What is a logistics software company worth?

A logistics software company sells tools that move other people’s freight: shipment visibility, dispatch, warehouse management or the carrier connections that link them. That makes part of its revenue a function of its customers’ shipping activity, and it shapes what a buyer is actually paying for. The question is not only how much the company billed last year but how much of that billing survives a change of owner, given the connections that tie customers to the platform, the record the company built while freight was moving, and the mix of people who pay for it. Two companies with the same revenue can price very differently once those three things are examined.

Subscription revenue and per-shipment revenue are read differently

Subscription fees are set by contract and, under a flat subscription, do not change with what the customer ships that month. Transaction fees follow the customer’s freight volume, which rises and falls with its own sales, its own contract wins and the wider economy. A buyer can therefore split revenue into those two lines and look at the transaction line across more than one freight cycle, not only a strong recent year, and can ask what is committed: multi-year terms, minimum monthly volumes and built-in price escalators, as against month-to-month use. Income that is mostly committed subscription can be more predictable than uncommitted per-shipment fees, even if the second grew faster. Any multiple a buyer mentions is general industry discussion, not an appraisal of your business.

Carrier and EDI connections can create a switching cost

Rebuilding a carrier connection can involve obtaining credentials, agreeing message formats, mapping the carrier’s status codes to the platform’s own and testing against live loads. A shipper whose dispatchers already rely on a platform that talks to the carriers they use daily faces that project again if it switches. That switching cost comes from the connections customers actually use, not from connections that are merely listed, so a long catalogue of carriers says less than the share of real traffic each connection carries. A buyer can ask for transaction counts by connection before giving any credit for breadth.

The long tail can be a cost to price

Every connection has to be kept working. Carriers can change their interfaces, retire old file formats and replace technical contacts, and each change lands on the company’s engineers whether or not that connection earns much. A long tail of rarely used connections can behave like a recurring expense that never appears on the income statement, and deferred maintenance on it can behave like a debt. A buyer can estimate the engineering time the tail consumes and look for connections that have quietly stopped working. An owner can present the inventory first, with the weak spots marked, rather than wait for a buyer to find them.

What else can lower the price

Several findings can bear on a logistics software price, and most of them can be reduced before a sale begins.

• A few large shippers, carriers or freight brokers providing a visible share of revenue, so that one departure leaves a gap. See the answer on customer concentration.
• Documented outages during live shipment windows that cost customers missed pickups or delivery appointments, particularly where service credits or complaints followed.
• Support knowledge held by one or two people, since the buyer inherits the on-call burden along with the customers.
• Connector code written by contractors without a signed written assignment, because the Copyright Act makes an assignment of copyright invalid unless it is in writing and signed by the owner or the owner’s duly authorized agent.
• Historical shipment data held on terms that limit reuse, which matters because shipment records can name consignees and drivers, and PIPEDA defines personal information as information about an identifiable individual.

How the earnings get recast

Recasting restates the owner’s accounts as the earnings a new owner could expect, and in this sector the adjustments can be specific. The founder’s pay can be reset to what a replacement manager or lead engineer would cost. Support the owner covers personally outside business hours, when freight is still moving, can be added back as a real expense. Fees paid to carriers or data providers can be checked to see whether they are passed through to customers or absorbed. One-off integration projects billed to a single customer can be removed from recurring revenue. Tax credits can be treated separately: the CRA says an SR&ED claim can be submitted with the income tax return, and its pages cover what to do if a claim needs a review, so a buyer can ask whether a refund is still open to review before counting it as earnings. See what happens to SR&ED credits on a sale.

Why two similar-looking companies price differently

Customer type matters. A platform used mainly by carriers may face different churn and bargaining power than one sold to shippers or freight brokers, and a mix across all three may be less exposed than dependence on one. So does the identity of the buyer. If the buyer is a larger logistics technology company that can sell into its own base, the integration footprint is part of what it is acquiring; if it is a freight broker or third-party logistics provider buying its own technology stack, customers who compete with that buyer may leave. Finally, the owner’s role counts. A BDC article on selling a business quotes an adviser saying that in a 100%-cash-out deal the buyer takes on more risk because the seller isn’t involved any more, and the same article lists vendor financing, an earn-out and a phased transfer of ownership among the ways a seller can remain involved. Compare how software businesses are valued more generally.