What Multiple Should I Use to Value My Business?

Seller's discretionary earnings multiples are the standard for businesses where the owner is actively involved in daily operations and earns less than $1 million annually. SDE captures the total economic benefit to one working owner, making it the most meaningful metric for a buyer who plans to step into the owner's role.

Typical SDE multiples for small businesses range from 1.5x to 4.0x. Businesses at the lower end tend to be highly owner-dependent, have limited growth potential, or operate in industries with low barriers to entry. Businesses at the higher end have recurring revenue, diversified customer bases, documented processes, and a track record of stable or growing earnings.

For reference, the median SDE multiple across all small business transactions in the United States is approximately 2.3x to 2.7x, according to BizBuySell and DealStats transaction data.

Once a business earns more than $1 million in annual profit and has a management team in place, EBITDA becomes the standard metric. EBITDA multiples range from 3x to 7x for most mid-market businesses, with some sectors (particularly technology, healthcare, and financial services) commanding higher multiples.

An important concept is the "size premium." Larger businesses consistently trade at higher multiples because they are perceived as less risky, more stable, and more attractive to a wider pool of buyers (including private equity firms and strategic acquirers). A business with $500,000 in EBITDA might sell for 3.5x, while a similar business with $5 million in EBITDA might sell for 5.5x.

Revenue multiples are used when profitability is not yet established or when the industry convention favors revenue-based pricing. SaaS companies, for example, are frequently valued at 5x to 12x annual recurring revenue (ARR) because their subscription models produce predictable, high-margin cash flows once they reach scale.

For traditional small businesses, revenue multiples typically range from 0.3x to 1.5x. A professional services firm might trade at 0.8x to 1.2x revenue, while a manufacturing company with thin margins might trade at 0.3x to 0.6x. Revenue multiples are inherently less precise than earnings multiples because they do not account for profitability differences.

Industry is the single biggest factor in determining the appropriate multiple. Technology companies, healthcare practices, and financial services firms consistently command the highest multiples because they often have recurring revenue, high margins, and strong growth prospects. Construction, retail, and food service businesses typically trade at lower multiples due to lower margins, higher capital requirements, and greater cyclicality. See our multiples by industry page for specific benchmarks across 52 sectors.

Within any industry, there is significant variation. A restaurant with a strong brand, prime location, and loyal following will sell for a higher multiple than a generic restaurant with declining sales. Industry averages are a starting point, not a verdict. Your specific business characteristics will push the multiple above or below the median.

Always use multiples from the same size range and industry as your business. An EBITDA multiple for a $100 million technology company is irrelevant when valuing a $500,000 landscaping business.

Several factors consistently drive higher multiples. Recurring or subscription revenue reduces risk and increases predictability. A diversified customer base (no single customer exceeding 10% to 15% of revenue) protects against sudden revenue loss. Strong year-over-year growth demonstrates momentum. Documented systems and processes reduce the buyer's transition risk.

Owner independence is another major factor. If the business can run profitably without the current owner's daily involvement, buyers will pay a premium because they are purchasing a self-sustaining operation rather than a job. Favorable lease terms, proprietary technology, and strong brand recognition also contribute to higher multiples.

The most common mistake is using an EBITDA multiple from a large-company transaction and applying it to a small business. Public company EBITDA multiples often range from 8x to 15x, but these include a significant premium for liquidity, scale, and diversification that small businesses simply do not have.

Another frequent error is mixing up SDE and EBITDA multiples. An SDE multiple of 2.5x is not equivalent to an EBITDA multiple of 2.5x because SDE includes the owner's salary (often $75,000 to $200,000 or more). Applying an SDE multiple to EBITDA (or vice versa) will produce a meaningfully incorrect estimate. Always confirm which earnings metric the multiple was designed for. Our free valuation tool applies the correct multiple type automatically based on your inputs.