Buying a SaaS Business
Software margins, subscription revenue, and a churn number that is the whole thesis. How small SaaS actually trades (on profit, not ARR headlines), what separates a product from a founder's side project, and the technical diligence a spreadsheet cannot do.
Forget the ARR Headlines
Venture-scale SaaS trades on ARR multiples; the SaaS a searcher buys does not. Guidance for the small end is consistent: owner-operated products below roughly $1M of ARR trade on profit, commonly 2x to 4x SDE, with well-documented, low-churn products at $10K-plus MRR reaching 4x to 6x. ARR multiples only enter the conversation for growing, team-run companies. When a listing quotes an ARR multiple on a founder-run product, translate it back to SDE before comparing anything.
Churn Is the Thesis
Recurring revenue is only as good as its retention, and analysis of SaaS pricing consistently shows churn differences translating into multiple-turn valuation gaps. Pull cohort retention, not the blended rate: logo churn and revenue churn separately, expansion revenue, and how the oldest cohorts behave. A product whose customers leave at 8% a year is a fundamentally different asset from one at 3%, whatever the identical MRR charts suggest.
The Founder Is Usually the Engineering Team
Most searcher-sized SaaS was built and is maintained by the selling founder personally, which puts the company's entire technical capacity on the departing party. Underwrite the handoff explicitly: documentation quality, code maintainability (an independent technical review is worth its fee), deployment and incident processes, and what happens on the first serious bug after the transition period ends. Your plan needs a named answer to 'who fixes production at 2 a.m.,' and that answer costs money that belongs in the model.
Revenue Quality Beyond the Churn Rate
Look inside the MRR: annual prepays create deferred-revenue obligations that transfer to you; discounted legacy plans cap your pricing power; a few whale accounts can concentrate a 'diversified' subscription base; and marketplace-dependent distribution (an app store, a platform's plugin directory) imports platform risk exactly as FBA does. Map the acquisition channel too, since a product fed by the founder's audience or content often churns its growth engine at close.
What to Verify in Diligence
Beyond cohorts and code: infrastructure and hosting costs at current pricing, third-party API dependencies and their terms (a critical API repricing can erase the margin), license compliance in the codebase, data-protection posture and breach history, support ticket volume and who answers it, intellectual-property assignment from every contractor who ever touched the code, and the payment stack's transferability. For anything AI-adjacent, unit economics per customer at real usage, since inference costs scale with success.
Financeability Notes
Small SaaS deals often close with more structure and less bank debt than main-street businesses: earnings histories are short, collateral is nonexistent, and many lenders pass, though SBA loans do close on established, documented products. Seller notes, earnouts tied to retention, and marketplace escrow are common. Model debt service, where debt exists, on retention-adjusted revenue with a real budget line for the development capacity you must replace.
What the Data Says
Guidance for small SaaS places owner-operated products below roughly $1M ARR at 2x to 4x SDE, with low-churn, well-documented products above $10K MRR reaching 4x to 6x; ARR-based pricing applies to growing, team-run companies rather than founder-run products.
Analysis of SaaS transactions shows churn as a dominant pricing variable, with differences between roughly 3% and 8% annual logo churn translating into multiple-turn valuation gaps for otherwise comparable companies.
Marketplace and advisor guidance notes that documented operations enabling a buyer to run the product in a few hours a week move small-SaaS pricing from the 2x to 3x SDE range toward 4x to 5x, making transferability itself a priced asset.
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