{
  "name": "Valuation multiples for small service and software businesses",
  "description": "The starting multiples and the score for every answer behind the business valuation calculator at productize.co. Estimates from published sale prices, not a formal valuation.",
  "version": "2026-11-13",
  "next_review": "February 2027",
  "currency": "USD",
  "market": "United States sale data",
  "author": {
    "name": "Alex McClafferty",
    "url": "https://productize.co/"
  },
  "calculator": "https://productize.co/business-valuation-calculator/",
  "credit": "Free to quote. Credit Alex McClafferty and link to the calculator.",
  "interpolation": "Straight lines between the points on a log scale of the dollar figure. Flat under the first point and over the last point.",
  "starting_multiples": [
    {
      "id": "service_owner_earnings",
      "title": "Service business, priced on owner earnings (SDE)",
      "unit": "times owner earnings",
      "points": [
        {
          "figure": 50000,
          "multiple": 1.8
        },
        {
          "figure": 156000,
          "multiple": 2.2
        },
        {
          "figure": 400000,
          "multiple": 3
        },
        {
          "figure": 650000,
          "multiple": 3.2
        }
      ],
      "note": "2.2 times at $156,000 is BizBuySell's median. The higher points follow FE International's range for agencies with less than $500,000 in earnings. The first point is my estimate."
    },
    {
      "id": "service_adjusted_ebitda",
      "title": "Service business, priced on profit after a manager's pay (adjusted EBITDA)",
      "unit": "times adjusted EBITDA",
      "points": [
        {
          "figure": 500000,
          "multiple": 4.1
        },
        {
          "figure": 900000,
          "multiple": 4.3
        },
        {
          "figure": 1600000,
          "multiple": 5.25
        },
        {
          "figure": 3500000,
          "multiple": 7
        },
        {
          "figure": 8000000,
          "multiple": 9.5
        }
      ],
      "note": "The middle of FE International's bands for agencies by size."
    },
    {
      "id": "software_owner_earnings",
      "title": "Software, priced on owner earnings (SDE)",
      "unit": "times owner earnings",
      "points": [
        {
          "figure": 50000,
          "multiple": 2.7
        },
        {
          "figure": 150000,
          "multiple": 3.4
        },
        {
          "figure": 400000,
          "multiple": 3.9
        },
        {
          "figure": 850000,
          "multiple": 4.5
        },
        {
          "figure": 3000000,
          "multiple": 6
        }
      ],
      "note": "3.4 times is the figure from 651 small software listings. 3.9 times is the median of Acquire.com's closed deals. The first and the last two points are my estimates."
    },
    {
      "id": "software_revenue",
      "title": "Software, priced on revenue",
      "unit": "times revenue",
      "points": [
        {
          "figure": 100000,
          "multiple": 1.5
        },
        {
          "figure": 500000,
          "multiple": 1.8
        },
        {
          "figure": 1000000,
          "multiple": 2.2
        },
        {
          "figure": 3000000,
          "multiple": 3.2
        },
        {
          "figure": 10000000,
          "multiple": 4.2
        },
        {
          "figure": 30000000,
          "multiple": 4.8
        }
      ],
      "note": "About 2 times revenue for small listings is from the same 651 listings. The points above $1 million are my estimates from what larger private software companies sell for."
    }
  ],
  "type_weights": {
    "productized_service": 1.2,
    "agency": 1,
    "consultancy": 0.8,
    "note": "Alex McClafferty's own judgement, not a published figure. Software has no weight."
  },
  "manager_pay": 150000,
  "adjusted_ebitda_floor": 500000,
  "answers_in_turns": [
    {
      "question": "How did revenue go in the last 12 months?",
      "answer": "It dropped",
      "turns": -0.5,
      "applies_to": "all"
    },
    {
      "question": "How did revenue go in the last 12 months?",
      "answer": "Flat, or up less than 10%",
      "turns": 0,
      "applies_to": "all"
    },
    {
      "question": "How did revenue go in the last 12 months?",
      "answer": "Up 10% to 30%",
      "turns": 0.25,
      "applies_to": "all"
    },
    {
      "question": "How did revenue go in the last 12 months?",
      "answer": "Up more than 30%",
      "turns": 0.5,
      "applies_to": "all"
    },
    {
      "question": "How much of your revenue is locked in? (Retainers, subscriptions, contracts.)",
      "answer": "Less than 30%",
      "turns": -0.5,
      "applies_to": "service businesses"
    },
    {
      "question": "How much of your revenue is locked in? (Retainers, subscriptions, contracts.)",
      "answer": "30% to 60%",
      "turns": 0,
      "applies_to": "service businesses"
    },
    {
      "question": "How much of your revenue is locked in? (Retainers, subscriptions, contracts.)",
      "answer": "More than 60%",
      "turns": 1,
      "applies_to": "service businesses"
    },
    {
      "question": "How many customers churn each month?",
      "answer": "Less than 2%",
      "turns": 0.5,
      "applies_to": "software"
    },
    {
      "question": "How many customers churn each month?",
      "answer": "2% to 5%",
      "turns": 0,
      "applies_to": "software"
    },
    {
      "question": "How many customers churn each month?",
      "answer": "More than 5%",
      "turns": -0.75,
      "applies_to": "software"
    },
    {
      "question": "How much of your revenue comes from your biggest client?",
      "answer": "Less than 15%",
