Business Valuation Multiples
How buyers price businesses in the $1M to $100M range: EBITDA and SDE multiples, what moves them, and how to apply one.
A business valuation multiple is the number you multiply your earnings by to estimate value. It is the single largest variable in most lower-middle-market transactions. The multiple is set by the earnings basis (SDE or EBITDA), the size of the business, and the value drivers a buyer prices. The result is enterprise value; from there, subtracting debt and adding excess cash gives the equity value the owner actually receives.
This page explains multiples as a method: which earnings basis applies when, what typical ranges look like by size, how the value drivers move the number within its band, and how a worked example translates the formula into dollars. For an overview of all common valuation methods, see the business valuation pillar. For current multiples by industry, see EBITDA multiples by industry.
Key takeaways
- A multiple is applied to normalized earnings: enterprise value equals adjusted EBITDA (or SDE) times the multiple.
- Most lower-middle-market businesses trade at 4x to 8x adjusted EBITDA; smaller owner-operated businesses at 2x to 4x SDE.
- The step up with size is real money, because buyers see less risk and more transferable value in a larger business.
- Five value drivers move the multiple within its range: owner dependence, recurring revenue, customer concentration, growth, and margin quality.
- The industry baseline matters, but size and individual quality usually matter more. For current by-industry ranges, see the EBITDA multiples article.
Last updated: July 2026 · Reviewed by the FISART senior team
4-8x EBITDA
2-4x SDE
3 multiple types
$1M-$100M revenue
Why buyers price businesses on multiples
The multiples method values a business based on what comparable businesses have actually sold for. Instead of building a price from scratch, a buyer applies a factor drawn from real transactions to your normalized earnings. That makes multiples the most market-grounded valuation method and the one buyers and sellers find easiest to verify.
Unlike a discounted cash flow (DCF), which projects future performance and discounts it back, the multiples method stays anchored in what the market has already paid. Buyers know what the number is based on, because other buyers already paid it.
In the US lower middle market, the large majority of transactions are priced on multiples. DCF and asset-based methods play a role as cross-checks or in special situations, but the multiple is almost always the starting point and often the closing point.
The method is simple to apply but hard to get right. The biggest valuation errors come from choosing the wrong earnings basis, applying a stale or poorly sourced multiple, or missing adjustments in the normalization. That is where advisory work matters.
The three common multiple types
Which earnings basis applies depends on the size of the business, how it is managed, and whether it is profitable. Three multiple types cover virtually every case in the lower middle market. For a deeper look at EBITDA versus SDE, see business valuation.
EBITDA multiple
The standard for professionally managed businesses. EBITDA = Earnings before Interest, Taxes, Depreciation, and Amortization.
When it applies: businesses above roughly $1M of EBITDA with a management team in place.
Typical US ranges: 4-6x for $1M-$5M EBITDA, 6-9x for $5M-$25M, 8-12x for larger businesses.
Strengths: comparable across industries, neutralizes financing and tax structure.
SDE multiple
SDE = Seller's Discretionary Earnings. Adds back one full owner's salary and benefits to pre-tax profit.
When it applies: owner-operated businesses where the owner draws a salary and is the primary operator.
Typical US ranges: 2-3x for small service businesses, 3-4x for profitable owner-operated businesses with management depth.
Strengths: reflects the true earning power of a business run by one owner.
Revenue multiple
Multiplier applied to annual revenue rather than earnings.
When it applies: high-growth businesses without stable profitability, SaaS, and sometimes carve-outs.
Typical US ranges: 0.5-1.5x for traditional services, 1.5-3x for branded businesses, 3-8x for SaaS and high-growth.
Strengths: usable even when a business has no positive EBITDA.
Typical multiples by business size
Valuation multiples rise with business size, because larger businesses carry less risk and more transferable value. The table below shows typical ranges as guide values; the exact multiple within each band depends on the value drivers.
| Earnings basis and size | Typical multiple |
|---|---|
| SDE, under about $1M (owner-operated) | 2x to 4x SDE |
| Adjusted EBITDA, about $1M to $5M | 4x to 6x EBITDA |
| Adjusted EBITDA, about $5M to $25M | 6x to 9x EBITDA |
| Adjusted EBITDA, $25M and above | 8x to 12x or higher |
The step up as a business grows is real money. A business that moves from an SDE basis to an EBITDA basis, by building a management team and reducing owner dependence, often gains both a higher earnings quality and a higher multiple, which is why exit planning focuses on size and professionalization.
Multiples by industry
Industry sets the baseline range, and it varies widely: asset-light, recurring-revenue sectors like software trade well above capital-intensive or project-based sectors. Within any industry, though, size and the value drivers usually matter more than the sector average, so an industry benchmark is a starting point rather than an answer.
This page keeps the industry view brief on purpose, because the full, sourced breakdown lives in a dedicated article. For current ranges by sector, updated with market data, see EBITDA multiples by industry. To see how the range applies to your specific business, the valuation calculator uses your sector and earnings, and a senior advisor reviews the result.
What moves your multiple
Within any size band, four groups of factors determine the actual multiple a buyer applies. Two businesses of the same size and industry can trade a full turn or more apart on these alone. Knowing what drives the premium, and what triggers a discount, lets you work on the right levers before going to market.
Premium factors (lift the multiple)
- ·Revenue growth above 15% per year
- ·High share of recurring or contracted revenue
- ·Low customer concentration (no single customer above 10%)
- ·Strong brand positioning, patents, or proprietary technology
Stabilizing factors (market-rate multiple)
- ·Stable profitability over 5 or more years
- ·Diversified customer base across industries or geographies
- ·Management team in place with no owner dependence
- ·Clean financials, audited or reviewed statements
Discount factors (lower the multiple)
- ·High owner dependence with no management team
- ·Customer concentration above 30% with one account
- ·Flat or declining revenue over the last 3 years
- ·High capital expenditure requirements or deferred maintenance
Sector effects
- ·Regulatory risk (e.g. healthcare, financial services)
- ·Cyclical exposure (e.g. construction, automotive supply)
- ·Buyer density and acquisition appetite in the sector
- ·ESG requirements or transition pressures in the industry
Worked example: from EBITDA to equity value
A concrete example makes the multiples method tangible. Take a managed IT services business with $5M of revenue and $1M of reported EBITDA. The calculation starts with normalizing EBITDA, then applies a sector-appropriate multiple, then bridges from enterprise value to equity value.
This example is illustrative and does not replace an individual valuation. Real valuations also account for working-capital adjustments, deferred taxes, and deal-specific terms. To run the calculation with your own numbers, use the business valuation calculator.
Example: managed IT services business
| Line item | Value |
|---|---|
| Reported EBITDA | $1,000,000 |
| Owner compensation adjustment (above market rate) | +$120,000 |
| One-time legal and relocation expenses | +$30,000 |
| Adjusted EBITDA | $1,150,000 |
| Applied multiple (IT services, recurring revenue share) | 6.5x |
| Enterprise value | $7,475,000 |
| Less: outstanding debt | -$300,000 |
| Plus: excess cash | +$200,000 |
| Equity value (seller proceeds before tax) | $7,375,000 |
Valuation in 2 minutes
Run the calculation for your business
The FISART valuation calculator factors in your industry, size, and key value drivers. A senior advisor reviews every result.
How a professional multiples valuation works
Four structured phases, from comparable identification to a written report with ranges and sources. The valuation is embedded in the broader sale process; for the full sequence, see sell your business.
Comparable identification
- ·Identify comparable transactions from the last 24 to 36 months
- ·Review comparable public companies (where relevant peers exist)
- ·Establish the range of multiples paid in the sector and size band
EBITDA normalization
- ·Systematic adjustments for non-operating and non-recurring items
- ·Owner compensation normalization to market rate
- ·One-time expense removal and documentation of each adjustment
Multiple calibration
- ·Benchmark the applied multiple against the sector median
- ·Value driver analysis for premium and discount factors
- ·Cross-check against a DCF or asset-based valuation
Valuation range and report
- ·Best case, base case, and conservative case calculations
- ·Sensitivity analysis across multiple and earnings ranges
- ·Written valuation report with methodology and sources
What to do before a multiples valuation
A multiples valuation is only as good as the data behind it. Before you commission a formal valuation, it pays to clean up the financials and build a defensible set of EBITDA adjustments. Owners who skip this step leave money on the table at every multiple point.
In our experience, the biggest lever on the valuation is less about which multiple applies and more about the quality of the EBITDA normalization. A defensive or sloppy normalization regularly costs owners six- or seven-figure sums.
For owners who want to lift their valuation systematically, the exit planning process works on the value drivers, the earnings normalization, and the substance that a buyer will price.
Preparation
Structured exit planning with FISART
Before we sell, we make your business sale-ready. In three structured months, we work on the value drivers that determine the price, then move directly into a competitive sale process. Preparation and sale from one team.
Three months, a clear action plan, and measurable valuation uplift.
Learn about exit planningMore on valuation multiples
Frequently asked questions
Direct answers on what multiple businesses sell for, EBITDA versus SDE, normalization, and how to apply a multiple.
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