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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.

Bottom Line

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.

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Business Valuation Calculator

Estimate business worth using revenue, SDE, and EBITDA multiples with blended range.

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Formula

Copy the exact expression or work through it step by step below.

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. 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. 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. 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. 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

Scenario variants are useful because fixed assumptions rarely survive contact with real life unchanged.
Use Business Valuation Calculator to compare the baseline result with one stressed case before relying on a single answer.

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FAQ

Questions people ask next

The short answers readers usually want after the first pass.

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.

Sources & References

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