Technology 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 companies to provide insight into the business for sale market and important benchmarks for pricing and evaluating tech businesses relative to industry standards.

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Highlights of Online & Technology Businesses Sold on BizBuySell

Technology businesses listed and sold on BizBuySell include software companies, online service providers, websites & ecommerce businesses, managed IT services, and related companies. Compared to more traditional main street businesses sold on BizBuySell, technology businesses enjoy higher average profit margins and valuation metrics.

Online & Technology Business Transaction Trends

Sale prices of technology businesses listed for sale have been volatile over the past five years, though generally increasing. The Covid-19 pandemic created an environment where technology businesses generally thrived, and many owners chose this time to capitalize on high demand to sell at above-normal valuations. Interest rate increases in 2022 reined in valuations, while increasing revenues and earnings brought sales prices back up in 2023, before leveling off in 2024.

Technology businesses tend to sell much more quickly than other types of businesses. With a median days on market (MDOM) just over 80, online and tech businesses sell more than twice as fast as the broader market MDOM of 180.

Tech 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. Average valuation multiples across the technology sector have been remarkably consistent, with the exception of a surge in 2021 that was driven largely by pandemic related demand. Excluding that year, earnings multiples for technology companies sold on BizBuySell average just above 3x, while revenue multiples average just above 1x.

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 online and technology companies 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. Smaller 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 technology businesses are valued between 2.5 and 3.9 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.

Online & Technology 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 technology business financial ranges useful for comparing an individual business to the broader industry.

Tech Business Revenue and Earnings Trends

Median revenue and discretionary earnings of online and technology businesses sold on BizBuySell has been largely flat since 2020, with only moderate variation year-to-year compared to most other sectors.

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 of technology businesses sold over the past five years, as well as recent tech 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 online and technology 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. Thriving technology companies that generate higher sales (and maintain tech level profit margins) tend to sell for earnings multiples on the higher end. So, a tech business with sales over $2MM may sell for an earnings multiple close to 4, where a smaller technology company with sales below $350k may trade around 2.5 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 evaluating online and tech businesses. The chart and table below include key metrics from sales of technology businesses on BizBuySell between 2020 and 2024.

While most technology companies tend to trade around similar multiples, there is a clear premium for highly scalable, lower labor businesses like SaaS and software compared to more service heavy business models like managed IT services. While size will always drive valuation multiples more than any other factor, there is also more demand for businesses that can scale with minimal added labor and expenses.

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