What is a revenue multiple?
A shortcut that prices a business at a number of times turnover, assuming margin is predictable within a business model. Divide it by your margin to see what it really implies.
A revenue multiple prices a business at a fixed number of times its annual turnover. It assumes margin is predictable enough within a business model that turnover can stand in for earnings. It is a proxy, not a measurement — and whether the proxy holds is the whole question.
The test that takes ten seconds
Divide the revenue multiple by your EBITDA margin. That gives the earnings multiple it implies.
- 1× revenue, 25% margin
- 4× EBITDA
- 1× revenue, 12% margin
- 8.3× EBITDA
- 1× revenue, 6% margin
- 16.7× EBITDA
If the implied figure sits outside two to eight, the revenue multiple does not apply to your business.
Where it is genuinely used
Software with low churn, priced on annual recurring revenue. Businesses reinvesting earnings into growth by choice, where an earnings multiple would return close to zero. And project businesses whose margins swing so violently that a three-year revenue average is more stable than any single year's profit.
Where it costs you
If your margin is above your sector average, a sector revenue multiple systematically undervalues you — it is an average across companies running very different margins, and accepting it is a discount you volunteered.
Revenue multiple explained has the ranges by model; revenue multiple or EBITDA multiple has a four-question test for choosing.