Valuation question. SaaS business

[dude_abides]

Hi Fastlaners,
I'm trying to help a colleague value a business.
It is a cloud based software for professional users (e.g., CPA, FP, Lawyers, etc.). They have approximately 5000 subscribers (monthly users).
The revenue is approximately 1 million per year. Their EBITA is approximately 500k per year.
Somewhere I have heard that 10x multiple is the going rate for valuation in SaaS software.
At 10x revenue is the valuation $10 million? Is 10x the correct multiple. Is valuation typically calculated on Revenue or EBITA?

Thanks

 

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[Young-Gun]

Hey man, I'm working on my SaaS startup and have been researching this stuff for months.
Valuation multiples are part of why I finally decided to switch from my high-end tutoring to SaaS.

Of course - take what I'm saying with a HUGE grain of salt.
This is no kind of professional advice, just one more data point for you.
I could quite possibly be WRONG. And every situation is different.
Also, sorry if you know all this already.

First, I would say 10x is *on net earnings*, or EBITA in other words.
So probably 5 million is the valuation for a SaaS company with $500k annual profit after expenses but before taxes.
Yes, 10x is a common standard for recurring-revenue SaaS companies above a certain size (I'd say yours would definitely qualify).

Usually the bigger you get, the higher your multiple becomes.
If I remember right, some of the biggest, fastest-growing SaaS enterprises have had 80-100x valuations.

Current *user growth rate* is also a MAJOR factor in any SaaS valuation.
A fast-growing userbase deserves a much higher valuation than a stagnant userbase, for obvious reasons.

Hope this helps

 

[RazorCut]

A SAAS business has to be valued on EBITA as profit margins vary greatly. You might have a $100m annual turnover but only a $200k EBITA for example. Turnover is vanity, profit is sanity and cash is reality after all.

If the market based valuations on total fiction you could hypothetically value a business that lost $900m in the last two years at around 30 billion. But that would never happen in the real world.

Oh wait, what was that? Snapchat?? WTF?