Technology Company Valuation Multiples (with Industry Insights from M&A Advisors)

When you’re thinking about selling your technology company, you want to understand the value of your business, expressed in multiples of your ARR or EBITDA. Knowing your value helps you decide if it’s the right time to sell, as you can see what kind of exit you’re likely to get.

Figuring out your precise valuation involves in-depth analysis and factoring in key metrics such as profitability, customer retention, gross margins, and EBITDA.

Often business owners will search for average valuation multiples online for companies similar to theirs. While that can give you a very general idea of what your company may be valued at, it’s not an accurate enough estimate, especially if you want to take your business to market.

This technology company valuation multiple guide covers:

• Average tech company valuation multiples
• Key factors that determine your multiple
• How to accurately value your business
• The benefits of working with an M&A advisor

At Axial, we pair tech companies with the best M&A advisors and investment banks for their exit. We’ve worked with all types of tech companies, including HR tech platforms, GovTech solutions, enterprise software, data analytics tools, and contact management systems, with revenue ranging from $5M to $100M+. Each had unique positioning challenges, such as needing advisors who understood government procurement cycles, requiring expertise in selling recurring revenue models to strategic buyers, and needing guidance on whether to position as vertical-specific solutions or horizontal platforms. If you have an ARR of five million or more and are interested in selling your company, schedule a free exit consultation today.

Average Tech Company Valuation Multiples

When we spoke to Aaron Solganick, CEO of Solganick & Co., a data-driven investment bank focused exclusively on software and IT service companies, he explained that he’s seen a wide range of valuation multiples in the tech sector based on company size and performance.

The technology sector encompasses many subsectors — from IT services companies to hardware manufacturers to SaaS platforms. Different subsectors use different valuation methodologies. IT services companies are often valued on EBITDA multiples rather than revenue multiples, while hardware manufacturers focus heavily on inventory management, supply chain efficiency, and gross margins.

In this guide, we focus specifically on software and SaaS companies, which represent one of the largest and fastest-growing segments of the tech M&A market. These companies are typically valued using ARR (Annual Recurring Revenue) multiples, making their valuation approach distinct from other tech subsectors.

“In 2025, I saw multiples ranging from 3x–5x ARR for smaller SaaS companies to 7x–12x for mid to large companies that are showing consistent growth.”

For public SaaS companies, SaaS Capital’s index shows the median company trades at approximately 6.7x–7.0x current run-rate annual revenue as of mid-2025. This represents a recovery from the three-year low of 5.5x but remains well below the 2021 peak of 9.8x.

These ranges provide directional guidance, but they mask significant variation based on company-specific factors. Whether your business commands a 3x or 7x multiple affects not just your final sale price, but also your deal structure, including how much of your exit is tied up in earnouts.

Note: If you’re looking for a ballpark figure for your company’s value, you can use our free business valuation calculator. Our calculator uses an industry-specific DCF methodology favored by M&A advisors.

Key Factors That Determine Your Multiple

The factors below focus specifically on software and SaaS company valuations. While some principles overlap with other tech subsectors — such as the importance of growth rate and market position — the specific metrics and benchmarks apply primarily to subscription-based software businesses.

When M&A advisors determine your valuation, they analyze your company’s performance across several dimensions. Understanding these factors helps you see where your business stands and where you can focus improvement efforts before going to market.

Company Size and Growth Rate

Larger tech companies generally command higher multiples. This “size premium” reflects greater stability, proven scalability, and stronger buyer demand from private equity firms and strategic acquirers who prefer larger deals.

As Solganick explained, “If you’re at $5 million or $10 million in ARR, your multiple will be several points lower than a company at $50 million or $100 million in ARR. Generally, for every $20 million increase in ARR, you gain a point or two on your revenue multiple.“

This is useful to understand if you’re assessing your current value but don’t plan to sell for another 5+ years.

Your growth rate matters as well. According to SaaS Capital’s 2025 survey of over 1,000 private B2B SaaS companies, the median growth rate is 25%. However, companies growing above 40% annually often receive premium multiples in the 8x–10x range, while those with low-teens growth and negative margins tend to sit in the low-to-mid single digits.

Profitability and the Rule of 40

While tech companies don’t need to be profitable to command strong multiples, the market increasingly focuses on the balance between growth and profitability.

As Solganick told us in our interview: “Many high-growth software companies are intentionally not profitable because they’re reinvesting heavily back into the business, particularly in R&D and growing top-line revenues.”

This approach is acceptable when growth justifies the investment.

