ValuationUpdated March 2026·12 min read

How to value a SaaS business in 2026

A working framework for valuing a SaaS business in 2026: SDE vs EBITDA vs ARR multiples, current market ranges, and the six adjustments buyers actually make.

Primary keyword

how to value a SaaS business

Search intent

Founder or buyer needs a defensible number for a SaaS sale or purchase.

TL;DR

Sub-$1M ARR SaaS sells on SDE, usually 2.6–4.2x TTM. Above $1M ARR shifts to ARR/EBITDA multiples.
Growth, churn, and owner-hours are the three levers that move a multiple by 30% or more.
Every buyer runs the same six adjustments. If you make them first, you set the anchor.

The three valuation methods buyers actually use

For small SaaS (under about $1M ARR), buyers value on Seller Discretionary Earnings — SDE — multiplied by a market multiple. SDE is TTM profit plus the owner's replaceable salary, plus one-off expenses. Current market SDE multiples for profitable SaaS: 2.6x to 4.2x, with the top of the range reserved for >20% YoY growth, <2% monthly churn, and under 10 owner-hours per week.

Between $1M and $5M ARR, buyers switch to ARR multiples for growth stories (2x–6x ARR depending on rule-of-40) and EBITDA multiples for mature/plateaued ones (5x–9x). Above $5M ARR, expect DCF and comparable-company analysis from PE-style buyers.

The six adjustments every serious buyer will make

1. Owner comp normalization. If you don't pay yourself, buyers subtract a market salary for your replacement. 2. One-off revenue. Big annual pre-pays or a one-time enterprise deal get removed. 3. Concentration discount. If any customer is >10% of revenue, expect a 10–20% multiple haircut. 4. Tech-debt discount. Buyers walk if a rewrite is needed inside 12 months. 5. AI dependency. Heavy OpenAI / Anthropic reliance now gets a 0.3–0.6x haircut. 6. Founder-as-channel. If growth comes from your personal Twitter, it doesn't transfer.

Worked example: a $28k MRR AI SaaS

DraftLoop is a $28.4k MRR, $298k TTM, 7.2% MoM growth AI SaaS. SDE after normalizing a $110k founder salary is $148k. Base multiple in current market: 3.4x. Bumps: +0.4x for growth, +0.3x for verified metrics, −0.2x for OpenAI dependency. Final multiple: 3.9x. Implied valuation: $577k. Actual close: $685k after a competitive process with two buyers.

What buyers pay a premium for

Clean Stripe with 24+ months of history. Sub-3% net monthly revenue churn. Zero founder-only knowledge (documented Loom walkthroughs of every workflow). Owned distribution channel (SEO or paid, not personal social). Standard tech stack a solo dev could take over in a weekend.

FAQs

What multiple should I ask for?

Start at the mid-point of your ARR/SDE band, then justify moves up with concrete evidence: churn, growth, and hours-to-run.

SDE or EBITDA?

SDE below ~$1M ARR, EBITDA above. Mixing them is the fastest way to lose credibility with a serious buyer.

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