EBITDA multiple is a valuation metric that compares a company's Enterprise Value (EV) to its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

Formula: Enterprise Value = EBITDA × Multiple.

For example, a business with $500,000 EBITDA at a 6x multiple is valued at $3,000,000.

EBITDA multiples are popular because they normalize for capital structure (debt vs equity), tax strategies, and accounting policies, making comparisons across companies more meaningful.

Buyers use multiples to quickly assess if a business is fairly priced relative to peers.

EBITDA multiples vary significantly by industry: SaaS/Software: 8-20x (high growth, recurring revenue premium), Healthcare Services: 6-14x, Financial Services: 6-15x, Professional Services: 4-10x, Retail/E-commerce: 4-12x, Manufacturing: 4-9x, Transportation/Logistics: 4-9x, Construction: 3-7x, Restaurants/Food Service: 2-6x.

Within each industry, multiples vary based on company size (larger = higher multiple), growth rate (20%+ growth adds 2-4x), profitability (higher margins = premium), and market conditions (M&A activity, interest rates).

Factors that INCREASE multiples: (1) High revenue growth (20%+ annual adds 1-3x), (2) High recurring revenue (80%+ subscription/contract revenue adds 1-2x), (3) Diversified customer base (no customer >10% of revenue adds 0.5-1x), (4) Strong management team not dependent on owner (adds 0.5-1x), (5) Scalable business model, (6) Proprietary technology or IP, (7) Strong market position (#1-2 in niche).

Factors that DECREASE multiples: (1) Customer concentration (>25% from one customer reduces 1-2x), (2) Owner dependence (key-man risk reduces 1-2x), (3) Declining revenue, (4) Below-industry margins, (5) Regulatory risks, (6) Aging technology or equipment.

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization.

Start with your net income from the income statement, then add back: (1) Interest expense (debt payments), (2) Income taxes paid, (3) Depreciation (non-cash expense for physical assets), (4) Amortization (non-cash expense for intangible assets).

For small businesses, also consider "Adjusted EBITDA" which adds back owner salary above market rate, one-time expenses, and personal expenses run through the business.

Example: Net Income $200,000 + Interest $50,000 + Taxes $80,000 + D&A $70,000 = EBITDA $400,000.

EBITDA multiple values a business based on profitability (earnings), while revenue multiple values based on top-line sales regardless of profit.

EBITDA multiples are preferred for profitable businesses because they reflect actual cash generation.

Revenue multiples (0.5-3x for most industries, 5-15x for high-growth SaaS) are used for: (1) Unprofitable but high-growth companies, (2) Early-stage startups with no EBITDA, (3) Industries where revenue is more predictable than earnings.

A business with $5M revenue and $500K EBITDA at 6x EBITDA multiple = $3M value, which equals 0.6x revenue multiple.

Higher EBITDA margins lead to higher implied revenue multiples.

SaaS companies command 8-20x EBITDA multiples (vs 4-8x for traditional businesses) due to: (1) Recurring revenue - 80-95% of revenue is subscription-based, highly predictable, (2) High gross margins - 70-85% vs 30-50% for product companies, (3) Scalability - marginal cost to serve additional customers is near zero, (4) Customer lifetime value - average customer stays 3-5 years with 100-120% net revenue retention, (5) Low capital requirements - no inventory, minimal physical assets, (6) Network effects - some SaaS products become more valuable with more users.

The "Rule of 40" (growth rate + profit margin ≥ 40%) is a key SaaS valuation benchmark - companies exceeding it trade at 2-3x higher multiples than those below.