An EBITDA multiple prices a company as a function of its profits, while a revenue multiple prices it as a function of its sales. In software M&A, mature, profitable businesses trade on EBITDA multiples, and high-growth SaaS companies that reinvest everything into growth trade on revenue or ARR multiples.
Which yardstick applies to your company changes how buyers underwrite you, so it is worth understanding the mechanics.
How each multiple works
An EBITDA multiple starts with earnings before interest, taxes, depreciation, and amortization, a proxy for the cash the business generates. A buyer paying a multiple of EBITDA is buying a stream of profits and betting on its durability. This is how most mature businesses are priced, in software and everywhere else.
A revenue multiple applies to top-line sales, and in SaaS it usually applies specifically to annual recurring revenue (ARR). A buyer paying a multiple of ARR is not buying today's profits. Often there are none. They are buying the future profit machine: a recurring revenue base that is growing fast, retains its customers, and will throw off cash later once growth spending normalizes.
Why growth-stage SaaS trades on revenue
A SaaS company growing 60% a year and spending aggressively on sales and engineering may show zero EBITDA by design. Judged on profits, it would be worth nothing, which is obviously wrong. The recurring revenue has real, measurable value: it renews, it expands, and its unit economics can be modeled forward. So the market prices the ARR directly and lets metrics like growth rate, net revenue retention, and gross margin set where in the range the multiple lands.
The unspoken rule is that a revenue multiple is a claim about the future. The buyer is asserting that this revenue will eventually convert to profit at healthy margins. The moment growth slows, buyers quietly switch yardsticks and start asking about EBITDA. Plenty of founders get caught in that transition, holding a revenue-multiple expectation for a business the market now prices on earnings.
Why mature businesses trade on EBITDA
Once a software or payments business is growing modestly and generating real cash, the speculation is over. The buyer can see the profits, so the profits get priced. Payments businesses, mature vertical SaaS, and services-heavy software almost always trade this way. Within EBITDA-multiple deals, the number moves on revenue quality: how recurring and contractual the revenue is, how concentrated the customer base is, how sticky the product is, and how well the business runs without its founder.
What actually moves the multiple
I will not quote current market multiples here, because they move with rates, buyer appetite, and sector cycles, and any specific number in a blog post is stale by the time you read it. What stays constant is what drives the number: growth rate, retention (gross and net), gross margin, customer concentration, the recurring share of revenue, market position, and the credibility of your financial reporting. Two companies with identical revenue can trade at multiples several turns apart on these factors alone. That gap is the part of valuation a well-run process, and 12 months of preparation, can actually influence.
Where deals get mispriced
The most expensive mistake we see is measuring against the wrong yardstick: a founder anchoring on a revenue multiple for a business buyers will price on EBITDA, or underselling a genuine ARR story because the books do not present it cleanly. After 25 years and more than $10 billion in transaction volume across payments, fintech, and software deals, I can tell you buyers decide which framework applies within the first meeting. Your positioning should decide it for them first.
Want to see which framework fits your company and what it implies? Run your numbers through our free valuation calculator at 733park.com/tools/portfolio-valuation, or contact us for a confidential read at 733park.com/contact.
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