SaaS businesses below $1M ARR sell on net profit, not revenue
Thomas Smale · You Won't Believe How He's Sold 350 Businesses in 6 Years, EP 254: Thomas Smale · Jun 3, 2016 · at 6:18
Thomas Smale of FE International explains why micro-SaaS businesses are valued on trailing net profit rather than top-line forward ARR multiples.
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“So that will definitely apply where a business is doing over a million ARR, but on smaller businesses we deal with, so our average deal size is around 250,000. For deals at that level, there just isn't the scale, so buyers don't tend to pay a multiple of revenue. Once you get above a million ARR, then absolutely you're correct. Multiples in the SaaS space tend to be Off the ARR, forward looking but for smaller businesses where they haven't quite hit that critical mass.”
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