The Rule of 40 provides a useful benchmark. This metric, which originated in Silicon Valley, states that if a tech company’s revenue growth rate plus its EBITDA margin equals or exceeds 40%, it will typically receive a market or above-market valuation multiple.

For example, a company growing 40% year-over-year with break-even profitability meets the Rule of 40. Similarly, a company with 25% growth and 15% EBITDA margins also qualifies (25% + 15% = 40%).

Companies that exceed this threshold demonstrate they can balance growth and profitability effectively, making them attractive acquisition targets that command premium valuations.

Customer Retention and Revenue Metrics

Two companies with identical ARR aren’t worth the same if one is losing customers while the other is growing accounts. Net Revenue Retention (NRR) measures the percentage of revenue you retain from existing customers, including expansion revenue from upsells and cross-sells.

An NRR above 100% means you’re growing revenue from your existing customer base even before acquiring new customers. Strong NRR — particularly above 110% for larger companies — demonstrates powerful product-market fit and expansion potential.

Churn rates matter significantly as well. Monthly churn rates below 2% for B2B SaaS demonstrate strong customer satisfaction and reduce buyer concerns about revenue sustainability post-acquisition. According to OPEXEngine, a 1% difference in churn can have a 12% impact on company valuation over five years.

Customer Acquisition Economics

Buyers scrutinize your LTV:CAC ratio because it tells them whether investing more in customer acquisition will generate profits or losses.

The benchmark to target is an LTV:CAC ratio of at least 3:1, with best-in-class companies reaching 4:1 or higher. According to Phoenix Strategy Group, a ratio between 3:1 and 4:1 represents the ideal balance for achieving growth while staying profitable.

If your Customer Acquisition Cost is too high relative to what customers pay you over their lifetime, it signals that growth will burn cash rather than create value. This results in lower multiples or deal structures heavily weighted toward earnouts.

Gross Margins

Your gross margin shows how efficiently you deliver your product. SaaS businesses should typically maintain gross margins above 75%, with best-in-class companies exceeding 85%.

Lower margins signal inefficient operations or a business model that won’t scale profitably, which directly impacts your multiple.

Customer Concentration Risk

If your largest customer represents 15–20% of your ARR, buyers will see significant risk. The loss of that single customer could materially impact your business, which buyers factor into valuations through lower multiples or earnout structures.

Solganick shared a good rule of thumb: “No single customer should represent more than 10% of your revenue.” High customer concentration can scare off private equity buyers entirely or result in substantially lower valuations.

Market Position and Timing

Your position in high-demand sectors significantly influences valuation. Currently, companies in areas like AI, data analytics, advanced applications, edge computing, and cybersecurity are receiving higher multiples due to exceptional buyer demand.

“AI-enabled companies remain in high demand from buyers,” Solganick says. “There’s so much money going into AI between new investments and add-on acquisitions. Buyers are acquiring all shapes and sizes of companies to get into AI right now.”

The cybersecurity sector is similarly hot due to increasing security breaches and risk concerns. Companies in these high-demand verticals often command premium multiples because multiple strategic buyers need these capabilities and are competing aggressively to acquire them.

Market timing matters as well. The tech M&A market has recovered from its 2022–2023 lows.

Solganick notes that conditions are “stronger this year than last year. More people are buying. Valuations are up.” With over three trillion dollars in private equity capital available, there’s significant dry powder for acquisitions.

For more information on how metrics drive your valuation, you can read:

• 6 Key SaaS Metrics that Determine Your Valuation Range
• How to Maximize Business Value Before You Sell

How to Accurately Value Your Business

Understanding the factors that influence multiples is valuable, but translating that knowledge into an accurate valuation for your specific business requires expertise and market data.

As Solganick explains: “If a company gives me their ARR, gross margin, and EBITDA, I can give them a rough estimate. But you want a specific and accurate multiple. The more KPIs and the more financial data I have to work with, the more accurate your valuation will be.”

An accurate valuation serves two critical purposes.

1. It helps you decide whether now is the right time to sell or if you should wait and focus on growth. When you decide to sell, you’re typically pursuing an opportunity to achieve your ideal exit — the right sale price, deal structure, exit timeline, and stewardship for your business.
2. If you’ve already received an offer from a buyer, a proper valuation tells you whether that offer is fair or if you’re leaving money on the table. Plus, accepting the first offer is not usually the best option, as you may secure a better exit when your M&A advisor conducts a competitive bidding process, which we cover later.

