Valuing an IT company or SaaS business
In tech a buyer buys recurring revenue and a team. The more predictable it is and the less it depends on a few people, the higher the value.
What raises and lowers the value
- Share of recurring revenue (subscriptions, support contracts)
- Churn and revenue growth from existing customers
- Concentration: the share of the largest customers
- Rights to the source code and intellectual property
- Dependence on key developers
- Growth rate and margin
What a buyer checks
- Revenue by customer and by type (recurring vs one-off)
- Churn data and customer lifetime
- Contracts with customers and developers, assignment of rights to the code
- Technical documentation and reliance on third-party services
- Team structure and key staff terms
Frequently asked questions
How is a SaaS company valued?
Most often on annual recurring revenue with a multiple that depends on growth, churn and margin. The result is a range.
Why do rights to the code matter?
If a contractor or developer owns the rights, the buyer does not get a full asset. This needs to be sorted out in advance.
What is customer concentration?
It is the share of revenue from the few largest customers. Losing one of them under high concentration hits the company hard.
How can I raise the value of an IT company?
Increase the share of recurring revenue, reduce churn, secure the rights to the code and spread knowledge across several people.
This material is informational and is not legal, tax or investment advice. A valuation is a range, not a guaranteed deal price.