For SaaS companies, investors almost always focus on ARR multiples rather than revenue multiples — but the distinction matters only when a significant portion of revenue is non-recurring.
ARR Multiple
ARR multiple = Valuation ÷ Annual Recurring Revenue (ARR)
ARR is the annualized value of all current subscription contracts. It excludes: - One-time professional services fees - Usage-based revenue not yet under contract - Perpetual license revenue
Revenue Multiple (P/S Ratio)
Revenue multiple = Valuation ÷ Total Revenue (GAAP or trailing 12 months)
For a pure subscription SaaS company, ARR ≈ GAAP revenue, so ARR multiple ≈ P/S.
For a company where 30% of revenue is professional services: - ARR = $7M (recurring subscriptions) - Total revenue = $10M (including $3M services) - ARR multiple = $70M ÷ $7M = 10x - Revenue multiple = $70M ÷ $10M = 7x
Why Investors Prefer ARR
Professional services revenue is lower-margin and less predictable. Investors don't want to "pay up" for services revenue the way they would for sticky subscription revenue. ARR multiple isolates the recurring engine.
For usage-based SaaS (AWS, Snowflake, Twilio model), investors often use Annualized Run Rate (ARR) — the last month's revenue × 12 — rather than contracted ARR, since the contracted value may understate actual revenue.
Rule of Thumb
If >90% of your revenue is subscription/recurring: ARR multiple ≈ revenue multiple.
If <70% of your revenue is recurring: use ARR multiple for investor conversations and revenue multiple for public comp analysis.
Calculate your ARR multiple at the Price-to-Sales Calculator.