Revenue multiple or EBITDA multiple?
One of these two methods will flatter your business and the other will not. Which one applies depends on facts about your company, not on which number you prefer.
Ask two advisors what your company is worth and you may get answers that differ by a factor of two. Often they have not disagreed about your business at all — they have applied different multiples to different bases.
The two methods, stated plainly
| Revenue multiple | EBITDA multiple | |
|---|---|---|
| Base | Turnover | Normalised operating earnings |
| Assumes | A typical margin for the sector | Nothing — margin is measured |
| Best for | Pre-profit, high growth, recurring revenue | Profitable, stable, with history |
| Fails when | Your margin is unusual in either direction | Earnings are volatile or absent |
| Typical range | 0.5× – 4× depending on sector | 3× – 8× for SMEs |
When a revenue multiple is the right instrument
A revenue multiple is a shortcut that says: for businesses like this, margin is predictable enough that revenue is a reasonable proxy for earnings.
That holds in three situations.
Earnings are deliberately suppressed. A software business reinvesting everything into growth has near-zero EBITDA by choice, not by weakness. Valuing it on EBITDA produces a number close to zero, which is obviously wrong.
Revenue is contractual and recurring. Where churn is low and contracts are multi-year, revenue is close to an annuity. There is a reason SaaS valuations are quoted as ARR multiples.
Earnings are too volatile to use. Project businesses can swing from 3% to 25% margin depending on the year. A three-year revenue average is more stable than any single year's EBITDA.
When an EBITDA multiple is the right instrument
Almost everywhere else. If your business is profitable, has two or three years of history and margins that do not swing wildly, EBITDA is what a buyer will use — because a buyer is purchasing future earnings, not future turnover.
- Revenue
- €2.0M
- identical in both cases
- At 1× revenue
- €2.0M
- ignores your margin
- At 5× EBITDA (21%)
- €2.1M
- measures it
The numbers converge here by coincidence — that is the point. At a 7% margin the same revenue multiple would have overvalued the business by nearly three times. The multiple you choose is not a presentational decision; it is a claim about which base predicts future earnings.
How to decide, in four questions
- Is the business profitable today, after normalising owner compensation? If no, revenue.
- Is more than 60% of revenue contractual and recurring? If yes, revenue is defensible.
- Have margins moved more than ten points in three years? If yes, use a revenue base or a multi-year EBITDA average.
- Is your margin materially above your sector average? If yes, a revenue multiple will undervalue you — insist on EBITDA.
Run both, then explain the gap
The most useful thing you can do is calculate both and understand why they differ. The gap is not noise — it tells you something specific.