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20 Factors to Track When Valuing Your Software Company

For over two decades, SEG has developed a unique methodology to evaluate software companies and assess their readiness for exit. We’ve achieved a leading success rate and helped countless clients exceed their valuation goals by prioritizing these critical factors.

Discover what buyers prioritize.

We’ve shared this approach in our report, serving as a benchmark tool to clarify metrics used by buyers and investors of software companies.

Proven valuation methodology.

Benefit from our company’s two-decade experience and proprietary methodology that has consistently led software executives to successful exits.

Valuation benchmarking tool.

Use this report as a powerful benchmarking tool to compare your software company’s performance with industry standards and identify areas for improvement.

Know your score.

Use the SEG SaaS Valuation Scorecard™ to track the qualitative and quantitative factors most important to estimating and maximizing your company’s valuation.

Every M&A journey starts with a single step.

When you understand all the factors that impact your company’s valuation, you can make improvements that have the greatest impact on your bottom line and your exit strategy. Our complimentary whitepaper helps you clearly see the path to success.

DOWNLOAD 20 FACTORS

Weigh & interpret the factors that matter.

What you’ll discover in this white paper

This refreshed report delves into the multifaceted determinants of a software company’s valuation, dividing factors into quantitative and qualitative. We define each factor, explain its importance, and discuss how it influences your company’s valuation multiples. Our goal is to help you identify areas for improvement, ensuring that your data is accurate and heading in the right direction.

QUANTITATIVE FACTORS

Gross Revenue Retention
GRR includes downgrades or reduced usage added onto your loss.
ARR Growth
Software companies with ARR of at least 30-40% are in an excellent position.
EBITDA Margin
EBITDA is another metric that tells a more complete story when combined with other metrics. It's not weighted as heavily, but it's important to know this number.
Rule of 40
This calculation adds your revenue growth and EBITDA margin percentages together to measure how efficiently your company is growing.
Gross Margin
Gross margin is a strong indicator of your company's scalability, so it's important to calculate this accurately.
LTV : CAC
The ratio of your company's customer lifetime value to customer acquisition cost indicates your profitability and the effectiveness of your marketing efforts.
Customer Concentration
Ideally, your top 10 clients should make up less than 20% of your revenue.
Total ARR
% Recurring Revenue
Net Revenue Retention Rate
Net includes upsells or increased usage
Revenue Growth
Revenue growth highlights your business’s growth trajectory and future potential.
Logo Retention
A high logo retention suggests that a company has a durable customer base.

QUALITATIVE FACTORS

Delivery Model
For SaaS companies, cloud services are much more interesting to the market and tend to yield higher valuations.
Pricing Model
The pricing model directly impacts revenue visibility.
Product & Position
Product is one of the biggest determining factors in whether or not your software company is highly valued. The key characteristic is differentiation. Market position refers to where your software business is in relation to your competitors.
Market Attractiveness
Monitoring your competition and the overall reception of new entrants into the market is key to presenting where you stand.
Technology
Leading edge technology is more highly valued than legacy tech in software valuations.
Management Team
Buyers and investors want to see that your company's leadership team has successfully executed their business plan and has the right skills to move the company forward.
Market Growth
Knowing your market growth rate helps you set company goals in the short term and gives buyers and investors a sense of how sustainable your company will continue to be.
Total Addressable Market
Investors want to see evidence that there's room to grow. The size of your company also plays a role.
Assessment of Trends
Trends can either enhance or erode the value attributed to a company.

Kris Beible, Managing Director, SEG

Experienced M&A advisors.

90% first-pass success rate.

Our team of experienced M&A advisors understand value drivers. We can provide insight on how to make your company more attractive to investors long before you’re ready for a liquidity event.