B2B SaaS Valuation Metrics Guide

Master the 17 key metrics that drive SaaS valuations in 2025.

📊 2025 Edition • Interactive Calculators • Updated Monthly

The complete guide to understanding what drives B2B SaaS valuations—from sub-$2M SDE-based exits to ARR-driven growth stories—with interactive calculators and real benchmarks.

Use Valuation Calculators Explore 17 Key Metrics
17
Key Metrics
4.8x
Avg ARR Multiple
40%
Rule of 40
3-10x
SDE Multiple (<$2M ARR)

Quick Answer: What Determines SaaS Valuation?

B2B SaaS valuations typically follow two tracks: Annual Recurring Revenue (ARR) multiples once you cross ~$2M ARR, and Seller’s Discretionary Earnings (SDE) multiples for smaller SaaS businesses where the founder’s salary and benefits matter. The multiple (1-10x ARR or 3-10x SDE) is shaped by:

Growth & Retention: Growth rate, GRR/NRR metrics
Profitability: EBITDA margin, Rule of 40
Efficiency: LTV/CAC, Magic Number
Market Benchmarks: 4.8x ARR (bootstrapped), 5.3x ARR (funded), 3-10x SDE (sub-$2M)
⚡ Interactive Calculators

Calculate Your SaaS Valuation

Choose the calculator that matches your business size and valuation methodology

$2M+ ARR: Revenue Multiple Calculator

For larger SaaS businesses using ARR-based valuation with public comp methodology and private market adjustments.

  • Based on private market comparables with adjustments for growth, profitability, and company-specific factors
  • Private market size & liquidity discounts
  • Performance adjustments (Rule of 40, NRR, CAC)
Use Revenue Multiple Calculator

Under $2M ARR: SDE Multiple Calculator

For smaller SaaS businesses using Seller's Discretionary Earnings methodology based on FEI and QuietLight principles.

  • SDE calculation with owner add-backs
  • 3-10x multiple range based on quality factors
  • Adjustments for churn, concentration, growth, dependency
Use SDE Multiple Calculator
📊 The Complete Framework

The 17 Metrics That Matter

Master these metrics to understand, improve, and maximize your SaaS valuation

Quantitative Metrics (10)

Measurable, formula-based metrics that directly impact your multiple

📈 ARR Growth Rate
🔒 Gross Revenue Retention (GRR)
📊 Net Revenue Retention (NRR)
💰 EBITDA Margin
💼 SDE Margin
⚖️ Rule of 40
💵 Gross Margin
🎯 LTV/CAC Ratio
✨ Magic Number
👥 Customer Concentration

Qualitative Factors (9)

Strategic positioning factors that influence perceived risk

💎 Revenue Model
🎯 Type of SaaS
☁️ Delivery Model
🔥 Market Activity
🏢 Enterprise Readiness
😊 Customer Satisfaction
🧑‍💼 Owner Dependency
👥 Team Composition
🚀 Growth Potential

Quick Reference Table

Metric Formula Negative Positive Impact
Growth & Scale
ARR Growth Rate (Current ARR - Previous ARR) / Previous ARR <25% >50% ⭐⭐⭐⭐⭐
Rule of 40 Growth Rate % + EBITDA Margin % <20 >60 ⭐⭐⭐
Retention & Stickiness
Gross Revenue Retention (Beginning ARR - Lost - Contraction) / Beginning ARR <70% >95% ⭐⭐⭐⭐⭐
Net Revenue Retention (Beginning ARR + Expansion - Lost - Contraction) / Beginning ARR <85% >110% ⭐⭐⭐⭐⭐
Customer Concentration % of ARR from Top 10 >50% <10% ⭐⭐⭐
Profitability
EBITDA Margin (EBITDA) / Total Revenue <0% >30% ⭐⭐⭐⭐
Gross Margin (Revenue - COGS) / Revenue <60% >90% ⭐⭐⭐⭐
Efficiency
LTV/CAC Ratio (LTV) / (CAC) <2x >10x ⭐⭐⭐
Magic Number (Qtr ARR Growth) / (Prior Qtr S&M) <0.5 >0.75 ⭐⭐⭐
Qualitative Factors
Revenue Model N/A One-time ARR ⭐⭐⭐⭐
Type of SaaS N/A Horizontal Vertical ⭐⭐⭐⭐
Delivery Model N/A On-Premise Pure SaaS ⭐⭐⭐
Market Activity N/A Low High ⭐⭐⭐
Enterprise Readiness N/A Not Possible Proven ⭐⭐⭐
Customer NPS N/A <30 >70 ⭐⭐⭐
Team Composition N/A Key Person Risk Experienced ⭐⭐⭐
Growth Potential N/A Low High ⭐⭐⭐⭐

Impact Rating: ⭐⭐⭐⭐⭐ = Critical | ⭐⭐⭐⭐ = High | ⭐⭐⭐ = Medium

🎓 Deep Dive

Understanding Each Metric

Click any metric to learn more about its formula, benchmarks, and impact on valuation

ARR Growth Rate

Formula

(Current ARR - Previous ARR) / Previous ARR
<25% >50%

Primary indicator of momentum. 50% at $20M ARR > 50% at $2M.

Gross Revenue Retention

Formula

(Beginning ARR - Lost - Contraction) / Beginning ARR
<70% >95%

Revenue retained from existing customers. Max 100%.

