Explainer9 min readUpdated last month

How the valuation works

The valuation tool turns 12 answers into a range. It is a benchmark, not an appraisal, and it is only as good as the numbers put into it. Here is exactly what moves the multiple and what the range does not tell you.

What the tool actually calculates

Start with EBITDA, or seller discretionary earnings on smaller deals. Apply a base sector multiple, then adjust it up or down for the characteristics buyers reliably pay more or less for. The result is a fair value, with a range around it. The arithmetic is fixed and the same inputs always produce the same range — nothing here is generated by a model. Sector medians are illustrative until comparable-transaction data replaces them.

Revenue is used as a sanity check rather than the driver. Two businesses with identical revenue and very different margins are not worth the same, and a revenue multiple hides that.

The five factors that move the multiple

Recurring revenueThe single largest positive factor. Contracted or subscription revenue that renews without a new sale carries the most weight.

Growth rateSustained growth above the sector median earns a premium. Flat is neutral. Declining revenue is the fastest way to lose multiple.

Owner involvementFewer owner hours means a real management layer. Under 20 hours a week reads as transferable; 50-plus reads as a job, not an asset.

Tenure10 or more years of operating history lowers perceived risk. Under three years reads as early stage.

Customer concentrationThe main negative factor. A largest customer above 20% of revenue is the most common reason a deal gets repriced during diligence.

Why you get a range, not a number

Nobody buys at a point estimate. The range reflects the spread a business like this can trade across, and the deal terms move you within it: cash at close versus an earnout, how much transition support is included, whether real estate transfers, and how motivated each side is.

The conservative end is roughly where a cautious buyer with financing constraints lands.
Fair value is the midpoint of the range the multiple and its adjustments produce.
The aggressive end assumes a strategic buyer or competitive process.

What the confidence score means

High confidence means the inputs are internally consistent and the business has the characteristics that narrow a range. Medium usually means thin comparables, an unusual size band, or inputs that pull in opposite directions, such as strong growth alongside heavy customer concentration. It is a statement about the data, not about the business.

What the tool cannot see

Whether the reported numbers are accurate. At valuation stage nothing is verified.
Customer contracts that are about to renew, or about to end.
Key-person risk that is not visible in an owner-hours figure.
Deferred maintenance, pending litigation, or a lease that will not transfer.

Treat it as the start of diligence

The valuation tells you whether an asking price is inside a defensible range. It does not tell you whether the business is a good business. That is what the deal room and your accountant are for.

Using it in a negotiation

The useful move is not quoting the range at a seller. It is asking which factor they think justifies their end of it, then testing that factor in diligence. If a seller prices at the aggressive end on the strength of recurring revenue, the renewal history is the first thing to request.

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