Definition
ARR multiple is a valuation shorthand: enterprise value divided by ARR. It is a heuristic that varies by growth, margin, and retention.
Formula
ARR multiple = enterprise value / ARR
Example
If enterprise value is $30M and ARR is $5M, the ARR multiple is 6.0x.
How to use it
- Use ARR multiple for rough comparisons, not as a complete valuation model.
- Higher NRR and faster growth often support higher multiples.
- Be careful with early-stage ARR definitions (clean recurring only).
- Translate EV to equity value by adjusting for cash and debt.
Common mistakes
- Comparing ARR multiples across companies with different ARR definitions.
- Using a single multiple without a range or sensitivity check.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "ARR Multiple (valuation)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., ARR Valuation Sensitivity Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Multiple valuation: how to use ARR/revenue multiples and avoid mix-ups) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- ARR Valuation Sensitivity Calculator: Estimate valuation sensitivity to ARR and revenue multiple assumptions (simple 3x3 grid).
- Multiple Valuation Calculator: Estimate enterprise value and equity value from a metric (ARR or revenue) and a valuation multiple (with net debt adjustments).
Guides
- Multiple valuation: how to use ARR/revenue multiples and avoid mix-ups: A practical guide to multiple-based valuation: choosing a metric, applying EV multiples, and bridging to equity value via net debt.
- ARR valuation sensitivity: a simple multiple grid for scenarios: Use a 3*3 grid to see how valuation changes when ARR and the market multiple move, and avoid false precision from a single multiple.