FAQs

• How much does a SaaS company sell for?

  SaaS companies typically sell for a multiple of their revenue or profit. To determine the multiple, you must take account of the company’s financial performance, intellectual property, years of operation, customer demographics and concentration, competitive landscape, market conditions, and more. If SaaS startups are selling for 3x revenue on average, you would adjust that multiple up or down based on these factors.

• Is SaaS a good investment?

  SaaS companies are a good investment because of their low overheads and subscription-based business models. Being online businesses, they don’t need to buy and store stock or operate retail outlets to sell their products. SaaS businesses charge recurring fees for access to software, which makes financial performance easier to predict and manage. Equally, since SaaS businesses share similar business models, it’s much easier to spot the strong opportunities from the weaker ones, minimizing risk.

• Is SaaS still profitable?

  Generally, SaaS is very profitable. If you’re technically-minded, you can start a SaaS business with little to no investment. Your overheads are equally low. If you were capable of building the SaaS product yourself, your only costs are a domain and hosting provider. As your SaaS business grows, your overheads don’t increase at the same rate or by as much. Having a predictable revenue stream means you can hire people only when you need to and invest profits into marketing and customer support.

• How much does a SaaS business cost?

  A SaaS business can cost from a few thousand to millions of dollars. Many factors influence the cost of a SaaS business, including its financial performance, customer numbers, intellectual property, brand, and more. SaaS companies that dominate their market, like Figma, which was recently acquired by Adobe for $50M, sell in multimillion-dollar transactions, while early-stage SaaS startups that have yet to find product-market fit may sell only for a few thousand. Every SaaS business is different and so is their cost.

• What is the rule of 40 in SaaS?

  The rule of 40 in SaaS is a quick calculation to determine the financial health of a SaaS company. You add the growth rate and profit margin together, and if it’s above 40%, the SaaS business is healthy. Anything below that 40% benchmark would be considered unhealthy, or at least, a less attractive acquisition opportunity. While the rule of 40 is a handy indicator of a SaaS business’s financial performance, it’s far too rudimentary for making business, valuation, or acquisition decisions. Among other factors you should consider are churn, intellectual property, customers, competition, brand, and employee talent.