      "turns": 0,
      "applies_to": "all"
    },
    {
      "question": "How much of your revenue comes from your biggest client?",
      "answer": "15% to 25%",
      "turns": -0.25,
      "applies_to": "all"
    },
    {
      "question": "How much of your revenue comes from your biggest client?",
      "answer": "More than 25%",
      "turns": -0.75,
      "applies_to": "all"
    }
  ],
  "founder_score": {
    "questions": [
      {
        "question": "You take four weeks off. No phone, no laptop. What happens?",
        "answers": [
          "It runs fine",
          "It slows down",
          "It falls over"
        ],
        "points": [
          0,
          1,
          2
        ]
      },
      {
        "question": "Who brings in the new clients?",
        "answers": [
          "The team, or a system",
          "The team and me",
          "Me"
        ],
        "points": [
          0,
          1,
          2
        ]
      },
      {
        "question": "Something goes wrong. Who do your biggest clients call?",
        "answers": [
          "Their account lead",
          "Sometimes me",
          "Me"
        ],
        "points": [
          0,
          1,
          2
        ]
      },
      {
        "question": "Who makes the day-to-day decisions?",
        "answers": [
          "My managers",
          "We share them",
          "Every decision goes through me"
        ],
        "points": [
          0,
          1,
          2
        ]
      },
      {
        "question": "Is how you do things written down, so someone else can do it?",
        "answers": [
          "Yes",
          "Some of it",
          "It's all in my head"
        ],
        "points": [
          0,
          1,
          2
        ]
      }
    ],
    "turns_at_zero_points": 0.75,
    "turns_per_point": -0.15
  },
  "revenue_multiple_scaling": "On a multiple of revenue, each move is multiplied by the starting multiple divided by 3.5.",
  "multiple_floor": {
    "earnings": 1,
    "revenue": 0.5
  },
  "range": {
    "worst_case": 0.85,
    "base_case": 1,
    "best_case": 1.15
  },
  "rounding": [
    {
      "under": 20000,
      "nearest": 1000
    },
    {
      "under": 200000,
      "nearest": 5000
    },
    {
      "under": 2000000,
      "nearest": 10000
    },
    {
      "under": 10000000,
      "nearest": 50000
    },
    {
      "under": null,
      "nearest": 100000
    }
  ],
  "method": [
    "Owner earnings. Add the profit before tax to what the owner was paid, both for the last 12 months. Brokers call this SDE (seller's discretionary earnings). All figures are US dollars. The sale data is from the US.",
    "The figure to price on, for a service business (agency, productized service or consultancy). Take $150,000 off the owner earnings. That is the pay of a manager who does the owner's job, and what is left is the adjusted EBITDA. If it is under $500,000, price on owner earnings. If it is $500,000 or more, price both ways and keep the higher price.",
    "The figure to price on, for software. Price on owner earnings and on revenue. Keep the higher price.",
    "The starting multiple. Read it from the table for that figure. Between two rows, draw a straight line on a log scale of the dollar figure: multiple = m0 + (m1 - m0) x (ln x - ln x0) / (ln x1 - ln x0). Under the first row, use the first multiple. Over the last row, use the last multiple.",
    "The type weight, for a service business. Multiply the starting multiple by 1.2 for a productized service, 1 for an agency and 0.8 for a consultancy. Software has no weight.",
    "The answers. Each answer moves the multiple by a number of turns (a turn is one times earnings). Add the moves from the table of answers and the founder score. For a service business, multiply each move by the type weight. For software priced on revenue, multiply each move by the starting multiple divided by 3.5.",
    "The multiple. Add the moves to the starting multiple. It never goes under 1 (or 0.5 for a multiple of revenue).",
    "Three cases. The base case is the multiple times the figure. The worst case is 15% under it, and the best case is 15% over it.",
    "Rounding. Round each case: under $20,000 to the nearest $1,000, under $200,000 to the nearest $5,000, under $2,000,000 to the nearest $10,000, under $10,000,000 to the nearest $50,000, $10,000,000 or more to the nearest $100,000."
  ],
  "sources": [
    {
      "name": "FE International, Agency valuation multiples in 2026",
      "href": "https://www.feinternational.com/blog/agency-valuation-multiples-in-2026-marketing-creative-and-dev-shop-benchmarks",
      "note": "multiples by size of agency, and what retainers and client concentration do to them"
    },
    {
      "name": "BizBuySell Insight Report",
      "href": "https://www.bizbuysell.com/insight-report/",
      "note": "sale prices and cash flow for small businesses sold in the US, by quarter"
    },
    {
      "name": "State of Small SaaS Valuations 2026",
      "href": "https://bigideasdb.com/state-of-saas-valuations-2026",
      "note": "multiples of sales and profit from 651 small software listings, and Acquire.com's closed deals"
    },
    {
      "name": "Value Builder System, The Owner's Metric",
      "href": "https://irp.cdn-website.com/b56c3930/files/uploaded/eBook_The_Owners_Metric.pdf",
      "note": "offers received by 80,000 owners, by Value Builder Score"
    }
  ],
  "changelog": [
    {
      "date": "2026-11-13",
      "change": "First version. Service multiples from FE International (2026) and BizBuySell (third quarter of 2026). Software multiples from State of Small SaaS Valuations 2026 and Acquire.com's closed deals."
    }
  ]
}