SaaS Valuations: 2024 Multiples + Key Metrics To Attract VCs

SaaS valuations between 2015-2023 were typically 5.1x revenue.

As VC investments into SaaS companies begin to ramp up, we could see larger SaaS multiples in 2024.

I’ve seen SaaS multiples shoot up and down depending on which way the economic winds are blowing.

• Struggling to understand why valuations skyrocketed one day and plummeted the next?
• Unsure whether to invest in that promising SaaS startup with explosive growth, or wait for the bubble to burst?
• Drowning in a sea of conflicting opinions and technical jargon, desperate for clear, actionable insights?

As a general rule, SaaS startups valued under $2 million can expect ARR (Annual Recurring Revenue) multiples between 5x to 7x revenue.

SaaS companies valued at over $2 million can expect ARR multiples between 7 to 10x.

The question is, if you were to try and sell your SaaS business right this second, what’s a fair price tag?

In this guide, we will break down everything you need to know about calculating SaaS valuations and how to calculate the right number for your SaaS business.

This article is for:

• Founders and CEOs of SaaS companies at all stages of growth.
• Investors considering backing the next big SaaS play.
• Anyone with a stake in the future of the cloud-based software revolution.

Let’s chart your journey toward a sky-high exit (or at least a comfortable landing).

3 SaaS Valuation Metrics That Move The Needle & 1 Game-Changing Metric

Several tried-and-true metrics impact the value of a SaaS company, including:

• Revenue growth
• Customer acquisition costs
• Customer lifetime value

Understanding how these metrics are calculated and how they impact your company's value is crucial for accurate SaaS valuation.

Revenue growth is an important metric in SaaS valuation because it reflects the business’s potential for future growth. The rate at which a SaaS company's revenue is growing can impact its value greatly, as it’s an indication of the company's ability to attract and retain users.

Investors and venture capitalists are attracted to high rates of revenue growth as it’s a clear indication that the SaaS company has a strong and growing user base.

Customer acquisition cost (CAC) is an interesting metric.

A reasonable price tag attached to the acquisition of each SaaS user is often a good way to prove that your business can grow with an injection of capital.

However, you must ensure customer acquisition costs are sustainable so that you do not run out of road further down the line.

The relationship between customer acquisition costs and customer lifetime value is critically important.

The cost to acquire a SaaS user should never outweigh their expected lifetime value.

If you can demonstrate the ability to acquire new users sustainably over the long term, you are likely to receive a favorable valuation.

Understanding The Importance Of SaaS Valuations

Whether you want to attract investors or simply plan for the future, you must have a clear understanding of what your SaaS company is potentially worth.

You cannot automatically use the same ARR multiples as other SaaS companies.

There is no shortage of variables that come into play with SaaS valuations.

After all, no SaaS company is the same.

If you are serious about building a SaaS company that’s well-positioned for the future, you must get a handle on your numbers.

The Growing Pains Of SaaS Companies In 2024

The “grow at all costs” mentality, which often involves sacrificing profits and heavily reinvesting capital, doesn’t work in an unstable economic climate.

SaaS founders would raise a large sum of capital and invest it in user acquisition without worrying about whether or not they were actually turning a profit.

Many feel that this approach is no longer viable.

VCs enjoy adding SaaS companies to their portfolios as they provide predictable, recurring revenue.

However, they are increasingly looking for lean operations with healthy balance sheets.

From what I’ve seen, SaaS companies with low burn and long runways are getting the most attention from VCs.

If you are taking steps to address burn, this is also attractive to VCs.

To stay ahead of the competition, SaaS companies must understand their worth and know how to maximize it.

Ultimately, it all comes down to tracking a few key metrics that will determine your SaaS company’s value.

These metrics are of particular importance to venture capitalists who are interested in acquiring or investing in SaaS companies.

The Importance Of Strong Customer Relationships

How sticky are your users?

When you acquire new users, do they stick around?

If you want to get a juicy SaaS valuation, you must keep user churn under control.

The relationships a SaaS company has with its users are critical to its overall value.

I’ve seen SaaS companies crash and burn because of an inability to get churn under control.

This doesn’t happen overnight.

It’s a slow and painful death.

If you cannot keep hold of your users and fail to inspire retention, your subscription base will essentially resemble a leaking bucket.

Sure, every SaaS company experiences churn - but there are different levels of churn.

The best thing you can do is continuously study the needs of your users and develop a SaaS product that’s exceptionally good at solving a persistent problem for a specific market.

The Impact Of Sales & Marketing Strategies On Valuations

Is your SaaS sales strategy scalable and sustainable?

Will this strategy enable you to continuously unlock monthly recurring revenue well into the future?

Naturally, sustainable sales and marketing strategies are very attractive to SaaS investors.

They want to see a clear path forward for continued revenue generation.

From the outset, your SaaS company should have a well-defined target market and a clear go-to-market strategy.

This makes it easier for you to acquire new users and increase your overall value.

Those are the basics.

I’ve found that former agency owners make surprisingly good SaaS founders.

Spending years in the B2B grind, they see client headaches repeat like clockwork, just begging for a software fix.

Their war wounds turn into winning SaaS ideas.

Many of the best SaaS companies begin by cornering and serving a niche market.

This enables them to grow very quickly.

But what happens next?

This is what VCs will want to know.

How are you going to expand beyond “niche domination” and capture a wide range of users at scale?

The Role Of Intellectual Property In SaaS Valuations

Intellectual property, such as patents, trademarks, and copyrights, can also play a role in determining the value of a SaaS company.

If a SaaS business has strong intellectual property, this can itself create a competitive and help to increase the company's value.

Intellectual property can also help to protect the company's technology and offerings, which can reduce the risk for those interested in investing in the SaaS business.

Conclusion: Accurately Assessing Your SaaS Company's Value in 2024

When it comes to attracting investment, negotiating deals, and planning for the future, SaaS businesses must have a solid understanding of their worth.

As I’ve mentioned, there are many different factors to take into consideration.

You should not overlook the importance of keeping churn under control.

If your SaaS customer base resembles a heavily leaking bucket, this is a problem.

To get a solid valuation in 2024, here are some key action points for any founder:

• Tighten up your burn rate and get it under control.
• Consider how you will acquire users beyond your core market.
• Create a lean operation with a healthy balance sheet.

As you look to boost your SaaS valuation, I hope you find these pointers useful.

I’d also recommend reviewing your offboarding process with our SaaS offboarding cheatsheet.

This can help you reduce SaaS churn and make your SaaS more attractive to VCs.