Understanding Multiples: How to Increase the Value of Your Business

Valuation is one of the most common, and most misunderstood, topics for business owners. When someone says your business is worth 5x EBITDA or 4x ARR, what does that really mean? And more importantly… how do you increase that multiple?

This guide breaks down how valuation multiples work, what drives them, and how to meaningfully improve the value of your company, especially if you're running a $5M–$40M business.

What Multiples Really Represent

A multiple is simply a shortcut.

In reality, investors evaluate returns based on:

• Your earnings

• The growth of those earnings

• Their required rate of return

The classic valuation formula, Price = Cash Flow / (r – g)—is elegantly simple:

• r = required return

• g = long-term growth

Multiples package all that complexity into a single number.

Higher growth = higher multiple.
Higher risk = lower multiple.
Greater profitability = higher multiple.
Weaker retention = lower multiple.

It’s that simple… and that nuanced.

A Quick Example

Two companies each generate $5M of EBITDA:

• Company A is growing 15%

• Company B is growing 5%

If an investor targets a 25% return, they’ll pay twice as much for Company A—even though current earnings are identical.

Growth drives value.

What Actually Impacts Your Multiple

Multiples vary significantly across sectors, but these factors influence nearly every valuation:

Growth Rate

Faster-growing companies command higher valuations because investors are putting the value on future earnings.

Profitability

Investors reward margin strength, scalability, and operating leverage.

Recurring Revenue

Predictable revenue increases confidence and reduces perceived risk. Revenue under contract is another important nuance. The greater percentage of your next years revenue already locked into a contract means less risk to a buyer.

Customer Retention

Strong retention signals product-market fit and future stability.

Company Size

Larger companies typically trade at higher multiples due to lower volatility and often have more history. There is also the factor of how much capital can be invested at once. Since investors all want to put their money to work, spending $2M per investment is 5x the work of a $10M average. More potential investors means more interest and typically higher valuations.

Sector Attractiveness

Better tailwinds → better multiples.

Management Quality

Investors pay for credible leadership and strong execution.

Competitive Landscape

Differentiation and defensibility matter.

How to Increase Your Valuation Multiple

If you're looking to scale, raise capital, or prepare for an eventual exit, focus your energy here:

1. Improve Profitability

Get to an attractive scale where margins expand with growth.
Incremental profitability, how much EBITDA each new dollar of revenue generates, is a powerful valuation driver. Focus on investing in business that expands your margins.

2. Strengthen Revenue Predictability

Shift to recurring, renewal-based, or multi-year contracts where possible.

3. Raise Retention

Improving retention even a few percentage points can meaningfully increase valuation.

4. Simplify Your Story

Clear metrics, clean reporting, and a tight strategy make investors more comfortable underwriting future returns.

5. Build a Scalable Business

Create systems, processes, and financial visibility that allow growth without chaos.

6. Understand Your Customer Economics

High LTV/CAC ratios are extremely attractive in both services and SaaS.

Putting it all Together

Multiples aren’t just about math, they’re about strategy, credibility, and confidence. The decisions you make today directly influence how investors and buyers will value your company tomorrow.

If you’re looking to scale, raise capital, or maximize value, understanding these drivers will give you a meaningful edge.

If you’d like help building your valuation strategy, or preparing for an eventual raise, I’d love to connect