time fees as ARR.** It raises the denominator and flatters the business. Why it happens: total revenue is easier to pull from the accounts. Instead: count only active recurring subscriptions in ARR. ## Sources - Salesforce, [Form 10-Q for the quarter ended July 31, 2025](https://www.sec.gov/Archives/edgar/data/1108524/000110852425000088/crm-20250731.htm), checked October 2026. - Informatica, [Fourth quarter and full-year 2024 results, Form 8-K Exhibit 99.1](https://www.sec.gov/Archives/edgar/data/0001868778/000186877825000004/infa-2024q4x8k_ex991.htm), checked October 2026. ## In three sentences A SaaS revenue multiple is enterprise value (equity plus debt minus cash) divided by revenue or ARR, and it must say which denominator and period it uses. Two hypothetical companies with $10 million of ARR are worth 5.0x and 3.0x because one grows 40% a year and the other 10%, and Informatica's filings give about 5.2x revenue. Compute EV yourself, label every multiple and look at growth, retention and margins to explain it. --- Canonical: