A seller quotes revenue because revenue is the biggest number they have. You are not buying revenue. You are buying what is left every month after the software keeps running without its founder, and then you are paying a multiple of that.
Step one: owner earnings
Gross margin less an operating allowance. We use 15% of revenue as the allowance — hosting, tooling, payment fees, support, the irreducible cost of the thing existing — and treat everything above it as owner earnings. On the example target below that is $70,080 a year against $96,000 of revenue.
| Line | Figure |
|---|---|
| Monthly revenue | $8,000 |
| Annual revenue | $96,000 |
| Gross margin | 88% |
| Operating allowance | 15% |
| Owner earnings | $70,080 |
If the seller's own figure is much higher than this, ask which of their costs they have moved above the line. Founder salary is the usual answer.
Step two: the multiple for its size
Bigger businesses trade higher because they are less fragile and the buyer pool is deeper. Our baseline by band, from Flippa, 20 Feb 2026 and FE International, 21 Jan 2026:
| Monthly revenue | Baseline owner-earnings multiple |
|---|---|
| $1,000–$5,000 MRR | 2.4x |
| $5,000–$10,000 MRR | 2.8x |
| $10,000–$25,000 MRR | 3.2x |
| $25,000–$50,000 MRR | 3.6x |
| Above $50,000 MRR | 3.6x |
Step three: adjust, and price the adjustment
The target: $8,000 MRR, 1.4% monthly growth, 4.1% monthly churn, 31% concentration, 34 months old. Its baseline multiple is 2.8x; after the adjustments it prices at 1.9x owner earnings, a midpoint of $131,500 and a range of $120,000–$143,500.
| Adjustment | This business | Costs the seller |
|---|---|---|
| Monthly revenue churn | 4.1% a month against a 3.2% reference for your size | $29,000 |
| Growth rate | 1.4% per month, about 18% a year | $23,000 |
| Customer concentration | your largest customer is 31% of revenue | $21,500 |
Each figure is the difference between this business and the same business at neutral on that one input. Churn moves the number most: Livmo, 26 Feb 2026 puts 15% to 25% of value on each point of monthly churn, and we use the midpoint.
The two questions that reprice most deals
- 01Send me revenue by customer for the last twelve months. Concentration is invisible in an MRR chart and it is the single most common reason a deal is repriced after the LOI.
- 02Send me monthly revenue churn, month by month, for the last twelve months. One number for the year hides the trend, and the trend is what you are buying.
If a seller cannot produce either, that is itself the finding. It usually means the business has never been measured, which is sometimes an opportunity and always a discount.