What Multiple Should I Use to Value My Business?

"What multiple should I use?" is one of those questions that sounds simple but hides enormous complexity. I hear it from business owners, their accountants, and even from brokers who should know better. The answer depends on three things: what earnings metric you're applying the multiple to, what industry you're in, and how big your business is. Get any of those wrong and you'll end up with a number that won't survive contact with a real buyer.

The Multiple Means Nothing Without the Metric

This is the single biggest source of confusion in business valuation. When someone says "my business is worth 4x," that statement is meaningless unless you know 4x of what. Four times revenue? SDE? EBITDA? Gross profit? Each of those is a completely different number, and confusing them is how people end up with valuations that are off by 50% or more.

Here's the quick framework. For most small businesses under $5M in revenue, the right metric is SDE (Seller's Discretionary Earnings). SDE includes the owner's compensation, so the multiple effectively prices the total benefit of ownership. SDE multiples for small businesses typically range from 1.5x to 4.5x.

For businesses above roughly $1M in EBITDA — or businesses being sold to institutional buyers like private equity firms — the right metric is EBITDA. EBITDA strips out owner compensation (replaced with a market-rate salary), so the multiple prices the business as a standalone operation. EBITDA multiples for lower middle market businesses typically range from 4x to 8x.

Some industries use entirely different metrics. SaaS businesses are frequently valued on annual recurring revenue (ARR). Dental practices trade on a percentage of collections. Insurance agencies trade on commission revenue or book value. Using the wrong metric for your industry is like measuring temperature in the wrong scale — the number looks real but means something completely different.

Common Industry Multiples

Based on our analysis of 25,000+ real M&A transactions, here are the typical multiple ranges by industry. I'm showing both SDE multiples (for smaller owner-operated businesses) and EBITDA multiples (for larger or PE-backed deals) where both are commonly used.

For the full breakdown across 90+ sub-verticals with size-adjusted ranges, see our complete industry multiples guide.

Why "Rule of Thumb" Multiples Are Usually Wrong

Google "what multiple for [industry]" and you'll find ten different answers. Industry association websites publish one number, broker websites publish another, and business-for-sale listings imply a third. The problem with all of them is that they treat the multiple as a static fact rather than a distribution.

In reality, multiples within any industry follow a bell curve. Take HVAC as an example. The median SDE multiple in our data is about 2.5x. But the 25th percentile is 1.8x and the 75th percentile is 3.3x. That spread represents a $150,000 difference in valuation for a business with $300K SDE. Rule-of-thumb multiples erase that variation and give you the illusion of precision.

More importantly, rules of thumb don't account for size. An HVAC company with $200K SDE and one truck will sell at a very different multiple than one with $2M SDE and 20 trucks — even though they're both "HVAC companies." The larger one attracts PE interest, which pushes the multiple up. The smaller one is limited to individual buyers, many of whom are SBA-constrained. Applying the same "3x" rule to both is a recipe for disappointment on one end and missed opportunity on the other.

SDE vs EBITDA Multiples: The Conversion Trap

One of the most dangerous mistakes I see is when people confuse SDE and EBITDA multiples. They're not interchangeable, and you cannot convert between them by simply adjusting the number.

Here's why. Say you own a business with $400K in SDE. Your owner compensation is $150K. EBITDA (after replacing your comp with a market-rate salary of $150K) is $250K. If someone tells you the "market multiple" for your industry is 5x, the answer depends entirely on which metric they mean:

• 5x SDE = $2,000,000
• 5x EBITDA = $1,250,000

That's a 60% difference. Same "5x multiple," but the metric it's applied to changes the answer by $750,000. This is why I always insist on specifying both the multiple and the metric in the same sentence. "3x SDE" and "5x EBITDA" might actually imply similar valuations depending on the owner's compensation, even though the multiples look different.

The 5 Adjustment Factors That Move Your Multiple

Once you've identified the right base multiple for your industry and size, adjustment factors determine where you land within the range. These are the five that matter most:

1. Growth rate.Businesses growing at 10%+ per year typically trade at the upper quartile of their industry range. Declining businesses trade at the lower quartile or below. Growth signals to buyers that the earnings they're paying for will increase, which justifies a higher multiple today.

2. Owner dependency.If the business can't run without you, that's a discount. Every buyer asks: "What happens when this person leaves?" Businesses with strong management teams, documented processes, and diversified client relationships command higher multiples than those where the owner is the single point of failure.

3. Customer concentration.If one customer represents more than 20% of revenue, your multiple takes a hit. If one customer is 40%+, it can reduce your valuation by 20-30%. Buyers see concentrated revenue as a risk that one phone call could destroy a huge chunk of the cash flow they're buying.

4. Revenue quality. Recurring revenue — contracts, subscriptions, maintenance agreements — trades at a premium to project-based or transactional revenue. An MSP with 85% MRR will trade at the top of its range. A break-fix IT shop with 0% recurring will trade at the bottom.

5. Capital intensity. Businesses that require significant ongoing capital investment — equipment replacement, fleet maintenance, facility upgrades — trade at lower multiples than asset-light businesses. Buyers discount for the ongoing reinvestment required to sustain earnings. For more on how size interacts with these factors, read our analysis of how business size affects valuation.

How to Find the Right Multiple for Your Business

Here's the practical framework I recommend:

Step 1: Determine your earnings metric.Under $1M EBITDA and owner-operated? Use SDE. Above $1M EBITDA or selling to institutional buyers? Use EBITDA. SaaS? Use ARR. Dental? Use collections. Know your industry's convention.

Step 2: Find the industry range. Use comparable transaction data — not Google results, not what your friend got, not what a broker tells you over the phone. Real data from real deals.

Step 3: Adjust for your specifics. Where do you fall on growth, owner dependency, customer concentration, revenue quality, and capital intensity? Each factor can move you half a turn or more within the range.

Step 4: Sanity-check against cash flow. Does the implied valuation make sense for a buyer? Can they finance it, service the debt, and still earn a reasonable return? If not, the market will correct your valuation downward regardless of what the multiples suggest.

The Bottom Line

The "right" multiple isn't something you look up in a table. It's the intersection of your industry, your size, your specific business characteristics, and the current market environment. Getting it right requires real comparable transaction data, the correct earnings metric, and an honest assessment of where your business falls within the range.

Our valuation tool handles all of this — it selects the right methodology for your industry, pulls the appropriate comparable transactions from 25,000+ real deals, adjusts for your specific business factors, and gives you a defensible range. It's the fastest way to get from "what multiple should I use?" to an actual answer.