In this episode, Sean shares insights into B2B SaaS multiples and what factors can impact the negotiated sale price of a business. He explains why multiples can vary and provides benchmarking information and resources to help entrepreneurs make informed fiscal decisions when it comes to selling their B2B SaaS.
- B2B SaaS multiples can vary depending on factors such as the state of the economy and the industry.
- In the past, B2B SaaS products were selling for a 10x multiple on revenue, but current market conditions have led to lower multiples of 3-4x on top of revenue.
- Understanding the market and your B2B SaaS’s cash flow is crucial when deciding whether or not to sell.
- Multiples can affect the ultimate sale price of a business.
- OpenView’s annual SaaS benchmark reports can provide valuable information.
- Cheap borrowing rates can lead to higher multiples, while increasing interest rates can cause multiples to drop.
- Ultimately, the decision to sell depends on a number of factors, including personal goals and the potential for future growth.
- “There’s a number of factors that will affect what type of multiple you may be looking at all the way from specifically what your B2B SaaS is and does all the way to and through what is the state of the greater just larger economy look like at the moment.” (00:33 – 00:49)
- “If you don’t have an interest in selling, you may or may not be interested in selling depending upon a number of these factors.” (05:36 – 05:42)
- “Obviously a 10 x on top line revenue is very different than a three x on top line revenue.” (05:42 – 05:46)
- “So long story short, I’m gonna be talking a lot more about this on the show as well too, to provide this insight with you as I’m learning where it is currently in the market.” (05:56 – 06:04)
Hey folks, Sean here, and in this episode what I want to talk to you about are B2B SaaS multiples. That is, if your B2B SaaS scales to the point where you’re considering or thinking about selling it, what might you ultimately be looking at in terms of a negotiated sale price? Now the first thing I’ll say is that people have a tendency to throw around statistics when it comes to talking about multiples, but in reality, like many other things in our market and our world, this can be a range. And there’s a number of factors that will affect what type of multiple you may be looking at all the way from specifically what your B2B SaaS is and does all the way to and through what is the state of the greater just larger economy look like at the moment. So I wanna share some of those variables with you as well as some benchmarking information and give you somewhat of an idea what to expect.
Now, depending upon where you are in the history of building and scaling your B2B SaaS, you may be more or less interested in entertaining this at the moment. But even if you aren’t in a position to potentially sell what you’ve built so far, then it’s still good information to know either way, because then you can factor it into the fiscal decisions that you make as you’re growing and scaling your B2B SaaS. So the first thing I’ll share is one of the more common, I say numbers or stats that’s been tossed around in my circles relatively recently, I’d say within the past year or so, is that B2B SaaS products have a tendency to sell for 10 x multiple on revenue. Now obviously what that means is based on the revenue that your B2B SaaS is able to generate within a year period of time, so the ARR or the annual recurring revenue, what it was, at least when this was common, relatively common knowledge or where the market was, you would receive potentially a 10 x multiple on that if you were looking to sell your B2B SaaS.
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So for example, if your SAS product was bringing in, let’s just call it about 10K per month, so you were 10K MRR, right now, that would be about 120K ARR. If you just took that monthly number and you scaled that up. Now, if you were to supposedly sell that and your benchmark at the moment was 10 x on revenue, then you’d be looking at potentially being able to sell that business for up to $12 million. Now that’s what it was, but that’s not what it is now. So there’s a number of good resources out there, and one I’ll link to in the notes, and that’s from the company OpenView where they do, they have a tendency to do these annual SaaS benchmark reports, which provide a lot of good information
From unsuccessful B2B SaaS companies cuz they see a lot of deal flow and in it. Now, the one that I’m referring to is from 2022, but it’s got some good information in it, which I think has only kind of continued into 2023. So it’s more than likely still relatively accurate. But something to note is that, and what I’ll talk about in this episode, the larger economy can dramatically affect what the open market is saying in terms of what a B2B SaaS product or company might ultimately be worth. And back when money was cheap, and when I say money was cheap, interest rates were low. So borrowing rates were real, were very low, the Fed funds rate was held at zero for a long time. That’s part of the larger economic levers that the federal government has in terms of determining fiscal policy and trying to essentially make sure the economy is is relatively healthy.
That rate which banks borrow from is ultimately a catalyst for how, what the open market ultimately can offer when it comes to borrowing money. So for the longest time, like throughout the pandemic, those rates were very, very low, almost like at historic lows, which made it cheap and easy to borrow money. And when that was the case, a lot of people were spending, a lot of people were borrowing. So there was a lot of activity and that was part of the idea was rates were lower to try to courage activity and there was a lot of it. And when there was a lot of it there, it pushed the multiples up. So that’s how we got to the 10 x multiple and and considerably higher in some instances, depending on your growth rate, your industry, a bunch of other factors that we’ll talk in about in future episodes.
But for now, what I want you to focus on is because of inflation has been very high and because of the fiscal policy reversing and us raising interest rates continuously over greater part of a year and change at this point, the multiples have come down and they’ve come down considerably. So lately what I’ve been seeing in terms of B2B SaaS products or companies on the open market and what they may be selling for, I’m seeing more between the three and four multiple on top of revenue. And again, that would be arr. So that’s what I want to start sharing with you is more about this information so you have an idea what to expect, and also where the market is at any given point in time, you can factor that into your decision because obviously if your B2B SAS product is throwing off great cash and you’re appreciating that cash flow, if you don’t have an interest in selling, you may or may not be interested in selling. Depending upon a number of these factors. Obviously a 10 x on top line revenue is very different than a three x on top line revenue. So you know, ultimately as the economy ebbs and flows and as some of these other factors come into play and those numbers change, you might ultimately want to change what you do with your B2B se. So long story short, I’m gonna be talking a lot more about this on the show as well too, to provide this insight with you as I’m learning where it is currently in the market.