The short answer
A SaaS business in Australia is valued as a multiple of recurring revenue or of earnings, and which one a buyer uses depends mostly on size. SaaS Capital, a specialist lender to B2B software companies, estimated in January 2025 that private SaaS companies would be priced at about 4.8 times annual recurring revenue (ARR) if bootstrapped and 5.3 times if equity-backed: modelled estimates from its survey data, not observed sale prices. Small owner-operated software businesses are usually priced on profit instead. Flippa, an online business marketplace, and an international software M&A adviser publish bands that overlap at roughly 2.5 to 4 times seller's discretionary earnings (SDE, profit before the owner's pay and personal expenses) for the smallest businesses; Flippa's band covers those under about $2 million of annual revenue. Listed software is a third scale and moves fast: a technology M&A adviser's analysis of S&P Capital IQ data reports a median of 4.6 times revenue in August 2026 for the 54 listed SaaS companies it tracks, against 19.3 times in December 2020. These are market observations, not rules. Buyers pay for recurring revenue that stays, so retention, churn and customer concentration decide how much of the headline ARR is worth paying for, and earnings must be stated after the real cost of keeping the software alive, which capitalised development can hide.
What the buyer is paying for: contracted revenue that keeps renewing
ARR is monthly recurring revenue (MRR) on live subscriptions multiplied by twelve. It is not recognised revenue, billings or bookings, and it should exclude one-off set-up fees, implementation and consulting income, usage spikes and any customer who has already given notice. The sub-type changes how renewable the book is. SaaS Capital's 2023 survey of more than 1,500 private B2B SaaS companies found median gross revenue retention of 90 per cent below its $25,000 annual-contract-value line and about 93 per cent above it, with net revenue retention rising as contract values rose. Lower-priced products therefore tend to carry higher churn than higher-priced products sold with scoping, onboarding and account management; vertical and horizontal products differed only slightly. A business whose recurring line includes services revenue has less recurring revenue than it reports and should be valued on the recurring part alone.
Retention is the price: net retention, churn and concentration
Net revenue retention (NRR) is today's revenue from customers who were customers a year ago, as a percentage of what they paid then, including upsells, cross-sells and price increases. Gross revenue retention (GRR) strips those out and cannot exceed 100 per cent. SaaS Capital's 2023 survey reported median NRR of 102 per cent and median GRR of 91 per cent; companies with NRR below 100 per cent grew more slowly than the survey's median growth of 34 per cent (companies above $1 million of ARR). Treat the medians as a yardstick: a book below them needs an explanation and a book above them needs evidence. Two traps. Price rises lift NRR without retaining anyone, so GRR and logo churn must be read beside it. And GRR flatters a young book: SaaS Capital found companies under five years old reported median GRR of 92 to 94 per cent, slipping towards about 90 per cent as customers had time to churn. The Rule of 40, growth rate plus profit margin of at least 40 per cent, tests whether growth was bought at the expense of profit, and it is demanding: one technology M&A adviser's analysis found only seven of 46 listed SaaS companies in its second quarter 2026 sample cleared it, with a median score of 26 per cent. The evidence a buyer or valuer asks for:
- ·A 24-month MRR bridge (new, expansion, contraction, churn) reconciled to the billing platform and bank receipts
- ·Cohort GRR and NRR by start quarter, shown separately, with the formulas stated
- ·Logo and revenue churn by plan and customer size
- ·The top ten customers by ARR with contract end dates, termination rights and change-of-control clauses
- ·Contract terms (monthly, annual, multi-year, auto-renewal, price-change rights), discounts and legacy price plans
Owner-operated, growth-stage and listed: three price scales
At the smaller end a buyer is often stepping into the owner's job, so the price is set on SDE and sits in the low single digits. Flippa's 2026 guide reports 2.5 to 4.5 times SDE for SaaS businesses under about $2 million of annual revenue, a second Flippa article puts owner-operated businesses below $1 million of ARR at about 2 to 4 times profit, and an international software M&A adviser's 2026 benchmarks give a similar band for the smallest businesses. Size bands are in each publisher's own currency. Above that, buyers move to ARR. SaaS Capital's 4.8 and 5.3 times estimates combine the listed SaaS Capital Index (7.0 times at the start of 2025) with private-company growth and retention data, so they move with listed prices and date quickly. A separate technology M&A adviser's August 2026 analysis of disclosed SaaS deals since 2015, drawn from Mergermarket, shows a median of 4.5 times revenue across 543 deals (quartiles 2.4 and 8.1 times), with deals of up to 50 million in the source's currency clustered around 3.0 to 3.3 times. Disclosed deals are a self-selected sample that omits the small private sales never announced, so treat them as context, not comparables. Listed multiples are the most visible and the least transferable: that analysis puts the listed median at 4.6 times revenue, and Betashares reported that the Australian technology sector fell more than 30 per cent between the fourth quarter of 2025 and February 2026. A private SaaS business with one product, a concentrated customer base and a founder in the critical path gets a discount to a listed multiple, and that discount has to be evidenced rather than assumed.
