Valuation Methods
DCF vs Revenue Multiple: Which Valuation Method Is Right?
Understanding the two dominant SaaS valuation approaches and when to use each one.
Quick Comparison
📊 DCF Method
Discounted Cash Flow - values future cash flows discounted to present value
✓Theoretically precise
✓Accounts for growth trajectory
✗Complex calculations
✗Requires many assumptions
📈 Revenue Multiple
Simple valuation = ARR × Industry Multiple (typically 5-15x)
✓Quick & simple
✓Market-based pricing
✗Less precise
✗Ignores company specifics
Detailed Comparison
| Aspect | DCF | Revenue Multiple |
|---|---|---|
| Complexity | High - requires financial modeling | Low - simple multiplication |
| Time Required | Hours to days | Minutes |
| Accuracy | High (if assumptions correct) | Moderate (market-based) |
| Best For | Due diligence, M&A, mature companies | Quick estimates, fundraising, growth stage |
| Typical Use | Buyers in acquisition | VCs in funding rounds |
When to Use Each Method
Use DCF When:
- Conducting formal due diligence for acquisition
- Company has predictable cash flows
- You need defensible valuation for negotiations
- Company is mature with historical data
- Precise valuation matters more than speed
Use Revenue Multiple When:
- Need quick ballpark valuation estimate
- Company is in high-growth phase
- Fundraising conversations with VCs
- Comparing to market comps
- Limited financial data available
Example Comparison
SaaS Company Profile:
• ARR: $10M
• Growth: 100% YoY
• Gross Margin: 80%
• Net Retention: 110%
DCF Valuation
5-year projections: $10M → $100M
Terminal value: $150M
Discount rate (WACC): 12%
≈ $85M
Revenue Multiple
ARR: $10M
Comparable multiple: 8-10x
Adjusted for growth: 10x
≈ $100M
Calculate Both Valuations
Use our calculators to compare DCF and revenue multiple valuations for your SaaS business.