Revenue multiple
A revenue multiple estimates a business’s value by multiplying its annual revenue by a factor drawn from comparable deals, rather than multiplying a profit measure like EBITDA or SDE. It suits fast-growing or thin-margin businesses — software, subscription, or e-commerce — where revenue is a more stable signal than current profit, but it ignores cost structure entirely.
Most small business sales price off a profit measure — SDE or EBITDA — because profit is what an owner actually takes home. A revenue multiple flips that: it prices the business off top-line sales instead. That approach only makes sense when profit is volatile, reinvested heavily, or not yet representative of the business’s real earning power.
Where revenue multiples show up
Revenue multiples are most common in software, subscription, and other high-growth businesses where a company might be spending heavily on growth today while building toward much stronger margins later. Buyers accept a revenue-based price because the profit line understates what the business could earn once growth spending slows.
Why buyers treat them carefully
Two businesses with identical revenue can have very different profitability, so a revenue multiple alone says nothing about how much cash the business actually generates. Serious buyers pair a revenue multiple with a look at gross margin, growth rate, and customer retention before accepting it as a starting point for negotiation.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryHow Much Is a Small Business Worth? Valuation Basics for Ontario Buyers
- 02Treadstone LawLegal commentaryGetting a Business Valuation Before You List
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