How revenue multiples are calculated
Enterprise Value = ARR × Multiple. The multiple is determined by comparable transactions and public market comparables, adjusted for your specific growth and efficiency metrics. A $1M ARR company at a 10x multiple has a $10M valuation. The debate is always what multiple is justified — and that depends entirely on your metrics.
Current benchmark ranges by stage
These ranges reflect the 2024–2026 environment after the multiple compression of 2022–2023:
Pre-Seed / Seed (pre-revenue or <$500K ARR): Valuation set by Berkus/Scorecard/VC Method — revenue multiples not yet applicable. Early Seed ($500K–$1M ARR): 8–15x ARR for high-growth companies (>100% YoY). Lower multiples for <80% growth. Series A ($1M–$5M ARR): 6–12x ARR. Rule of 40 score and NRR are primary drivers. Series B ($5M–$20M ARR): 5–10x ARR. CAC payback period and gross margin become critical. Growth / Late Stage (>$20M ARR): 3–8x ARR, converging toward public market comparables.
These are ARR multiples. Forward revenue multiples (next 12 months projected) are typically 20–30% lower.
What moves the multiple up
NRR above 120% — customers expanding faster than you churn. This is the single biggest multiple expander in SaaS. CAC payback under 12 months. Gross margins above 75%. Growth rate above 100% YoY. Defensible distribution (proprietary channel, embedded workflow, high switching costs). Sector tailwinds (AI infrastructure, compliance automation, vertical SaaS in underpenetrated markets).
What compresses the multiple
NRR below 100% — you're losing revenue from existing customers. Growth below 50% YoY at Seed/Series A stage. Gross margins below 60% (common in usage-based or infrastructure-heavy models). High CAC with long payback periods. Commoditised market with no clear differentiation. Dependency on a single customer (>30% revenue concentration).
Rule of 40 and its connection to multiples
The Rule of 40 (revenue growth rate % + profit margin %) predicts multiple compression or expansion better than either metric alone. Companies above 40 command premium multiples. Companies below 20 face significant discounts regardless of absolute growth. At Series B and beyond, investors increasingly use Rule of 40 as the headline efficiency benchmark — know your score and be able to explain the trajectory.