It’s no secret that SaaS is booming. According to CB Insights, the SaaS market is expected to be worth $1 trillion by 2025, and it’s growing at an annual rate of 15%—that’s faster than any other B2B segment.
But what does that mean for you? How can you use this information to make smart decisions about your business? And how do you know whether or not your business is worth what you think it is?
This post will walk through a beginner’s guide to SaaS valuation.
What is SaaS Valuation
It’s the estimated worth of a software-as-a-service (SaaS) company. The value is determined by several factors, including the company’s revenue, profit, customer base and market share. This assessment aims to provide a framework for investors and others interested in allocating capital to or acquiring ownership in a SaaS business.
Why is SaaS Valuation Important
If you’re thinking of selling your SaaS company, or issuing stock in a fundraising round, you’ll need to know its valuation. This number will help you determine how much your business is worth and how much money you can raise. It’s also important for internal purposes; knowing your company’s value can help you decide where to allocate your resources and how to grow your business.
Factors to Consider in SaaS Valuation
When it comes to SaaS valuation, few key considerations need to be considered.
The first is the stage of the company.
A company in its early stages will be worth less than a more established one. This is because there is more risk associated with a company that is not yet generating revenue or profits.
Another factor to consider is the size of the company.
A company with a larger customer base and more users will be worth more than one with a smaller customer base. This is because it is easier to scale a business with a larger user base.
The final factor to consider is the competitive landscape.
A company that faces significant competition from other businesses will be worth less than one that does not have much competition. This is because it will be harder for the company to differentiate itself from its competitors and grow its market share.
When assessing the value of a SaaS company, all of these factors need to be considered for valuation. While there is no definitive answer, a reasonably accurate estimate can be made by considering all of the relevant factors for SaaS valuation.
How to do SaaS Valuation
There isn’t one definitive answer on how to do SaaS valuation, but a few popular methods are often used. Here is an easy guide to one:
Step 1:
The first is the company’s monthly recurring revenue (MRR) will help determine SaaS valuation. This is the amount of money the company brings in each month from its customers. It’s important to note that this should be MRR from actual customers, not just potential ones.
Step 2:
Next, you’ll need to calculate the customer lifetime value (CLV) to increase the SaaS valuation. This is the amount of money a customer is expected to spend with a company over their relationship with that company. To calculate it, you’ll need to know the average lifetime of a customer, as well as the average monthly renewal rate.
Step 3:
Once you have those figures, you can calculate the CLV by multiplying the MRR by the average lifetime of a customer, and then dividing that number by the average monthly renewal rate. Getting the number exhibits SaaS valuation.
Step 4:
The next factor to consider in SaaS valuation is the churn rate. This is the percentage of customers who cancel their subscriptions each month. To calculate it, divide the number of customers who cancelled in a given month by the total number of customers at the beginning of that month.
Step 5:
You’ll need to determine your company’s valuation. This is done by multiplying the MRR by the CLV and subtracting the churn rate. So, for example, if your company has an MRR of $10,000 per month, a CLV of $120,000, and a churn rate of 5%, your company would be worth $1.8 million.
While these are all important factors and steps to consider when valuing a SaaS company, they’re not the only ones. There are other things to consider for SaaS valuation, such as market size and competitive landscape. But knowing these basics will give you a good starting point for your valuation.
Get Professional Help From Online Business Brokers
When ready to take your business to the next level, you may need to consider a SaaS company valuation. This is a process by which you assess and measure the worth of your company. There are a few different ways to go about this, but one of the best and most common methods is to use an online business broker.
An online business broker can help you navigate the waters of a SaaS company valuation. They have the experience and expertise necessary to help you get an accurate picture of what your company is worth. Additionally, they can provide you with resources and advice to help you grow your business.
The online business broker also offers a variety of resources to help sellers prepare their businesses for sale. This includes preparing financial statements, assessing your company’s value, and creating a sales deck to market your business. They also offer guidance on negotiating a sale and completing the transaction.
If you seek help with a SaaS company valuation, reach out to an online business broker. They can guide you through the process and help you get the best results possible.
Trust The Brokers
Trust The Brokers is your go-to for SaaS valuation.
As an online business broker, we know that SaaS valuation is complicated. We’re here to make it easier on you. Our team of experts is ready to help you navigate the complex world of SaaS valuation and SaaS sales. We have years of experience in the industry, and we’re passionate about getting you the best possible outcome.
We’ll help you find a buyer who understands your company’s value so you can rest easy knowing that your SaaS business is in good hands.