What multiple should I use to value a small service business?

Most small owner-operated service businesses trade at 1.5×–4× SDE (Seller's Discretionary Earnings). The exact multiple depends on revenue size, growth trend, customer concentration, owner dependency, and industry. Businesses with recurring revenue and diversified clients command higher multiples.

What is the difference between SDE and EBITDA?

SDE (Seller's Discretionary Earnings) is typically used for small businesses and adds back the owner's full compensation and personal expenses to net profit. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is used for larger businesses and assumes a market-rate management team is in place. EBITDA does not add back an owner's above-market salary.

How do I value a SaaS business?

SaaS businesses are most commonly valued on a revenue multiple applied to ARR (Annual Recurring Revenue) or TTM (trailing twelve months) revenue. The multiple reflects growth rate, net revenue retention, gross margin, and market conditions. High-growth SaaS with strong retention can achieve 6×–10× ARR; slower-growth or SMB-focused products typically trade at 2×–4×.

Is this tool a substitute for a professional appraisal?

No. This calculator provides a rough directional estimate for planning purposes. Any significant transaction — sale, acquisition, partnership buyout, estate transfer — requires a formal valuation by a certified business appraiser who can account for deal structure, market comparables, qualitative factors, and legal considerations.

Business Valuation Calculator

Estimate business value using revenue and earnings multiples.

Scratchpad (not saved)

Save to create a persistent, shareable workspace.

This tool produces a rough estimate, not a professional appraisal. Business valuations depend on deal structure, buyer type, market conditions, and many qualitative factors not captured here. For any transaction, engage a certified business appraiser or M&A advisor.

What This Calculator Does

Estimate the market value of a business using SDE (Seller's Discretionary Earnings) multiples, EBITDA multiples, or revenue multiples. Each method suits a different business type — the guidance below helps you choose the right one.

It combines Annual Revenue, Annual Earnings (EBITDA or SDE), Revenue Multiple, Earnings Multiple to estimate Estimated Value (Average), Revenue-Based Value, Earnings-Based Value.

Formula & Method

Core equations: Three valuation methods:

V_{revenue} = R \times m_R

V_{earnings} = E \times m_E

V_{asset} = A - L

where

R

is annual revenue,

E

is annual earnings,

m_R

and

m_E

are their respective multiples,

A

is total assets, and

L

is total liabilities. The blended estimate averages the revenue and earnings methods. Inputs are applied in base units, then derived metrics are computed from the same equations and rounded for display.

Notation used in the formulas: $R$ = Estimated Value (Average); $x_{1}$ = Annual Revenue; $x_{2}$ = Annual Earnings (EBITDA or SDE); $x_{3}$ = Revenue Multiple; $x_{4}$ = Earnings Multiple; $x_{5}$ = Total Assets; $x_{6}$ = Total Liabilities.

Method summary: inputs are normalized to consistent units, core equations are evaluated, then secondary values are derived and rounded for display.

Use this for early-stage planning, sale preparation, partner buyout discussions, and understanding the rough value range before engaging a professional appraiser.

Which Valuation Method Should You Use?

SDE (Seller's Discretionary Earnings) Multiple: Best for small owner-operated businesses with annual revenue under roughly $5M. SDE adds back the owner's salary, personal benefits, and one-time expenses to net profit. Buyers apply a multiple (typically 1.5×–4×) based on industry, growth, and stability. Most main-street business sales use SDE.
EBITDA Multiple: Best for larger businesses with professional management, typically $5M–$50M+ in revenue. EBITDA strips out financing and tax decisions so buyers can compare operating performance across capital structures. PE firms and strategic buyers commonly apply EBITDA multiples of 4×–10× depending on sector and size.
Revenue Multiple: Best for high-growth SaaS and technology companies where current earnings are not the primary signal of value. ARR or trailing-twelve-month revenue is multiplied by a factor that reflects growth rate, net revenue retention, and gross margin — commonly 2×–10× for SaaS businesses at various stages.

Sample Valuation Walkthroughs

Service Business (Agency / Consulting Firm)

A marketing agency generates $2M in revenue. Owner's salary is $200K, personal expenses run through the business are $50K, and net profit is $150K. SDE = $150K + $200K + $50K = $400K. At a 3× SDE multiple, estimated value = $1.2M.

SaaS Business

A B2B SaaS company has $1.5M ARR, 110% net revenue retention, 75% gross margin, and 40% YoY growth. At a 6× revenue multiple (reflecting strong retention and growth), estimated value = $9M.

Retail Business

A specialty retail shop generates $800K revenue. After owner's salary add-back, SDE is $120K. At a 2.5× SDE multiple (reflecting inventory risk and lease dependency), estimated value = $300K.

Common Mistakes

Applying a SaaS revenue multiple to a services business — services revenue does not recur with the same predictability, so the multiple should be far lower.
Using an EBITDA multiple when EBITDA is negative or distorted by one-time items — normalize earnings first by removing non-recurring expenses and adding back owner adjustments.
Forgetting to add back owner compensation to reach SDE — the buyer will replace the owner's role, so all owner-related costs must be added back before applying a multiple.

When Not To Use This Calculator

Formal M&A transactions, partnership buyouts with legal implications, or estate planning — these require a certified business appraiser.
Businesses with complex capital structures, significant real estate holdings, or intellectual property portfolios where asset-based valuation methods are more appropriate.

Frequently Asked Questions

What multiple should I use to value a small service business?: Most small owner-operated service businesses trade at 1.5×–4× SDE (Seller's Discretionary Earnings). The exact multiple depends on revenue size, growth trend, customer concentration, owner dependency, and industry. Businesses with recurring revenue and diversified clients command higher multiples.
What is the difference between SDE and EBITDA?: SDE (Seller's Discretionary Earnings) is typically used for small businesses and adds back the owner's full compensation and personal expenses to net profit. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is used for larger businesses and assumes a market-rate management team is in place. EBITDA does not add back an owner's above-market salary.
How do I value a SaaS business?: SaaS businesses are most commonly valued on a revenue multiple applied to ARR (Annual Recurring Revenue) or TTM (trailing twelve months) revenue. The multiple reflects growth rate, net revenue retention, gross margin, and market conditions. High-growth SaaS with strong retention can achieve 6×–10× ARR; slower-growth or SMB-focused products typically trade at 2×–4×.
Is this tool a substitute for a professional appraisal?: No. This calculator provides a rough directional estimate for planning purposes. Any significant transaction — sale, acquisition, partnership buyout, estate transfer — requires a formal valuation by a certified business appraiser who can account for deal structure, market comparables, qualitative factors, and legal considerations.

Inputs Used

Annual Revenue: Total annual revenue
Annual Earnings (EBITDA or SDE): Earnings before interest, taxes, depreciation, amortization
Revenue Multiple: Industry revenue multiple (e.g., 1-3x for services, 3-10x for SaaS)
Earnings Multiple: Industry earnings multiple (e.g., 3-5x for small businesses)
Total Assets: Total value of business assets
Total Liabilities: Total business debts and liabilities

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