Valuation Methods M&A Advisors Use

M&A advisors typically use two complementary methods to arrive at an accurate valuation range:

• Comparable company analysis involves benchmarking your business against similar tech companies that are publicly traded or have recently been sold, adjusted for differences in size, growth rate, and profitability.

• Precedent transaction analysis examines actual purchase prices from recent sales of comparable software companies. When you work with an M&A advisor, you gain access to their industry expertise and transaction data from past clients to guide this analysis.

When we asked Solganick about discounted cash flow (DCF) analysis, he said it isn’t that commonly used by his team for tech companies. “DCF is sometimes used for mature, profitable tech companies, but revenue multiples provide a more practical framework for most businesses, especially those still in high-growth mode. We generally focus on comparable companies and precedent transactions when arriving at your valuation multiple.”

The key takeaway here is that M&A advisors will use various valuation methods to arrive at an accurate valuation range for your company. Plus, the more experience the M&A advisor has working with companies like yours, the more accurate their valuation can be. This is because they not only have the data on comparable companies, but also on what buyers historically have been willing to pay for a company like yours.

For more information on valuing your business, you can read:

• SaaS Valuations: How to Value Your Business and Get the Best Exit
• How to Value a Company for Sale

The Benefits of Working with an M&A Advisor

An accurate valuation tells you what your business could be worth in the current market. An experienced M&A advisor helps you actually achieve — or exceed — that number while securing the deal terms and exit outcomes you’re looking for.

Data shows that working with an M&A advisor can increase your final sale price anywhere from 6–25%, according to the Quarterly Journal of Finance. Within Axial’s network of over 3,000 M&A advisors and investment banks, we’ve seen outcomes even higher in specific cases.

Here are the key benefits of working with an M&A advisor.

Benefit #1: They Verify You’re Ready to Go to Market

Many owners believe they’re ready to sell before they’ve properly prepared their business, or they assume their business is valued at a certain multiple when it’s actually higher or lower than expected.

A good advisor will assess your financial records, key metrics, and operational readiness to determine if now is the right time to go to market or if you need 6–12 months of preparation to maximize your valuation.

Solganick shared with us his sobering estimate: “Most companies with $5 million to $50 million in revenue haven’t cleaned up their financials and gotten their metrics in order unless they’re already private equity backed.”

Getting your metrics buyer-ready before going to market can significantly increase your final valuation.

Benefit #2: They Create Competitive Bidding Environments

One of the most effective ways to maximize your sale price is through competitive bidding. Often, tech owners receive one unsolicited offer with no context on whether it’s competitive or what better terms might be available. Or if they target buyers on their own, they’re only targeting a select few.

This gives you limited options. Creating a competitive environment requires targeting a large number of qualified buyers. As a business owner, you face two challenges: you don’t have the time, and you don’t have the network. Based on internal surveys at Axial, M&A advisors save business owners at least 30 hours per week by managing buyer outreach, qualification, and coordination.

The impact of this approach is substantial. Solganick gave us an example of what a buyer funnel can look like: “My team marketed a business to around 300 companies. Out of those 300, 80 signed NDAs, indicating further interest. From those 80, 16 buyers submitted Indications of Interest. From that list, we narrowed it down to 8 viable buyers who were good strategic fits for our client.”

In this example, the seller went from negotiating with one buyer to choosing among eight qualified options. This competition drives up your final sale price, creates better deal terms (more favorable earnout structures, higher cash at close), and provides more options for finding the right cultural and strategic fit.

Benefit #3: They Position Your Metrics Strategically

Tech businesses have unique characteristics that require specialized knowledge to market effectively. Unlike traditional businesses evaluated primarily on revenue and profit, tech companies are valued based on complex metrics like ARR, CAC, LTV, and churn rates.

The value of your metrics doesn’t exist in isolation — it depends heavily on the type of buyer you’re targeting.

Strategic buyers (larger tech companies or firms seeking to expand their product offerings) may be most interested in your customer base overlap, geographic expansion opportunities, or technology integration potential. An M&A advisor would emphasize metrics that demonstrate market penetration and scalability.

Institutional buyers (private equity firms, family offices) typically focus on cash flow predictability and growth efficiency. They also look for operational improvements and add-on acquisition opportunities. For these buyers, M&A advisors would highlight strong LTV:CAC ratios, low churn rates, and consistent revenue growth patterns, as well as your management team’s strength, market position, and potential for bolt-on acquisitions.

An experienced advisor knows how to tailor your business story to resonate with each buyer type, maximizing perceived value without misrepresenting your company.

