SaaS Business Valuation and Sale: ARR, Churn and Multiples

A traditional business is valued by EBITDA. A SaaS business is valued by completely different metrics: ARR (Annual Recurring Revenue), MRR (Monthly Recurring Revenue), Churn, LTV, CAC.

This is not just an academic difference. It's fundamental: A classic business is "revenue minus costs." A SaaS is "recurring revenue that can last for decades."

With the right metrics a SaaS can achieve 8-10x EBITDA – if the metrics are right.

ARR = Annual Recurring Revenue. This is the annual revenue from subscriptions that renew automatically. If you have 100 customers at 1,000 EUR/year, ARR is 100,000 EUR.

MRR = Monthly Recurring Revenue. This is ARR / 12. With 100,000 EUR ARR you have 8,333 EUR MRR.

Why is this important? Because ARR/MRR shows: "This is real, predictable revenue." That's much more valuable to buyers than sporadic revenue.

Churn = The percentage of customers who leave monthly. If you have 100 customers and 5 leave, the churn rate is 5%.

This is critical because: 5% month-to-month churn means your business hasn't grown in the coming months – even if you acquire new customers.

Rule of thumb for buyers: Churn under 2% is very good. 2-5% is acceptable. 5%+ is a big red flag. With 5%+ churn the multiples are reduced by 30-50%.

LTV = Lifetime Value. This is the total revenue a customer generates over his lifetime. If the average customer stays 3 years and pays 1,000 EUR/year, LTV is 3,000 EUR.

CAC = Customer Acquisition Cost. This is how much it costs to win a new customer. If you spend 50,000 EUR on marketing and get 100 customers, CAC is 500 EUR.

The ratio: If LTV is 3x CAC or better, unit economics are healthy. If LTV is 2x CAC, it's risky. If LTV < CAC, the business model is broken.

NRR measures: How much revenue do you lose to churn – and how much do you gain through upsells and cross-sells with existing customers?

Example: You have 100 customers with 100,000 EUR annual ARR. 10 leave (churn), but 20 upgrade to more expensive plans (upsell). That's: 100 - 10 + 20 = 110. NRR is 110%.

This is the holy grail: A company with NRR 110%+ grows organically, even without new customer acquisition. Buyers pay premium multiples (10-12x) for NRR 110%+.

SaaS under 1M ARR: 4-6x ARR

SaaS 1-5M ARR: 5-8x ARR

SaaS 5-10M ARR: 6-10x ARR

SaaS 10M+ ARR: 8-12x ARR

But these multiples INCREASE if the metrics are good:

- Churn under 2%: +1-2x multiples

- NRR over 110%: +2-3x multiples

- LTV/CAC over 5: +1x multiples

- Fast growth (50%+ YoY): +2-3x multiples

With VALENTYR VOS for SaaS all these metrics are measured and made transparent. Buyers immediately see: ARR stability, churn trends, LTV/CAC, NRR.

This is valuable for both sides: The seller shows: "My metrics are solid." The buyer trusts the numbers because they're standardized and independently verified.

With good VOS preparation a SaaS business doesn't get 5x ARR – it gets 8-10x. That's the power of transparency and standards.