Net Revenue Retention

Formula

(Beginning + Expansion - Lost - Contraction) / Beginning
<85% >110%

NRR >100% = growth without new customers.

EBITDA Margin

Formula

EBITDA / Total Revenue
<0% >30%

Profitability metric. Balance with growth rate.

SDE Margin

Formula

(EBITDA + Owner Compensation Adjustments) / Revenue
<20% >35%

Essential for sub-$2M ARR exits. Shows cash flow available to the buyer-operator.

Rule of 40

Formula

Growth Rate % + EBITDA Margin %
<20 >60

Combined growth & profit. Target 40+.

Gross Margin

Formula

(Revenue - COGS) / Revenue
<60% >90%

Core profitability. High GRR + low GM = unsustainable.

LTV/CAC Ratio

Formula

Customer Lifetime Value / Acquisition Cost
<2x >10x

Unit economics. Target 3:1 minimum.

Magic Number

Formula

Quarterly ARR Growth / Prior Quarter S&M
<0.5 >0.75

S&M efficiency. >0.75 = invest more.

Customer Concentration

Formula

% of ARR from Top 10 Customers
>50% <10%

Risk metric. High concentration = higher risk.

🎮 Interactive Tool

See How Metrics Affect Your Multiple

Adjust the sliders to understand how each metric impacts your valuation

Interactive Valuation Calculator

Adjust the sliders to see how each metric impacts your valuation multiple in real-time

40%
0% 50% 100%
105%
70% 110% 150%
10%
-20% 10% 40%
75%
40% 70% 95%

Estimated Valuation Multiple

4.5x

Annual Recurring Revenue

If your ARR is $1M, your valuation would be:
$4.5M
Rule of 40 Score 50
0 Target: 40 100

Good! You're above the Rule of 40 threshold.

Performance Level
Strong
Market Position
Top 25%

Note: This is a simplified model for educational purposes. Actual valuations consider all 17 metrics, current market conditions, strategic fit, and buyer-specific factors. Consider this a starting point for understanding how metrics influence valuation.

📚 Complete Guide

How It All Works Together

Understanding how metrics combine to determine your final valuation

The Core Formula

Valuation = ARR × Multiple

For businesses $2M+ ARR. Multiple ranges from 2-10x based on growth, retention, and efficiency metrics.

Valuation = SDE × Multiple

For businesses under ~$2M ARR. Normalize owner compensation, add back one-time expenses, and apply a 3-10x multiple based on churn, customer concentration, and growth durability.

Why Revenue Multiples?

  • Predictable recurring revenue
  • Scalable without proportional costs
  • Growth often prioritized over profit

ARR Multiple Ranges by Performance

Elite (Top 10%) 7-10x ARR
Strong (Top 25%) 5-7x ARR
Average (Median) 3-5x ARR
Below Average 1-3x ARR

SDE multiples: 3-4x (struggling), 6-10x (scalable, low churn)

⚠️ The Multiplication Effect

Critical Insight: Negative factors don't add—they multiply. Two 20% risks don't equal 40% reduction. They compound to 36% (0.8 × 0.8 = 0.64).

For SDE-based deals, the same compounding applies—documented add-backs are worth more than aggressive assumptions.

Real Example: Same ARR, Different Valuations

Company A: $5M ARR → $25M (5x)
  • 60% YoY Growth
  • 115% NRR
  • 85% Gross Margin
  • <5% Customer Concentration
  • Vertical SaaS
Company B: $5M ARR → $12.5M (2.5x)
  • 20% YoY Growth
  • 85% NRR
  • 65% Gross Margin
  • 45% Customer Concentration
  • Horizontal SaaS

📈 2025 Market Context

Current Multiples

  • $2M+ ARR (SaaS Capital Index): See live data*
  • Private (Bootstrapped): 3-6x ARR
  • Private (Funded): 4-8x ARR

*Check SaaS Capital Index for current $2M+ ARR multiples

Key Trends

  • 🤖 AI-native: 132% NRR vs 108% legacy
  • 📊 Rule of 40 impact: 1.5x per 10 points
  • 🎯 Vertical SaaS: 20-40% premium
  • 🧾 SDE normalization matters: clean add-backs lift multiples 0.5-1.0x
💬 FAQs

Frequently Asked Questions

What is the most important metric for SaaS valuation?
While ARR determines base size, growth rate is the most powerful multiple driver. 100% YoY growth commands 2-3x the multiple of 20% growth.
What is the Rule of 40 in SaaS?
Growth rate + EBITDA margin should ≥40%. Each 10-point improvement correlates with ~1.5x multiple increase in 2025.
What is a good NRR for B2B SaaS?
>100% is the gold standard. SMB-focused: 90% acceptable. Enterprise: 110-125% expected. Best-in-class: 130%+.
What is the average SaaS valuation multiple in 2025?
Private: 4.8x (bootstrapped), 5.3x (funded). Public: 6.1x revenue. High-growth (>50% YoY): 7-10x.
How do you calculate SaaS valuation?
Valuation = ARR × Multiple once you reach ~$2M ARR, or SDE × Multiple for smaller SaaS. Pick the method that best reflects buyer cash flow.
When should I use SDE instead of ARR?
If ARR is under ~$2M or EBITDA under ~$1M, most buyers underwrite on SDE. Normalize owner pay, add back one-time costs, and expect 3-10x multiples based on churn and growth.

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