Rule-of-thumb valuation
A rule-of-thumb valuation applies a simple, widely used formula for a given industry — commonly a multiple of annual revenue, SDE, or a per-unit metric like price per seat or price per customer — to arrive at a quick, rough estimate of value. It’s a fast starting point for a conversation, not a substitute for a full valuation.
Many industries develop informal pricing conventions over years of deal activity — a multiple of revenue for a service business, a multiple of SDE for a retail shop, a per-location figure for a franchise. These conventions get passed around as rules of thumb because they’re quick to apply and easy to explain.
Why they persist
For a first conversation between an owner and a broker, or between a buyer and a shortlist of listings, a rule of thumb gives a fast, common reference point without requiring a full set of financials. It’s useful precisely because it’s simple.
Why they can be misleading alone
A rule of thumb ignores everything specific to one business — its growth trend, customer concentration, owner dependence, lease terms, and the quality of its financial records. Two businesses in the same industry, priced with the same rule of thumb, can have very different real value once those factors are accounted for.
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
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.