SaaS and software company valuation
Australian SaaS and software businesses typically value at 4.0 to 7.5 times EBITDA, or on a revenue multiple of roughly 1.5 to 5 times ARR where growth is strong. Net revenue retention and gross margin do most of the work.
This is the highest band in the Australian SME market and the widest, because "software business" covers everything from a genuine subscription product with contracted ARR to a services agency with a login page. The valuation starts by establishing which one you are.
Quick answer
What is a SaaS business worth?
Profitable Australian SaaS businesses value at roughly 4.0 to 7.5 times normalised EBITDA. Where growth is being funded and earnings are suppressed by design, an ARR multiple of about 1.5 to 5 times applies instead, set by growth rate, net revenue retention and gross margin. Contracted annual subscriptions, retention above 100 per cent and margins over 75 per cent reach the top; project revenue with a subscription label does not.
What moves the number
The metrics that set a software multiple
Software is the one sector where operating metrics are valued as directly as financial statements — because they predict the durability of the revenue.
| Factor | Pushes toward the top | Pulls toward the bottom |
|---|---|---|
| Revenue composition | Contracted annual subscriptions with auto-renewal; ARR clearly defined | Implementation and services revenue counted inside "ARR" |
| Retention | Net revenue retention above 100 per cent, logo churn under 10 per cent annually | Monthly churn above 2 per cent, or retention unmeasured |
| Gross margin | Above 75 per cent after hosting, support and third-party licence cost | Below 60 per cent, or margin masked by unallocated support cost |
| Customer concentration | No customer above 10 per cent of ARR | One enterprise customer carrying a quarter of the book |
| Product and team risk | Documented codebase, more than one engineer who can ship, IP owned by the company | A single founder-developer, undocumented code, IP assigned to contractors |
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Revenue composition
↑ Contracted annual subscriptions with auto-renewal; ARR clearly defined
↓ Implementation and services revenue counted inside "ARR"
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Retention
↑ Net revenue retention above 100 per cent, logo churn under 10 per cent annually
↓ Monthly churn above 2 per cent, or retention unmeasured
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Gross margin
↑ Above 75 per cent after hosting, support and third-party licence cost
↓ Below 60 per cent, or margin masked by unallocated support cost
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Customer concentration
↑ No customer above 10 per cent of ARR
↓ One enterprise customer carrying a quarter of the book
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Product and team risk
↑ Documented codebase, more than one engineer who can ship, IP owned by the company
↓ A single founder-developer, undocumented code, IP assigned to contractors
Normalising the earnings
Normalising a software P&L
Software accounts hide value in two directions: founders underpay themselves, and development cost is capitalised inconsistently. Both are restated.
How the earnings method works →- Founder remuneration Costed at market for the CEO, product and engineering roles actually performed
- Capitalised development Restated consistently, so R&D treatment does not flatter or depress earnings
- R&D tax incentive Treated as what it is — a refundable offset, not recurring trading revenue
- One-off implementation revenue Separated from recurring subscription revenue in every year presented
- Share-based payments Non-cash remuneration identified and treated explicitly
- Hosting and infrastructure Normalised where the current cost is subsidised by credits or a startup program
Worked example
Worked example: a vertical SaaS business
ARR is $2.4m growing 35 per cent, with a further $600,000 of implementation revenue that management had been reporting inside ARR. Restated, true ARR is $2.4m. Gross margin after hosting and support is 78 per cent. Two founders draw $90,000 each against a $340,000 combined market cost.
Net revenue retention is 108 per cent and no customer exceeds 8 per cent of ARR, but the platform depends on one founder-engineer with no documented handover. Earnings are deliberately reinvested, so a revenue basis applies: 3.4× ARR, discounted for key-person risk.
A defensible range around $8m, cross-checked against a risk-adjusted DCF
Illustrative only. Every engagement is scoped to the specific business, its records and the purpose of the valuation.
What a buyer, a bank or an opposing expert will test first
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01
What counts as ARR
Implementation fees, usage overages and annual prepayments of non-recurring work are routinely included. Restating ARR is the first step.
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02
Retention maths
Gross versus net revenue retention, measured by cohort. A single expansion deal can flatter a net retention figure badly.
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03
IP ownership
Code written by contractors without an assignment clause is not owned by the company. Buyers and investors check; so do we.
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04
Key-person dependence
One engineer who understands the system is the most common discount applied to Australian SaaS valuations.
On earnings if it is profitable and growth is moderate; on revenue if profit is deliberately suppressed to fund growth. Applying a revenue multiple to a low-growth, low-margin software business overstates it substantially, and applying an earnings multiple to a fast-growing one understates it. The report states which basis was used, why, and what the other basis produces.
No. A round price reflects negotiation, preference terms, strategic interest and an investor’s portfolio position. A market value assessed for tax, an employee share scheme or a dispute is frequently below the headline pre-money figure — particularly where preference shares sit above ordinary shares in the waterfall.
A valuation of the company at a defined date, then a fully diluted per-share figure that accounts for the option pool, convertible notes and SAFEs. The ATO expects a documented basis, and a valuation prepared at the time is far easier to rely on than one reconstructed years later.
With early-stage methods — Berkus, Scorecard, the Venture Capital method or a risk-adjusted DCF — rather than by capitalising earnings that do not exist. Our startup valuation page sets out how those engagements run.
Both, separately. Services revenue is valued on a professional services basis and the product on a software basis, then reconciled. Blending them into one multiple is the most common way agency-plus-product businesses are mispriced in either direction.
Reviewed by a Certified Practising Valuer
Reviewed by Jarrad Khoury, Director and Head of Valuations — Registered Valuer (QLD, Not Limited), Licensed Valuer (WA, Not Limited), CPV and CBV. Published by Business Valuations Brisbane, the business valuation division of Asset Valuations Group.
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