Benefit #4: They Negotiate with Objectivity and Expertise

Tech transactions often involve complex deal structures, including earnouts based on customer retention, revenue milestones, or product development goals. These structures can significantly impact your actual payout.

According to Solganick, earnouts typically represent “20 to 30% of the deal” for companies in the $5–30 million ARR range. The structure of these earnouts matters enormously. An “all or nothing” earnout means you hit 100% of your target and receive the full payment, or you hit 90% and receive nothing. A well-structured earnout pays you proportionally.

An experienced M&A advisor provides several critical advantages during negotiations.

Structuring seller-friendly protections includes non-interference clauses that prevent buyers from undermining your ability to hit earnout targets, as well as provisions around operational control during transition periods.

Navigating valuation gaps happens when there’s a difference between your expectations and buyer offers. M&A advisors can use creative deal structures like seller financing, equity rollovers, or tiered pricing to bridge the gap while protecting your interests.

Evaluating earnout terms objectively means assessing whether proposed metrics are achievable and fair, ensuring you’re not taking on unnecessary risk for uncertain future payments.

As Solganick explained regarding a recent deal: “We had a client with long-term contracts coming up for renewal right after the sale. The PE firm calculated the risk of non-renewal and offered less cash upfront with an earnout tied to those renewals. We negotiated a structure where the seller got 75% credit for renewals happening within 90 days of the target date, protecting them from factors outside their control.”

Benefit #5: They Maximize Your Overall Exit Outcomes

While a premium sale price is important, experienced advisors help you evaluate the full picture of what makes an ideal exit.

• Cultural fit and stewardship: If you care about what happens to your employees, customers, and the brand you’ve built, your M&A advisor can help identify buyers who align with your vision for the company’s future.
• Timeline requirements: Some buyers can close faster than others. If timing is critical — perhaps you’re starting a new time-sensitive project or dealing with a personal situation requiring liquidity — it might be worth accepting a slightly lower offer from a buyer who can move quickly and with certainty.
• Your post-sale involvement: Whether you want to stay involved as an advisor, maintain board representation, or completely exit the business, your M&A advisor can structure the deal accordingly. This includes negotiating employment agreements, consulting arrangements, or equity rollovers that give you continued upside.

The difference between a good exit and a great exit often comes down to having an experienced guide who understands both tech market dynamics and your specific goals.

Next Steps: Finding the Right Tech M&A Advisor for Your Exit

At Axial, we’ve developed a data-driven approach to matching tech business owners with M&A advisors who have relevant experience and proven track records in the software industry.

Our Data-Driven Approach to Advisor Matching

Rather than providing generic referrals, we analyze each advisor’s transaction history within our network to understand their specific expertise. For technology businesses, this means identifying advisors who understand software industry valuations, have experience with tech-specific due diligence requirements, and maintain relationships with buyers who actively acquire software companies.

We examine factors like the advisor’s experience with businesses of your size, their familiarity with your technology stack or market vertical, and their success rate in closing tech transactions at competitive valuations.

How We Evaluate Advisors Based on Relevant Experience, Down-Funnel Success, and Professionalism

Our evaluation process considers three critical factors:

• Relevant deal experience: We prioritize advisors who have successfully sold tech businesses similar to yours in terms of size, business model, and market. This includes analyzing the total number of relevant deals they’ve completed on Axial, with particular emphasis on transactions from the last 24 months to ensure current market knowledge.
• Down-funnel success: We track each advisor’s ability to convert buyer interest into actual offers. This includes metrics like the number of qualified bids generated per transaction, the percentage of deals that reach the LOI stage, and their success rate in closing transactions once under contract.
• Professionalism and reputation: We consider feedback from both buyers and sellers who have worked with each advisor, including responsiveness scores, communication effectiveness, and overall satisfaction ratings from previous transactions.

The Curated Shortlist Process

We start by pairing you with an Exit Consultant who understands your business and exit goals. Your consultant will leverage Axial’s network of over 3,000 M&A advisors to create a shortlist of 3–5 candidates who are specifically qualified to handle your business sale.

Each advisor on your shortlist will have demonstrated expertise in tech transactions, proven ability to generate competitive interest, and strong professional reputation within our network. We provide detailed insights about each candidate to help you evaluate your options and prepare for advisor interviews.

Our Exit Consultants have successfully connected technology owners with advisors who specialize in understanding tech industry dynamics, including the shift toward private equity interest in the sector and the growing demand from strategic buyers seeking to expand their technology capabilities.

Schedule your free Exit Consultation today.