SaaS Valuation Calculator
Annual Recurring Revenue (ARR)
How to calculate your SaaS company’s valuation?
How to use the SaaS valuation calculator
Using the SaaS Valuation Calculator is straightforward and helps you estimate your business's valuation based on key growth metrics.
Follow these steps:
- Enter your annual recurring revenue (ARR)
Use the slider or input field to specify your company’s ARR. This figure represents the predictable yearly revenue generated from subscriptions or other recurring payments. - Specify your annual growth rate
Adjust the growth rate slider or input field to reflect how much your revenue is increasing per year. This percentage is critical for understanding how your business is expanding. - View your valuation
Based on the inputs above, the calculator will compute an estimated valuation. This result gives you an idea of your company’s worth, considering the ARR and growth rate. - Iterate as needed
Experiment with different ARR or growth projections to see how changes impact your valuation.
SaaS valuation calculator terms to know
To understand the SaaS Valuation Calculator's outputs and to discuss valuation metrics with stakeholders confidently, get to grips with these important terms:
Annual recurring revenue
ARR represents the total predictable revenue your business generates yearly through subscriptions.
For example, if you charge $10,000 annually per client and have 50 clients, your ARR would be $500,000. It’s a cornerstone metric for assessing growth potential and financial health in SaaS businesses.
Growth rate
Growth rate reflects the annual increase in your company’s revenue, expressed as a percentage.
Let’s say your ARR was $500,000 last year and grew to $750,000 this year. In that case, your growth rate is 50%. A higher growth rate generally translates to a higher valuation multiple, signaling a healthy, expanding business.
Valuation
The calculated valuation is simply the estimated worth of your SaaS business, which is part of any strong SaaS go-to-market strategy.
Valuations depend on multiple factors, such as ARR, growth rate, market conditions, and prevailing valuation multiples in the SaaS industry. For instance, a business with an ARR of $1M and a growth rate of 30% might achieve a valuation multiple of 8x, resulting in an $8M valuation.
For this SaaS calculator we are using a very specific formula determined for SaaS companies which is explained below.
How to calculate your SaaS company’s valuation
For this calculator, we use a simplified calculation based on David Cumming’s valuation formula for SaaS companies - seen here. This calculation makes assumptions following the typical SaaS business model, including gross margins of 70-80% and renewal rates from 80-90%, and includes a growth rate multiplier of 2.5. The formula is:
Valuation = 2 x ARR + ARR x (1+ 2.5 x Growth Rate)
Another simple approach to identify your SaaS company’s valuation is to focus on multiples. Here’s a simplified approach to estimate your SaaS company’s valuation:
- Determine your annual recurring revenue:
Calculate the predictable revenue your business generates yearly, which is usually through recurring subscriptions for SaaS companies. ARR is the foundation of SaaS valuation and highlights the stability of your revenue streams. - Assess your growth rate:
Understand how much your ARR grows annually. For instance, a 30% growth rate signals robust expansion, making your business more attractive to investors. - Identify the industry valuation multiple:
Multiples are derived from market trends and reflect how SaaS companies are valued based on ARR and growth. Higher growth and profitability typically result in higher multiples, ranging from 5x to 12x ARR in most cases. Identify your multiple by doing an industry analysis of similar companies, and their multiples. - Calculate the valuation:
Multiply your ARR by the industry valuation multiple. For example, a company with $1M ARR and a multiple of 8x would have an estimated valuation of $8M. - Adjust for unique factors:
Consider other variables such as churn rate, customer lifetime value (CLTV), and market competitiveness. These factors can either boost or diminish your valuation.
These calculations offer a strong starting point, but you can get more nuanced insights by speaking with financial experts or by using tools like the SaaS valuation calculator.
Ways to increase your SaaS valuation
SaaS companies looking to improve their valuation should focus on optimizing operations and showcasing growth potential. Here are some proven strategies:
Optimize pricing for inflation
Inflation devalues money year on year, and that means the value of your business, too. Adjusting pricing will help your company to keep pace with inflation and market trends—although you need to justify changes to your customers.
Experiment with options like tiered plans or value-based pricing to maximize revenue while giving customers flexibility. Alternatively, work on marketing your new releases and updates to demonstrate the added value.
Document the entire process
Every efficient business runs on great processes—and investors will want to see them. Documenting every critical workflow, from customer acquisition to onboarding and retention, transforms your operational know-how into a tangible value driver. These playbooks don’t just improve daily efficiency, they’re gold to potential acquirers looking for scalable operations.
Enhance customer experience
Exceptional customer experiences can dramatically reduce churn and turn customers into evangelists. Whether it’s a seamless onboarding process or proactive support, these moments build loyalty and boost your Net Promoter Score (NPS)—a key indicator of a strong, investable business.
Trademark your brand
Make your innovations yours and yours alone. Protect your brand with trademarks, secure patents for your technology, and copyright your original content. Intellectual property (IP) both defends your innovations and tells the market that your SaaS company is a pioneer and worth a premium. An investor who sees locked-down IP sees a safer bet.
Access non-dilutive capital
Accessing non-dilutive funding can significantly enhance your SaaS company's valuation by providing capital without giving up equity. This allows you to preserve ownership—which is attractive to future investors—and maintain full control over decision-making. Non-dilutive financing from companies like Efficient Capital Labs can be deployed quickly, enabling you to invest in growth areas such as product development, marketing, and sales.
By extending your cash runway, non-dilutive funding also gives your company more time to achieve milestones and position for better valuation terms in subsequent funding rounds. With improved performance metrics and sustained control, your company can build a stronger market presence and a higher valuation—all without the trade-offs of equity dilution.
FAQs about SaaS valuation
What are SaaS valuation multiples?
SaaS valuation multiples are the benchmarks that reflect how much a SaaS company is worth in relation to its annual recurring revenue (ARR). These multiples, typically ranging from 5x to 12x ARR, depend on factors like growth rate, profitability, and market conditions. For instance, a high-growth SaaS business with strong retention might secure a multiple at the higher end of the spectrum.
What is the rule of 40 in SaaS valuation?
The rule of 40 is a performance metric used to gauge the health of a SaaS company. It states that a company’s growth rate plus its profit margin should equal or exceed 40%. For example, if your revenue is growing at 30% annually and your profit margin is 15%, you’d hit 45%—a solid indicator of a well-balanced business that’s both growing and sustainable.
What is the average valuation multiple for SaaS?
The average valuation multiple for SaaS companies typically falls between 10x and 15x ARR. This means that a SaaS company generating $1 million in ARR could be valued between $10 million and $15 million.
However, this varies depending on the market environment and individual business metrics. Companies in lucrative fields with innovative solutions, high customer retention, and strong growth rates often achieve multiples well above the average.