Method · comps set updated 24 Aug 2026
A valuation you cannot argue with is useless. So here is every step, every source, and every place where the published data does not exist and we use a rule of our own instead — labelled as one.
MRR × 12. On the worked example below, $9,400 × 12 = $112,800.
Annual revenue × (gross margin − 15 points). The 15-point operating allowance is a stated ValuePulse assumption: we ask six questions and none of them is your operating cost, so we assume it rather than pretend to know it. $112,800 × 71% = $80,088.
The owner-earnings multiple for your MRR band, from the table below. Your example lands in $5,000–$10,000 MRR at 2.8x, giving $224,246 before adjustments.
Churn, growth, margin, operating history and customer concentration, applied multiplicatively. Each one is shown on your score with its size and its source.
Multiplied together, five penalties compound fast enough to produce a number no real seller would accept — and a range nobody believes is worth nothing. So the combined adjustment is bounded to 0.45x–1.6x of the baseline, which puts every possible answer between roughly 1.1x and 5.8x owner earnings. The floor is not a fudge: at this size your alternative to selling is to keep the cash flow, and that sets a reserve price no amount of risk gets a buyer under. Your score says so on the page whenever either bound is what you are seeing.
The midpoint ± 9%, rounded. On the example: $198,500 midpoint, $181,000–$216,500 range, 1.8x annual revenue and 2.5x owner earnings.
For each adjustment below 1.0, the dollars you would recover if that one metric reached its target, holding everything else still. That is why the fixes on your Audit do not sum to the total drag — each is priced as the only thing you change.
| MRR band | Owner-earnings multiple | Where it comes from |
|---|---|---|
| $1,000–$5,000 MRR | 2.4x | Interpolated between Flippa's 2x–4x for owner-operated software under $1M ARR and FE International's 5x–7x for businesses valued under $2M |
| $5,000–$10,000 MRR | 2.8x | Interpolated between Flippa's 2x–4x for owner-operated software under $1M ARR and FE International's 5x–7x for businesses valued under $2M |
| $10,000–$25,000 MRR | 3.2x | Interpolated between Flippa's 2x–4x for owner-operated software under $1M ARR and FE International's 5x–7x for businesses valued under $2M |
| $25,000–$50,000 MRR | 3.6x | Interpolated between Flippa's 2x–4x for owner-operated software under $1M ARR and FE International's 5x–7x for businesses valued under $2M |
We could not verify any source that publishes closed-deal multiples by MRR band at this size with the deal count behind them. The Index says the same thing in more detail, and prints the count of our own runs rather than a median we cannot support.
Each percentage point of monthly churn moves valuation about 20% (Livmo reports 15–25%; we use the midpoint). The 3.2% reference is Churnkey's healthy average for a business around $10,500 MRR, cited by FE International.
Growth tiers follow SaaS Capital's private-SaaS bands (under 20% a year, 20–40%, 40–70%, above 70%), applied as a relative move rather than as their absolute ARR multiples, which are set on much larger companies.
Gross margin
Target: 80% or above
VALUEPULSE MODEL RULE
Software Equity Group's data has above-80% gross margin trading at a premium to below-80%. That gap is measured on far larger companies, so we damp it to 12% rather than applying it in full.
FE International calls two years the preferred entry point for buyers and says three years and up starts to earn a premium. Under a year, buyers discount the revenue because they cannot see it hold.
Customer concentration
Target: under 20% of revenue
VALUEPULSE MODEL RULE
A ValuePulse model rule, not a published figure: buyers and advisers name concentration above 30% as a red flag, but no source we could verify puts a number on the discount at this size. We apply 7% at 20%, 14% at 30% and 22% at 40% of revenue, and we show it here so you can argue with it.
Churn is the heaviest lever by design: 20% of valuation per percentage point against a 3.2% reference, capped so that no single input can swing the range more than 60%.
Six fields is a promise. These three would each change the number, and a buyer will ask about all of them — so the Value Audit names them rather than letting you find out in diligence.
Owner dependency
How many hours a week the business needs from you. Published write-ups show comparable businesses at 3x owner earnings when the founder works full time and 4x when the product needs little maintenance — often the largest single swing in a deal this size.
Platform dependency
Whether your distribution or your product lives inside someone else's platform. Guidance on small software deals puts that discount at 30–50%. We do not apply it, because we do not ask.
Contract mix
Monthly versus annual revenue. Monthly subscribers churn several times faster, so a buyer values the two differently.
An indicative range for a negotiation is not a valuation opinion, and nothing here is accounting, tax or legal advice. If a figure on your score looks wrong to you, it is probably one of these adjustments — write to us and say which one. That is how the model improves.
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