The revenue multiple, written EV/Revenue or EV/Sales, is the ratio of enterprise value to revenue. It is the fallback profitability multiple for businesses where the EBITDA line is negative, distorted, or not yet representative of the underlying economics — most commonly high-growth software and early-stage companies.
Why it is used in software M&A
Vertical and horizontal SaaS companies often run at sub-zero or low GAAP EBITDA while reinvesting everything in growth. Multiplying a small or negative number produces noise; multiplying revenue captures scale and growth, then implicitly assumes the business will reach a steady-state margin. Among public software companies, EV/Revenue (NTM) became the de facto benchmark during the 2020–2022 cycle.
What revenue multiples don't tell you
Two businesses at the same revenue can be worth very different prices because of what is under the revenue line:
- Gross margin. A 78%-gross-margin SaaS business is far more valuable than a 35%-gross-margin reseller at the same revenue.
- Recurring revenue mix. Subscription/contractual revenue trades at a premium to project or transactional revenue.
- Net retention. A SaaS business with 120% net dollar retention compounds; one at 80% leaks.
- Cash burn. A business growing at 50% but burning two dollars for every one in new ARR is far less valuable than one growing at 30% efficiently.
The Rule of 40 (growth rate + EBITDA margin ≥ 40) is one widely used screen for whether a software business deserves a high revenue multiple.
Typical ranges
Revenue multiples are highly sector-specific. Mature professional-services firms might trade at 0.5×–1.5× revenue, distribution at 0.3×–0.8×, public SaaS in 2024–2026 between roughly 4×–12× NTM revenue depending on growth and profitability. The market re-prices these ranges every cycle.
See also
- EBITDA multiple — The ratio of enterprise value to EBITDA, the most common shorthand for what a business is worth in M&A. Industry, scale, growth and quality of earnings all move it.
- Enterprise value — The total value of a company’s operations, independent of its capital structure.
- Comparable company analysis — Relative valuation using the market multiples of similar publicly traded companies.
- Business valuation — The set of methods used to estimate the economic value of a company or its equity, almost always triangulated across several approaches into a defensible range.
- SaaS M&A — Mergers and acquisitions in software-as-a-service businesses. Distinctive features include ARR-based valuation, retention metrics, deferred revenue treatment in PPA, and tech / IP diligence.