One of the most common questions from both buyers and sellers is: how much is this IT business actually worth? The short answer is that it depends on three variables — recurring revenue, profit margin, and growth trajectory. But the full answer involves understanding how the market applies multiples to each.
What is a valuation multiple?
A multiple is a shorthand for how many years of earnings a buyer is willing to pay upfront. A 3× annual profit multiple means the buyer pays three years' worth of net profit today. In the IT business market, multiples are applied to either monthly revenue (MRR), monthly profit, or annual equivalents.
Revenue multiples vs. profit multiples: which one matters more?
Both matter, but they tell different stories. Revenue multiples reward scale and predictability. Profit multiples reward efficiency. A SaaS business with $10k MRR and 80% margins will trade at a higher profit multiple than a services business with $10k revenue and 20% margins.
| Business type | Typical revenue multiple | Typical profit multiple |
|---|---|---|
| SaaS (subscription) | 3–5× ARR | 36–60× monthly profit |
| E-commerce | 0.5–2× ARR | 24–36× monthly profit |
| Digital agency | 0.4–1× ARR | 18–30× monthly profit |
| Mobile app | 2–4× ARR | 24–48× monthly profit |
| AI/Automation tool | 3–6× ARR | 36–72× monthly profit |
What factors raise or lower the multiple?
- Revenue consistency — steady MRR commands a premium over lumpy project-based income.
- Churn rate — low churn (under 3% monthly) can push a SaaS multiple from 3× to 5×.
- Owner dependence — if the owner is the product, buyers discount heavily.
- Traffic source diversity — organic SEO traffic is worth more than paid traffic.
- Documentation — clean financials, SOPs, and code documentation raise confidence.
How to calculate the asking price step by step
- 1.Calculate average monthly net profit over the last 12 months.
- 2.Identify which tier your business falls into (see table above).
- 3.Multiply monthly profit by the multiple (e.g. $3,000 × 36 = $108,000).
- 4.Adjust up for strong growth, verified metrics, transferable assets.
- 5.Adjust down for owner-dependence, high churn, or unverified numbers.
Rule of thumb: if you can't explain your financials clearly to a buyer in 10 minutes, assume the multiple will be lower. Clarity commands a premium.
Common mistakes sellers make when pricing
- Pricing based on potential, not actuals — buyers pay for proven revenue, not projections.
- Ignoring owner salary adjustment — if you pay yourself $2k/month, add that back to profit.
- Inflating revenue with one-time spikes — use trailing 12-month averages, not peak months.
- Not disclosing risks — hiding churn or legal issues destroys trust and deals.
What buyers actually look for
Serious buyers do their own valuation before making an offer. They'll verify your numbers with bank statements or Stripe exports. They'll calculate churn from user data. They'll check the traffic sources in Ahrefs. Being prepared for this scrutiny — and matching your asking price to what survives it — is the fastest way to close a deal.