Software, SaaS, & App Business Valuation Benchmarks

Business owners, prospective buyers, and industry investors rely on a diverse set of financial benchmarks to assess the value of a business. We have compiled data from current BizBuySell listings and sold businesses to provide insight into the business for sale market and important benchmarks for pricing and evaluating software businesses relative to industry standards.

See also: IT & Software Services Business Valuation Benchmarks

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Highlights of Software Businesses Sold on BizBuySell

Software businesses listed and sold on BizBuySell tend to be small software as a service (SaaS) companies, mobile app developers, and specialized consumer, commercial, and industrial software businesses. These tech businesses offer a wide variety products and services ranging from B2B SaaS products, consumer mobile apps, and niche commercial/industrial software. Compared to brick-and-mortar businesses sold on BizBuySell, these tech businesses enjoy higher average profit margins and valuation metrics.

Software, SaaS, & App Business Transaction Trends

Software, app, and SaaS business valuations grew along with the broader tech sector during and following the Covid-19 pandemic. Businesses valuations increased around 30% from 2019 to 2022, even though median sales only improved 10% during the same time. Interest rate increases aimed at reducing money supply and inflation tempered valuations through 2023, bringing median sale price down 40%. Sales prices returned in 2024 on higher valuations and stronger financials.

Values and transaction trends of software businesses are fairly volatile compared to the broader business for sale market, and is influenced heavily by economic pressures as well as recent advancements and market hype of AI and other emerging technologies.

Software, SaaS, & App Business Valuation Multiples

Valuation, or pricing, multiples are financial tools that allow for comparisons between businesses that have different levels of sales and income. They represent the sales price of a business relative to its financial performance, and given enough individual business sales data, they represent what the market is willing to pay for a business given its revenue and earnings.

Valuation Trends

Business values and associated multiples fluctuate over time, influenced by a variety of macroeconomic factors such as interest rates, inflation, consumer spending, and overall economic growth. The technology sector also changes rapidly, leading to volatile valuation trends. For software and app businesses reported sold on BizBuySell, the average earnings multiple had increased from roughly 3 to 3.6 from 2020 to 2022, dropped back down below 3 in 2023 on increasing interest rates, then returned above 3 in 2024.

Earnings Multiples

Earnings multiples represent the value of a business relative to its owner’s discretionary earnings or "cash flow". Arguably the most important valuation metric - as the seller's discretionary earnings will often dictate how much a buyer is able to borrow to finance the business acquisition - most valuations will hinge on the earnings multiple.

Revenue Multiples

Revenue multiples represent the value of a business relative to its overall annual sales or revenue. In conjunction with an earnings analysis, revenue multiples are commonly used to value a business based on its top line sales.

How to Interpret These Multiples

Recent Listings vs. Sold Businesses

We calculate and provide valuation multiples from two sources: Current and recent listings of software and app businesses for sale, and our database of "comparable" businesses sold on BizBuySell. Multiples based on listing data are usually higher due to owners setting asking prices above what their businesses might typically sell for. This occurs either intentionally as a negotiation strategy, or incidentally due to business owners’ common tendency to overvalue their own businesses. When current listing multiples are lower, that signifies decreasing values or previously inflated values of sold businesses.

Multiples based on comparable businesses - "comps" in business broker parlance - are much more useful as they represent the prices at which businesses ultimately get sold. Business brokers and valuation professionals will always turn to local comps when pricing businesses for sale or evaluating businesses for acquisition. We provide both sets of data at the national level to offer general context.

Quartiles, Median, and Average

No two businesses are identical, and as such, valuation multiples exist in a range. We have carved out four common values within this range: Lower quartile represents the value under which the lowest 25% of valuation multiples fell. Upper quartile represents the value above which the highest 25% of multiples fell. Median is the middle of the range, and average is the mean of the set. Mean is almost always higher than the median, driven by a minority of high volume, high value businesses sold at multiples above the upper quartile.

Businesses with consistent financial performance, above average revenue and earnings, demonstrable growth potential, low owner involvement, unique competitive advantages, and a seller willing to finance will command a multiple at or above the upper quartile. In the SaaS and software space, recurring revenue in the form of subscription models also go a long way in raising valuations. Smaller software businesses with thinner profit margins, operating in small niches, with full-time owner involvement, and many direct competitors will trade at or below the lower quartile. Most businesses will fall somewhere in the middle.

Based on this data, half of software and app businesses are valued between 2.2 and 3.8 times their annual seller discretionary earnings, with 25% of higher-volume, fast-growing businesses trading above this range, and 25% of smaller, less desirable businesses trading below.

Software, SaaS, & App Business Financial Benchmarks

To determine how a business compares in terms of revenue and earnings performance relative to industry peers, it’s necessary to have some insight into industry standards. "Benchmarking" describes the practice of comparing a business’s financial performance to typical industry standards to determine where a business falls relative to other businesses in the same industry. These benchmarks can help guide owners and investors towards appropriate valuation multiples from the range above.

To that end, we have aggregated software business financial ranges useful for comparing an individual business to the broader industry.

Software, SaaS, & App Business Revenue and Earnings Trends

The median discretionary earnings of software and SaaS businesses sold on BizBuySell has been flat with annual volatility, hovering just above or below $200k. Median revenue, on the other hand, has been more volatile, with a significant increase during the pandemic period and again in 2024. The result is spiking profitability trends.

Earnings Ranges

Discretionary earnings (used interchangeably with the terms "cash flow" and seller's discretionary earnings or SDE) is often the crux of business valuations, so it is important to benchmark it relative to similar businesses traded on the market. Below you will find discretionary earnings ranges for software and app businesses sold over the past five years, as well as recent software business for sale listings.

Revenue Ranges

Sales volume plays a large role in business valuation, as it measures the size of the potential income opportunity for new ownership. It's not uncommon for buyers to select an earnings multiple range based on overall revenue. The table below includes revenue ranges of software businesses sold over the past five years and recent businesses listed for sale.

How Revenue and Earnings Level Affects Business Values

Clearly higher levels of earnings lead to higher valuations, even given the same multiple. However, valuation multiples also tend to rise with business sales volume. Popular software and app companies that generate higher sales (and maintain tech level profit margins) tend to sell for earnings multiples on the higher end. So, a software or SaaS business with sales over $1MM may sell for an earnings multiple close to 4, where a lower volume software business with sales below $200k may trade around just above 2 times earnings.

This tendency for higher sales volumes to fetch higher valuation multiples is largely driven by the economics of business acquisition financing. Higher volume businesses give buyers more cushion to cover debt service obligations and still have enough cash flow to pay the new owner a reasonable return on the acquisition cost.

Technology Sector Comparisons

For a more complete understanding of the market and valuation standards, consider comparisons within the broader technology sector when benchmarking software businesses. The chart and table below include key metrics from sales of technology businesses on BizBuySell between 2020 and 2024.

Compared to other types of businesses in the technology sector, software, app, and SaaS businesses get a premium in valuations relative to their sales volume thanks to their scalability and above average profit margins.

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