How to Calculate Your Business Worth Based on Revenue

Imagine this. You’re sitting across from an investor, they’re interested in your business, and the question comes up: “How much is it worth?” You smile, knowing that you’ve come prepared. You don’t give them a number pulled from thin air—you’re armed with data, insight, and confidence.

Revenue is King, but it’s Not the Only Thing.
When calculating your business’s worth based on revenue, many entrepreneurs make the mistake of focusing solely on that one figure. It’s tempting. After all, revenue is a straightforward number that reflects your sales. But here’s the kicker: revenue alone is a limited view. To truly understand your business’s value, you need to look at multiple dimensions. The challenge is, how do you start without overcomplicating it?

Why Investors Care About Multiples
Investors are looking for a return, plain and simple. They’ll often use revenue multiples to determine how much they’re willing to pay for a business. The concept is pretty straightforward. They’ll multiply your revenue by an industry-specific multiple to estimate a valuation. The magic number varies based on your sector, growth potential, and other market conditions. If you’re in tech, for example, expect a higher multiple than if you’re running a traditional brick-and-mortar store.

But how do these multiples work? Let’s break it down:

Industry	Revenue Multiple
Technology (SaaS)	6-12x
E-commerce	1-3x
Manufacturing	0.5-1.5x
Restaurants	0.25-0.75x
Consulting/Service-based	0.5-1.5x

The table above shows the standard range for different industries. For example, if your SaaS company is generating $1 million in annual recurring revenue (ARR), you could be looking at a valuation between $6 million and $12 million.

Not All Revenue is Created Equal
It’s also crucial to consider the type of revenue you’re generating. Recurring revenue, like subscriptions, is far more valuable than one-off sales. Recurring revenue gives investors confidence that your business can consistently bring in money, reducing risk and boosting the business’s appeal.

Ask yourself these questions:

• What percentage of my revenue is recurring?
• How much is dependent on one-off deals?
• How predictable is my income stream?

Growth Matters—A Lot
Revenue today is important, but growth is what sells the dream. Investors will want to know how fast you’re scaling. A business growing at 30% year-over-year is far more valuable than one stagnating or growing at 5%. Growth signals potential. It tells investors that the business is on an upward trajectory. This is where future revenue comes into play. It’s not just what you’ve done—it’s what you’ll do next.

Let’s say your business has been generating $500,000 annually, but you’re projecting $1 million next year. In that case, you might convince investors to value your business closer to your future earnings potential, especially if you can back it up with a solid growth strategy.

Profit Margins: The Silent Hero
Revenue is just one part of the story—profit margins are the other. A company making $1 million in revenue with 50% profit margins is far more valuable than a company making $2 million in revenue with 5% profit margins. Investors love efficiency. High profit margins tell them you’re running a lean, efficient business, and that there’s room for scaling without massive expenses.

Consider calculating your business’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). It’s a common measure used by investors to evaluate profitability. If your EBITDA is strong, that’s a good indicator of a solid, healthy business.

The Story Behind the Numbers
Numbers are important, but they don’t tell the whole story. Investors also care about the qualitative aspects of your business. How’s your team? What’s the culture like? Do you have loyal customers? Is your brand strong? If you’ve built a company with a mission, a strong reputation, and a loyal customer base, that adds value beyond just numbers.

Be Prepared for Due Diligence
Once you’ve set a valuation, you’ll need to back it up. Investors will dig into your financials during the due diligence process. They’ll want to see detailed revenue reports, profit and loss statements, and projections. This is where transparency pays off.

If you’ve been tracking key metrics like customer acquisition costs (CAC), customer lifetime value (CLTV), and churn rates, you’re in a good spot. Investors love data because it helps them reduce risk. The more data you can provide, the more likely they’ll feel confident in your valuation.

Conclusion: What’s Your Business Really Worth?
It’s a combination of revenue, growth, profit margins, and your story. The key takeaway is that revenue-based valuation is just one piece of the puzzle. Investors want to see a mix of strong sales, high margins, and a compelling growth narrative.

By understanding your industry’s revenue multiples, focusing on recurring revenue, and backing up your numbers with a solid growth strategy, you’ll be in a strong position to confidently answer the question, “How much is your business worth?”