SaaS companies sell for 4.0x to 8.0x SDE and 8.0x to 15.0x EBITDA, measuring earnings before interest, taxes, depreciation, and amortization—the annual operating profit from subscription revenue minus hosting costs, customer support, and customer acquisition expenses. Companies with strong net revenue retention, healthy gross margins, low churn, and founder independence consistently achieve the upper range. The valuation spread reflects retention quality, unit economics, and operational independence that buyers evaluate when pricing software acquisitions.

Net revenue retention above 110% creates the most significant structural valuation advantage because expansion revenue from existing customers compounds profitability without acquisition burden. SaaS companies with 110%+ NRR demonstrate product-market fit because customers willingly increase spending despite competitive alternatives. Expansion revenue reduces acquisition cost payback requirement because existing customers fund growth through upsells, cross-sells, and seat expansion. NRR above 120% indicates exceptional unit economics where customer expansion exceeds churn, creating negative net churn where revenue grows despite customer losses. Buyers calculate customer lifetime value based on NRR and model how expansion revenue enables growth without proportional marketing expense. Companies demonstrating consistent 110%+ NRR over 3+ years command 12.0x–15.0x EBITDA because revenue compounding through expansion indicates durable business model. NRR below 100% indicates churn exceeding expansion, creating growth dependency on aggressive acquisition that increases valuation risk.

Gross margin above 75% demonstrates scalable unit economics that support profitable expansion. SaaS with 75%–80% gross margin indicate moderately complex products with manageable support burden or efficient cloud infrastructure costs. Margins above 80% indicate high-value products with minimal support burden or extremely efficient infrastructure, enabling aggressive scaling without cost constraint. Margin compression signals business model issues including high support requirements, complex deployment, or expensive infrastructure that limits profitability. Buyers model gross margin against target growth rate to ensure adequate funds for sales and marketing investment. Strong margins above 80% enable 50%+ marketing spend of revenue while maintaining 25%+ net margins. Weaker margins of 60–70% constrain marketing investment, limiting acquisition growth. Buyers devalue margin compression 15–25% because it signals post-acquisition scalability challenges. Documentation of cost structure including infrastructure, support, and payment processing costs supports margin validation.

Monthly churn below 1% indicates stable customer base and strong product-market fit. Sub-1% monthly churn results in 88–99% annual retention, enabling sustainable business models with moderate acquisition spend. 1–2% monthly churn (12–24% annual) creates customer replacement pressure, requiring 25–50% of revenue invested in acquisition to maintain growth. 2–3% monthly churn (24–36% annual) indicates unstable customer relationships requiring aggressive acquisition. Buyers calculate customer lifetime value using churn rate and focus on churn because it determines ROI on acquisition investment. Small customer churn paired with large dollar retention indicates healthy customer base with stable enterprise relationships masking count-based churn. Seasonal SaaS with annual billing cycles mask churn until renewal, creating buyer uncertainty about retention until full year passes. Cybersecurity MSSP companies demonstrate similar retention importance in security software valuations where customer churn indicates product efficacy.

ARR growth above 30% year-over-year indicates strong market demand and effective sales execution. Consistent growth above 30% over 3+ years demonstrates repeatable business model that buyers can project forward with confidence. Growth combined with healthy margins indicates acquisition efficiency where customer acquisition cost represents reasonable payback period. Growth of 20–30% demonstrates solid market momentum with sustainability questions. Growth below 20% raises buyer concerns about market saturation or sales execution challenges. Deceleration from 50%+ growth to 20% growth within single-year indicates market headwinds or execution issues. Buyers model growth rate and project multiples using normalized growth assumptions. Companies maintaining 30%+ growth through market cycles command premium valuations because predictable expansion reduces buyer integration risk and valuation uncertainty.

Founder sales and product independence determines post-acquisition transition smoothness. Founders generating 50%+ of sales create buyer risk that customer relationships transfer post-acquisition. Founders making unilateral product decisions require buyer integration of product philosophy. SaaS companies with distributed sales teams and documented sales process transfer smoothly to new ownership because relationships are institutional rather than personal. Product-independent operations indicate CEO/founder executes strategy while teams own execution, supporting founder transition. Documented customer relationships including contract status, renewal dates, and usage metrics support customer relationship transfer. Documented product roadmap and customer feedback integration process indicates systematic product development. Buyers devalue founder dependency 15–25% because acquisition involves founder transition. Best-case acquisition enables founder to focus on strategic initiatives while maintaining cultural alignment; worst-case founder turnover creates customer relationship risk and product strategy disruption, comparable to founder transition risks in MSP business valuations where operational independence drives acquisition multiples.