How to Evaluate Your SaaS Business

To start, I’ll focus on the platform Acquire.com, where I have gained substantial experience, successfully selling five micro-SaaS products over the past 1.8 years. My approach involves two methods that can be utilized together: the quantitative and the qualitative.

Determining the Price for Your SaaS

The most straightforward pricing formula is:

Monthly Recurring Revenue (MRR) * 12 * Multiple

This calculation gives you your Annual Recurring Revenue (ARR), which is then multiplied by a field-specific multiple. Typically, SaaS products on Acquire are listed with a multiple of around 5 based on profit. Buyers also assess the multiple on total profit, not just revenue, making it essential to maintain a healthy profit margin for your product.

This outlines the quantitative method for evaluation.

Another assessment approach is qualitative, which considers various metrics including:

• The number of users
• The technology behind the product and the time invested in its development
• The degree of automation (fully automated products tend to have higher valuations)
• The competitive landscape

Given that qualitative indicators can be subjective, I recommend combining these with quantitative metrics to arrive at a final listing price. Note that Acquire does not endorse products with inflated valuations compared to their assessments.

Critical Metrics for Potential Buyers

After selling five micro-SaaS products, I’ve gleaned insights on the key metrics that buyers prioritize. Keep in mind that these observations are based on my experiences and may vary among different buyers:

1. Monthly Recurring Revenue (MRR): This is perhaps the most crucial metric. Most discussions I had revolved around MRR. Initially, I didn't prioritize MRR as much, focusing instead on maximizing revenue through lifetime deals. However, with the rise of AI, buyers have shifted their focus towards recurring revenues. My strategy has always intertwined both approaches; thus, for my next venture, I would prioritize MRR from the outset.

2. Churn Rate: Churn can be a significant concern for SaaS founders, particularly in B2C sectors, which typically experience higher churn rates than B2B. Understanding churn involves two types:

   • Revenue Churn
   • Customer Churn

   Among these, Revenue Churn is the more critical metric, especially since your business relies on recurring revenue. If you have multiple pricing plans, the impact can vary significantly; losing customers from a premium plan can lead to a substantial decline in revenue.

3. Lifetime Value (LTV): LTV represents the total revenue expected from a customer during their engagement with your company. Buyers often calculate this to project potential earnings and the resources required for achieving those results. I recommend using Paddle for tracking LTV and other key metrics due to its user-friendly interface.

4. Costs: Your business's profitability is significantly influenced by costs, especially fixed costs. If your business lacks profitability, buyers may be less inclined to pursue it. Efficient cost management is essential; at RecapioGPT, we maintain over 80% of our monthly margin, though this may not be feasible for everyone.

These are the primary metrics buyers evaluate when considering your SaaS. Additional aspects they might inquire about include user sources, user distribution across pricing plans, website traffic, and conversion rates. By effectively managing these four key metrics, you can build a robust, profitable business from the ground up.

Thank you for taking the time to read my article!