When SaaS founders start thinking about selling, they often ask: What kind of exit multiple can I get? Which is another way of saying: What would the valuation for my SaaS company be?
However, there is no single formula or rule for SaaS business valuations in the private market. For example, two businesses with nearly identical Annual Recurring Revenue (ARR) can receive different offers, depending on how buyers perceive the quality of business growth after the due diligence, and the value conveyed throughout the process. Acquirers look well beyond headline revenue and also weigh factors such as customer retention, gross margins, and the repeatability of go-to-market strategies.
While headlines sometimes highlight outlier deals at 10x ARR, most SaaS transactions in the mid-market close at more modest multiples. But ultimately, valuations depend less on a single benchmark and more on how well a company demonstrates durable growth, retention, and margins, among others.
As Bain & Company noted in March 2025: "Given the ongoing transformative power of technology, there’s no reason to believe that software growth is going anywhere but up over the long term. But valuations already reflect high expectations, competition for deals has never been hotter, and an uncertain macro environment continues to blur the shorter-term outlook. In short, investors can’t afford a growth-only approach to value creation."
This article shares insights from L40º M&A advisors who have guided dozens of SaaS founders through the exit process. It breaks down what could actually move the needle on valuations and how to prepare your tech business for a successful sale in 2025.
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1. The SaaS business model that earns top multiples focuses on the right fundamentals consistently
For buyers, “clear and consistent fundamentals” typically include:
- Reliable annual recurring revenue (ARR) growth rate
- Strong gross margins
- Retention metrics that hold up across cohorts
- Clean, audit-ready financial reporting
Beyond growth, SaaS companies looking to achieve higher valuation and premium exit multiples must demonstrate predictability and durability. A company with steady ARR expansion and Net Revenue Retention (NRR) over 100% gives acquirers confidence that results can be repeated. By contrast, volatile performance or one-off spikes often raise concerns about sustainability.
Clarity is equally important for your business, and even strong metrics lose their weight if they are poorly presented or inconsistent. Standardized SaaS reporting, clean cohort analyses, and transparent dashboards allow buyers to validate performance quickly. Any gaps here (whether in churn calculations, deferred revenue recognition, or CAC payback) can slow down diligence and reduce valuation.
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Founders should focus on:
- Maintaining reliable ARR growth and gross margin profile.
- Tracking and reporting retention metrics across cohorts.
- Keeping financial reporting clean, transparent, and audit-ready.
2. A scalable customer acquisition cost model builds buyer confidence from day one
Buyers want evidence that your growth engine is effective and repeatable at scale.
Customer acquisition efficiency is one of the first areas acquirers evaluate. Buyers want to see that your growth engine is not only working today but can scale profitably as the business grows. A clear understanding of CAC trends signals maturity, while unexplained volatility raises red flags.
Two ratios stand out: CAC payback period and LTV:CAC. A short payback period shows that marketing spend is recovered quickly, while a strong LTV:CAC indicates each customer creates enough lifetime value to justify acquisition costs. Together, these metrics tell a story about growth sustainability.
Sophisticated buyers often request CAC segmented by channel or ICP, not just a single blended figure. This level of clarity highlights scalable channels and builds trust in forecasts. Founders preparing for an exit can strengthen their CAC storylines by eliminating unprofitable campaigns, segmenting performance data, and shifting spend toward efficient, repeatable channels.
To strengthen CAC before an exit, founders can:
- Phase out unprofitable campaigns that inflate blended CAC.
- Segment metrics by channel and ICP to highlight strengths.
- Reallocate spend toward scalable, repeatable acquisition motions.
3. Diversified customer base and channels: no single client should drive more than 5–10% of revenue
Overreliance on a single acquisition channel or client poses a risk to your SaaS. If a single customer accounts for more than 5–10% of revenue, that concentration raises red flags for buyers, regardless of how recognizable the client. By contrast, diversification strengthens buyer confidence and can support higher valuations.
Organic and product-led channels are especially valuable because they often produce higher-quality, stickier customers. When inbound or product-driven adoption aligns directly with value delivered, buyers see evidence of durable, cost-efficient growth.
To reduce concentration risk, founders can:
- Expand into multiple channels, including organic, outbound, and PLG.
- Limit reliance on any single motion or program.
- Spread revenue across accounts to reduce dependence on top customers.
4. Buyers may pay more when your customers stay longer and spend more (Customer Lifetime Value)
Recurring revenue is the foundation of SaaS, but buyers also care about durability. They want proof that customers not only stay but also expand their spend. Metrics like Net Revenue Retention (NRR) and Customer Lifetime Value (CLV) are central to valuation.
When NRR is above 100%, it means your existing customers are spending more each year than you lose to churn. Pricing models such as usage-based tiers amplify this effect, signaling that customers deepen their relationship over time.
By contrast, inflated CLV calculations built on weak churn assumptions quickly erode trust in diligence. Buyers will discount projections unless they are supported by clean retention data and credible upsell motions.
To improve retention and expansion, founders can:
- Invest in and train customer success to minimize churn.
