Key Metrics That Determine a Valuation Multiple

The "multiple" is the most subjective component of The Core Formula for Startup Valuation. It reflects the quality and future potential of the business. A startup can justify a higher multiple by demonstrating strong performance in several key SaaS metrics.

Factors Influencing the Multiple:

Operational Independence: A business that can run by itself with minimal founder involvement is more valuable and commands a higher multiple.
Company Age: A longer, successful operating history reduces risk and increases the multiple.
Growth Potential: The most significant driver. This is assessed through a combination of metrics:
- Churn: A low churn rate (ideally negative churn) is a powerful indicator of customer loyalty and product quality. It proves the business is sustainable.
- Customer Acquisition Cost (CAC): A low and efficient CAC shows that the company can acquire new customers profitably.
- Lifetime Value (LTV): A high LTV demonstrates that the company is acquiring valuable customers who will generate significant revenue over time.
- LTV to CAC Ratio: A high ratio between LTV and CAC is a key indicator of a healthy, scalable business model.

These metrics should be analyzed in tandem to provide a holistic view of the business's health. A founder who can present strong data on these fronts is in a much stronger position to negotiate a higher multiple and, therefore, a higher valuation.