SaaS businesses are usually valued as a multiple of revenue or profit, and the choice between the two tells you a lot about the business. Fast-growing, venture-scale SaaS companies are often priced on annual recurring revenue, while smaller, profitable products are priced on seller's discretionary earnings or net profit.

Revenue multiples reward growth. A product growing quickly with low churn can command a higher revenue multiple because buyers are paying for future cash flow, not just current earnings. But growth alone is not enough: growth funded by heavy advertising or deep discounting is expensive growth, and buyers will discount it once they see the cost of acquiring each customer.

Profit multiples reward efficiency. A product with steady revenue, healthy margins, and low owner involvement is valued on what it actually keeps. For micro SaaS, profit multiples are the more honest measure, since small products rarely have the growth trajectory that justifies a large revenue multiple. A common range is a few years of annual profit, adjusted up or down for risk.

Several factors push a multiple up or down. Low churn, diversified customers, a defensible niche, and documented systems push it up. High churn, customer concentration, technical debt, and dependence on a single platform push it down. Two products with identical revenue can sell for very different prices once these factors are weighed.

When you see a multiple quoted in a listing, ask what it is a multiple of, over what period, and after which adjustments. A multiple applied to an inflated profit figure is meaningless. Rebuild the numbers yourself, then apply the multiple — that is the only valuation you can trust in a negotiation.

Consider a simple illustration. A micro SaaS product earns a steady monthly profit after all costs and a fair allowance for the owner's time. Applying a profit multiple of, say, three to four years of that annual profit gives a valuation range. If churn is low and customers are diversified, the top of the range is defensible; if one customer dominates revenue or churn is rising, the bottom — or below — is more honest. The multiple is a tool for reasoning, not a price tag, and the reasoning behind it is what a seller will actually engage with.