- Design pricing models that reward usage and adoption.
- Build repeatable upsell and cross-sell strategies.
5. A well-planned exit strategy gives control to buyers and fosters buyers' confidence
Buyers place more trust in SaaS companies that enter a process with clean financials, standardized reporting, and a defensible growth story. Founders who begin planning 12–24 months in advance can address weaknesses and shape their positioning before buyers see it.
Preparation also creates optionality. By mapping the right buyer universe, whether strategic acquirers, private equity platforms, or add-on buyers, founders improve their odds of generating multiple bids and securing a premium outcome.
Advisors play a critical role here, ensuring that the exit strategy aligns with business readiness while allowing management to stay focused on operations. Companies that go to market with a clear plan reduce execution risk and inspire greater buyer confidence.
To strengthen exit readiness, founders can:
- Begin planning 12–24 months before a potential sale.
- Map the right buyer universe for the company’s profile.
- Engage advisors early to run a disciplined process.
6. Exits are most successful, and company valuations are better when readiness aligns with buyer appetite
External conditions may also shape buyer behavior in private markets. However, timing an exit is not only about chasing SaaS market highs; it is about aligning company readiness with market appetite.
A well-prepared business can still command strong offers in a soft environment, while companies that rush to market without readiness often face valuation discounts even in favorable conditions. Founders must weigh both sides: internal readiness and external demand.
In 2025, buyers are especially attentive to themes like vertical specialization and strong NRR. Positioning around these demand drivers can create urgency and attract premium offers, but only if the fundamentals support it.
Take AI, for example: buyers are not rewarding companies simply for deploying AI technology. What matters is the efficiency and revenue quality that the AI enables, factors that show up in the numbers and quality of revenue.
To time exists effectively, founders can:
- Track macro conditions like interest rates and comps.
- Align exit timing with company readiness and narrative.
Read: SaaS News & Trends
7. A clear, data-backed narrative builds buyer conviction
Numbers matter, but so does the story behind them. Buyers interpret data through the lens of narrative, and the strongest valuations come when financial and strategic messaging reinforce each other.
Clarity of positioning is essential. Defining the category, ideal customer profile (ICP), and value proposition helps buyers quickly understand market relevance and potential fit. Mixed or inconsistent messaging across pitch decks, financials, and data rooms undermines confidence.
Founders who invest in crafting a clear, consistent narrative, backed by clean data; help buyers see not just past performance, but future potential. That clarity can directly translate into higher multiples.
To strengthen their narrative, founders can:
- Define category, ICP, and value proposition with precision.
- Align messaging consistently across all materials.
- Use clean, credible data to back strategic positioning.
8. In SaaS valuations, recurring revenue leads, but balance with EBITDA is key
For mid-market SaaS companies, especially those under $50M ARR, buyers often anchor valuations on recurring revenue and efficiency metrics such as NRR and gross margin. At this stage, EBITDA carries less weight, especially if profit is being reinvested into demonstrated growth, but it should not be overlooked. As companies grow and financing becomes more complex, operating earnings gain importance.
EBITDA becomes even more relevant in certain situations, including later-stage private equity roll-ups, debt-funded buyouts, or hybrid SaaS models. In these cases, buyers want to see not just revenue scale but also operating leverage and cash generation.
The key is balance. Leaning only on ARR can narrow buyer appeal, while focusing too heavily on EBITDA can underplay the strength of recurring revenue. Founders should present both: durable ARR growth as the primary valuation anchor, with EBITDA trends as supporting proof of efficiency and long-term cash potential.
Advisors play an important role here, helping founders strike the right balance for the right buyer set, highlighting recurring revenue to growth-focused acquirers while showing a credible profitability path to investors that prioritize cash flow.
To position effectively, founders can:
- Emphasize ARR, NRR, and gross margin in valuation discussions.
- Avoid over-indexing on EBITDA too early, but don’t lose sight of it. It still matters; the investment must make sense for the acquirer from a financial perspective as much as it needs to bring certain strategic value
- Highlight recurring revenue’s cash-generating potential.
How advisors help maximize SaaS exit multiples
Markets shift. Buyer appetite may rise and fall. External liquidity conditions, such as interest rates, are also key and relatively uncertain. However, across every SaaS transaction we’ve advised, one thing is constant: the best outcomes go to companies that prepare early, present clearly, and run a competitive process tailored to their goals.
A strong multiple depends on two elements: solid business fundamentals and disciplined execution. Healthy growth, recurring revenue quality, and margin profile must be in place,g because no matter how compelling the story, buyers will discount weakness in the underlying business.
From there, value is fully unlocked by telling a coherent story, standing behind the metrics, and managing the buyer process with precision.
That’s where experienced advisors make the difference: shaping the narrative, highlighting the right metrics, and running a competitive process with discretion and resolve.
If you’re considering a sale in the next 12 to 24 months, preparation starts now. L40° partners with SaaS founders to ensure both fundamentals and positioning are aligned for a stronger exit. We don’t just bring buyers to the table, we help you close. Contact an M&A advisor today.
