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ValuationUpdated January 2026·7 min read

SDE vs EBITDA for small SaaS

When to use SDE and when to use EBITDA for a SaaS business valuation — with worked examples and the $1M ARR threshold.

Primary keyword
SDE vs EBITDA SaaS
Search intent
Seller or buyer confused about which earnings metric applies.
TL;DR
  • Under $1M ARR: SDE is the standard.
  • Over $2M ARR: EBITDA is the standard.
  • Between: use both and let the buyer pick — it usually favors you.

How SDE is calculated

TTM net income + owner's salary + non-cash expenses + one-time expenses + interest. It answers: 'how much cash does this generate for one full-time owner-operator?'

How EBITDA is calculated

Net income + interest + taxes + depreciation + amortization. It assumes professional management already exists (or is priced in). More appropriate for businesses that aren't founder-run.

FAQs

Can I use both in one listing?

Yes, and I recommend it in the $1M–$2M ARR band. Present both and let buyer's advisor argue.

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