EBITDA multiple explained
What actually sets your multiple — size, growth, concentration and owner dependence — and why the sector average you found online is the least useful number in the calculation.
A multiple is not a fact about your industry. It is a price a specific buyer puts on a specific risk, expressed as a number of years of earnings they are willing to pay for up front.
That framing is the whole article. Every driver below is really a statement about how confident the buyer is that next year's earnings will look like this year's.
Where the number comes from
At 5× EBITDA, a buyer hands you five years of current earnings today and takes the risk that year six exists. Everything that makes year six more likely pushes the multiple up. Everything that makes it depend on you pushes it down.
The five drivers, in the order buyers weigh them
1. Size
The single largest determinant, and the one owners find least fair.
- Under €500k EBITDA
- 2–4×
- few buyers, high owner dependence
- €500k – €2M
- 4–6×
- management layer exists
- €2M – €10M
- 5–8×
- private equity enters
The reason is not snobbery. Below roughly €500k of EBITDA the buyer pool is individuals using their own money, and there is only so much of that. Above €2M, funds with a mandate start bidding, and competition sets prices rather than negotiation.
2. Growth
Two businesses at €800k of EBITDA. One flat for three years, one compounding at 20%. The second is worth more, because the buyer is really paying for year six and growth makes year six bigger. How much more is not something anyone has published for businesses this size: the closest transaction-linked figure is GF Data's 15% premium in 2024 for businesses combining a 10% EBITDA margin with 10% revenue growth, and that bundles the two together.
Growth counts most when it is explainable. "We hired two salespeople and revenue rose proportionally" is worth more than "the market was good."
3. Customer concentration
The direction is well evidenced; the size of the effect is not. Research on listed companies finds concentration raises the cost of equity and of debt, and that acquirers place fewer bids and use more stock payment. Fewer bidders is where the money goes, because competition sets price in a private sale.
| Largest customer | What changes | Why |
|---|---|---|
| Under 10% | Nothing | Loss is absorbed |
| 10–20% | Questions in diligence | Uncomfortable but survivable |
| 20–35% | Some buyers step back | One conversation changes the business |
| Above 35% | An earn-out is proposed | The buyer is buying a relationship, not a company |
What the evidence actually says about customer concentration goes through the research, including the widely quoted figure we could not source.
4. Owner dependence
If the answer to what happens if you take three months off is revenue falls, the buyer is not purchasing a business. They are purchasing a job with goodwill attached, and they will price it that way.
The test buyers actually apply: are the customer relationships, the supplier terms and the pricing decisions documented somewhere other than your head?
5. Revenue quality
Contracted beats recurring beats repeat beats project. A business with 70% of revenue under multi-year contract is closer to an annuity than to a trading company, and gets valued closer to one. How recurring revenue affects valuation works through the mechanics.
What does not move it as much as owners expect
Using a sector average correctly
Look it up, then treat it as the midpoint of a distribution you have to place yourself in. A "5× for professional services" average contains businesses trading at 3× and at 8×, and the difference between them is the five drivers above — not the sector.