ARR multiple (SaaS valuation)

The ARR multiple is a valuation multiple specific to subscription businesses, dividing enterprise value by annual recurring revenue, or ARR – Annual Recurring Revenue. It has become standard for SaaS (Software as a Service) editors, whose value rests on the base of recurring revenue rather than on the profits of a single year, often reduced by the commercial acquisition effort.

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The level of the multiple is anything but mechanical: it reflects the quality of growth and the strength of the installed base. Rapidly growing ARR, a NRR (Net Revenue Retention) above 100%, a low Churn Rate and a high LTV – Lifetime Value to CAC – Customer Acquisition Cost ratio justify a higher multiple. Conversely, slowing growth or rising attrition compress it sharply.

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Take two editors each reporting 4 MCHF of ARR. The first, growing 40% with net retention of 115%, trades at 6 times, or 24 MCHF; the second, growing 10% with retention of 95%, at 2 times, or 8 MCHF. The same ARR thus justifies values ranging from one to three.

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The ARR multiple is always read alongside the Rule of 40, which balances growth and profitability. Used alone it can mislead: a rigorous business valuation tests it against comparable transactions of similar size and profile, not against the multiples of large listed platforms.