Valuation Calculator for SaaS Companies
Valuation of a SaaS Company – Free Online Calculator
To value a technology business, one of the first questions is whether the company is generating revenues or not. This free SaaS Valuation calculator focuses on companies already generating revenue but still in the early stages.
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When assigning valuations to post-revenue companies, the debate centers around whether to look at a multiple of EBITDA or Revenue. We published this interactive tool that continuously updates the Valuation of the Top Public SaaS Companies as a multiple of their revenue.
Most methods add adjustments based on the Annual Growth Rate, Net Revenue Retention, Profitability (or free cash flow generated or loss) Gross Margin, and Annual Contract Value compared to the Average Customer Acquisition Cost, including deployment service expenses.
Most methodologies include a variation of the Rule of 40, which is a score that combines growth rate and profit margin. So if a business is not growing fast but is profitable, it is as good as a business growing super fast but still unprofitable.
Revenue growth, retention, and burn rate are crucial elements to ensure success in the early stages. When SaaS companies are not growing at least 50% YoY in the first years, it often signals challenges with the product-market fit or go-to-market execution. Hence the valuation of the company is impacted negatively by low growth rates or the lack of ability to retain at least 98% of your net revenue.
In the upper quartiles, we see SaaS Companies with Annual revenue growth of around 100% and with Net Revenue Retention above 100%, signaling that there is also a healthy increase in usage among the existing client base.
This calculator is valid for SaaS companies with a Business to Business –B2B monetization model, generating revenues between $1M and $50M per year and where the Customer Acquisition Cost is Lower than the Average Annual Contract Value. Click here to see how each calculation works.
SaaS Company Valuation Calculator
How the calculations work:
This free online SaaS Company valuation calculator is based on generally accepted methodologies published by Bessemer Venture Partners, SaaS Capital, David Cummings, and Luis J. Salazar. Given the volatility of the public markets in 2022 and the correction in valuations, the Salazar method modifies the David Cummings method by adding a correction factor based on the 100-day moving average of a proprietary market sentiment index and adding specific weight to Net Revenue Retention.
- Salazar – 2022 (Cummings modified): Takes into account the SaaS Valuation Multiple, which is a valuation multiple for the 50 largest Public B2B SaaS Companies (excluding Telecom, Recruiting, and Tech-enabled Service Businesses) See it here, updated periodically. It combines it with the Annual Growth Rate, Net Retention Rate, Gross Margin, Free Cash Flow as a percentage of Revenues –Profit Margin, and a proprietary calculation of the current public markets sentiment index.
- David Cummings 2022: Takes into account Annual Recurring Revenue, SCI, Annual Growth Rate, and the free cash flow as a percentage of revenue — profit margin
- SaaS Capital 2022:Takes into account the SaaS Capital Index (SCI), a valuation multiple for Business to Business Software as a Service Companies, Annual Growth Rate, and Net Retention Rate for companies with revenues between $2M and $100M per year.
- SaaS Capital 2020: Takes into account Annual Recurrent Revenue – ARR times the SCI if the payback period per contract is less than 12 months and Net Retention Rate is above 94%
For pre-revenue SaaS Companies, please use our other calculator (coming soon), which includes the Dave Berkus method, the Scorecard method from the Angel Capital Association, and the LJ Salazar Scorecard method, which combines the traditional scorecard and an assessment of relative competitive advantage, observability, and other key performance indicators for technology companies.
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