Formula, in SaaS Metrics
Business Valuation Formula (Earnings x Multiple)
This fundamental business valuation formula provides a quick and effective way to estimate a company's worth by multiplying its chosen earnings metric by an appropriate industry valuation multiple.
3 variables. Published Mar 12, 2026. Updated Mar 27, 2026. By AI Biz Hub.
Business Valuation = Earnings x Valuation Multiple Variables
BV
Business Valuation
The estimated total worth of the business in currency units. The headline output, useful as a negotiation anchor rather than a precise price.
Earn
Earnings
The earnings base being capitalized, in currency units (typically annual net profit, SDE, or EBITDA). Use a normalized, recurring figure, not a one-off year.
VM
Valuation Multiple
The multiple applied to earnings, expressed as a number (for example 3.5x). Set by industry, growth, and risk; SaaS and recurring-revenue firms command higher multiples than service businesses.
Step by step
- 1
Set the baseline case with the real calculator inputs.
Annual Revenue = $500,000, Revenue Multiple = 1.5, Sde = 150,000, Sde Multiple = 3
- 2
Normalize the earnings base: strip out one-time gains, owner add-backs, and non-recurring costs so the multiple is applied to sustainable profit.
Reported profit of 90,000 with a 10,000 one-off legal cost normalizes to 100,000.
- 3
Apply the formula and read the first calculator outputs, not just the headline assumption.
The Revenue Multiple method lands with low at 562,500 and mid at 750,000.
- 4
Re-run with a multiple at the low and high end of your industry band to bracket the valuation rather than trusting a single point.
A 3x to 5x band on 100,000 earnings spans a 300,000 to 500,000 valuation.
Worked example
Business Valuation sample case
Annual Revenue
$500,000
Revenue Multiple
1.5
Sde
150,000
Sde Multiple
3
Business Valuation = Earnings x Valuation Multiple using annual revenue $500,000, revenue multiple 1.5, sde 150,000, sde multiple 3.
The Revenue Multiple method lands with low at 562,500 and mid at 750,000.
Common variations
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Questions people ask next
What is the business valuation formula?
Business Valuation = Earnings x Valuation Multiple. You multiply a normalized earnings metric (typically annual net profit, SDE, or EBITDA) by an industry valuation multiple to estimate the company's worth. The result is best treated as a negotiation anchor rather than a precise price.
Which earnings figure should I use in the business valuation formula?
Use a normalized, recurring earnings figure rather than a one-off year. Strip out one-time gains, owner add-backs, and non-recurring costs so the multiple is applied to sustainable profit. For example, a reported profit of 90,000 with a 10,000 one-off legal cost normalizes to 100,000.
How do I set the valuation multiple?
The valuation multiple is set by industry, growth, and risk, and is expressed as a number such as 3.5x. SaaS and recurring-revenue firms command higher multiples than service businesses. Rather than trusting a single point, re-run the formula at the low and high end of your industry band, for example a 3x to 5x band on 100,000 earnings spans a 300,000 to 500,000 valuation.
Can you show a worked business valuation example?
Using annual revenue of $500,000, a revenue multiple of 1.5, SDE of 150,000, and an SDE multiple of 3, the Revenue Multiple method lands with a low estimate of 562,500 and a mid estimate of 750,000. Bracketing the value across a multiple range gives a more honest picture than a single number.
Sources
- Blossom Street Ventures — Q1 2024 Tech Multiples , Blossom Street Ventures
- Understanding Business Valuation Multiples , Forbes Advisor
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