How to value a SaaS company

For nearly every modern SaaS company, valuation comes down to one equation:

ARR (Annual Recurring Revenue) equals MRR × 12. The ARR multiple is what the market pays for each dollar of recurring revenue. Pitch decks, board meetings, and term sheets all revolve around pushing that multiple up.

A coffee shop sells a coffee once. A SaaS sells the same customer roughly every month, automatically, for years. Acquirers aren't paying for last year's revenue — they're paying for the future stream. The multiple is shorthand for how confident they are that the stream continues.

1. MRR — predictable monthly revenue. The base of the valuation pyramid.
2. Growth rate — how fast MRR climbs month-over-month. 5% and 15% land in completely different multiple buckets.
3. Churn rate — the leak in the bucket. 1% monthly churn versus 6% changes everything: one compounds value, the other quietly destroys it.
4. Industry / category — AI SaaS trades richer than SMB tools. Same ARR, different multiple, same year.

These ranges aren't laws of physics. A category-leading dev tool growing 150% can easily outrun the table; a B2B tool growing 5% with high churn can fall below it.

B2B SaaS with $50,000 MRR, 15% monthly growth, 3% monthly churn:

• ARR = $50,000 × 12 = $600,000
• Base B2B SaaS multiple ≈ 7×
• + growth premium (15%/mo) ≈ +3×
• − churn drag (3%/mo) ≈ −0.5×
• Final ARR multiple ≈ 9.5×

• Chasing revenue without watching churn. A leaky bucket is worth less six months from now.
• Comparing your multiple to public companies. Public-market comps trade on liquidity, not your story.
• Treating valuation as vanity. Until someone signs a cheque, it's an estimate — useful, not gospel.

Enter MRR, growth, churn, and industry. Then move one variable at a time — drop churn by a point, lift growth by five — and watch the valuation shift. That sensitivity is your roadmap. Whatever moves the number most is the work for next quarter.