Preparing for the sale of a company is the most difficult process for a business owner. Deciding to take such a step is already a big responsibility. But it is equally important to understand how much you can sell it for. The requested funds should be financially justified and for this purpose is carried calculation of the value of the company.
Of course, this procedure can be entrusted to business brokers at the level of Websiteclosers, but it is equally important to understand how to sell my saas business and why the amount you have chosen is correct. Therefore, it is important to understand this issue before placing an ad on marketplaces.
What factors to consider when evaluating a SaaS business
Before you start to understand how to calculate SaaS valuation multiples it is necessary to understand what factors will be taken into account in your calculation. This question arises very often when assessing the value of businesses. However, the following factors influencing the valuation of a SaaS startup are most often emphasized:
- customer churn;
- customer acquisition costs;
- monthly recurring revenue;
- other factors.
Customer churn is the most important among all the indicators. Since business in this area is based on customer subscriptions, each unsubscriber is already a revenue shortfall. They are calculated as the ratio of unsubscribes to the total number of subscriptions. The lower the churn rate is, the more loyal customers will be to the business and the more attractive it will be to the customer.
Customer acquisition costs show how much budget it takes to get one more customer. It is the ratio of the marketing budget used to the total number of new customers. If this figure is unacceptable to a customer, they will not invest their money in such a project.
Monthly recurring revenue shows how much-guaranteed money the buyer can expect. If the figure is too low, then the projections for growth will be small. Accordingly, he will not want to put his investment in the purchase of such projects.
What methods of calculation exist
SaaS valuation benchmarks by industry may differ when using different calculations. Most often, companies are evaluated using:
- EBITDA;
- SDE;
- Revenue Multiplier.
EBITDA is used when calculating the valuation of larger companies (with a turnover of more than 5 million dollars). Its calculation takes into account depreciation, amortization, dispersion, taxes paid, net income, and interest on loans. In this way, it will be possible to see how much profit the company shows before closing interest on loans and paying taxes.
SDE helps to understand how much profit a customer will make in a year. It is more often calculated for companies with average turnover in a given segment. It takes into account the total revenue, from which the amount of operating expenses and the budget for purchasing goods is subtracted, and the compensation for the owner is added.
Smaller companies can be evaluated using the revenue multiplier. To do this, simply divide the annual revenue by the company's valuation. As you can see, there are quite a few ways, and depending on the size of the company, different variations can be used to value the business.
Who will help you prepare the necessary calculations
It is difficult to overestimate the importance of customer lifetime value in SaaS valuation. Often it is these indicators that help to determine whether a deal will take place at all. Therefore, it is important to prepare such calculations in advance, and a business broker can help.
Websiteclosers is ready to help you prepare these documents and more. This is a team of true professionals, where each of the managers has closed more than one successful deal for the sale of a SaaS business. We will be glad to help you in this matter as well.