Capitalised development and the R&D incentive: what earnings really are
Under AASB 138 Intangible Assets, research costs are expensed as incurred, and development costs can be capitalised only when criteria are met: technical feasibility, intention to complete and to use or sell, ability to use or sell, expected future economic benefits, adequate resources, and reliable measurement of cost. Capitalised wages leave EBITDA and reappear as amortisation below it, so identical cash costs can produce very different EBITDA. New products are discretionary investment; fixing bugs, patching security and keeping integrations alive is a running cost, because customers leave without it. A valuer deducts the maintenance portion from maintainable earnings, tests the split against timesheet or ticket data, and treats a change in capitalisation policy shortly before a sale as a flag. The R&D tax incentive (Division 355 of the ITAA 1997) adds a second distortion. Software activity qualifies only where it meets the statutory definition of core or supporting R&D, and the Department of Industry, Science and Resources describes the incentive as self-assessed with claims open to review. The offset is refundable for smaller entities, so a refund can sit in the accounts looking like income. A buyer will ask whether each claim is supportable, will treat earlier claims that could not survive review as a contingent liability, and will not pay a multiple on a refund unless it is likely to recur. The 2026-27 Budget announced changes to the incentive, proposed to start from 1 July 2028, so the settings for each claim year need checking.
The standing deductions: code ownership, key people, data and deferred revenue
Code ownership comes first. Under the Copyright Act 1968 (Cth), software written by an employee in the course of employment is generally owned by the employer, but the state law handbooks note that for most commissioned works the creator keeps ownership unless it is assigned in writing. Code written by freelancers, offshore developers or a former co-founder without signed assignments is a title defect a buyer's lawyer will find. Open-source licences belong in the same check. Key person risk is usually a founder who is also the lead developer: if no one else can release, debug or explain the architecture, part of the goodwill is personal and does not transfer. A customer that is a tenth of ARR takes a tenth of the value with it if it leaves, so concentration and change-of-control clauses sit beside it. A SaaS business also holds its customers' data. Where the Privacy Act 1988 (Cth) covers the business, the notifiable data breaches scheme requires it to notify affected individuals and the OAIC when a data breach involving personal information is likely to result in serious harm, so incident history is a diligence item. Annual prepaid plans create deferred revenue: cash collected for service still owed, which belongs in the completion accounts, not the price. Finally, because listed software was re-priced in early 2026 amid debate about AI competition, a buyer's adviser can reasonably ask how exposed the core workflow is to AI tools and what makes the product hard to replace.
A worked example: from headline ARR to supportable value
Consider a hypothetical Australian B2B SaaS business owned by its founder, who is also the lead developer. The billing system shows MRR of $150,000, a headline ARR of $1,800,000. Customers paying $10,000 a month in total have given notice, so continuing ARR is $1,680,000 (($150,000 less $10,000) x 12). GRR is 89 per cent and NRR 98 per cent, a little below the 91 and 102 per cent medians in SaaS Capital's 2023 survey, so the existing book shrinks by about $33,600 a year (2 per cent of $1,680,000) before new sales. Reported EBITDA is $1,020,000 on revenue of $1,640,000. It includes a $70,000 R&D incentive refund booked as other income and excludes $240,000 of developer wages capitalised under AASB 138 that a buyer treats as a running cost. Removing both leaves $710,000 ($1,020,000 less $240,000 less $70,000). The founder draws $90,000, so SDE is $800,000 ($710,000 plus $90,000). At 2.5 to 4 times SDE, the band quoted above, earnings support $2,000,000 to $3,200,000. The evidence then pulls toward the lower half: the largest customer is 18 per cent of ARR with a contract ending in nine months, only the founder can release code, and two contractor developers have no signed IP assignment. At 2.5 to 3.2 times SDE the supportable range is $2,000,000 to $2,560,000 ($800,000 x 3.2), about 1.2 to 1.5 times continuing ARR. Applying 4.8 times to the headline ARR would have produced $8,640,000 ($1,800,000 x 4.8), more than three times the top of that range: a multiple quoted for one kind of business cannot be lifted onto another. This range assumes an owner-operator buyer; an investor who must hire a replacement for the founder would deduct a market wage first. Every figure here is illustrative, not a benchmark.
What a defensible SaaS valuation file contains
The supportable position is won or lost in the evidence. The file that defends it typically contains:
- ·Three to five years of financial statements plus year-to-date management accounts, reconciled to the billing platform and the bank
- ·The MRR bridge, cohort GRR and NRR, and churn by segment, with definitions stated
- ·A customer schedule with ARR, contract terms, renewal dates, termination rights and change-of-control clauses
- ·A capitalised development schedule: policy, amounts by year, amortisation, the new-versus-maintenance split and the time or ticket records behind it
- ·R&D tax incentive registrations and claims, and any review correspondence
- ·A normalisation schedule, including a market-rate cost for each role the founder performs
- ·The IP chain: employment and contractor agreements with assignments, an open-source licence inventory and key third-party dependencies
- ·Security and privacy records, a deferred revenue schedule, and comparable evidence with listed multiples adjusted and explained, tested across the supportable range
When the number has consequences
A formal valuation is worth commissioning once someone else will test the number: a sale or founder exit, a co-founder or investor buyout, a separation or family law property settlement, a shareholder dispute, or a tax event such as a claim for the small business CGT concessions under Division 152 of the ITAA 1997, where eligibility can turn on market values and the $6 million maximum net asset value test. The standard is market value, the price a willing but not anxious buyer and seller would agree (Spencer v Commonwealth (1907)), and the ATO's "Market valuation for tax purposes" guidance sets out what it expects a valuation to address. Oliver Group prepares independent valuations only. We are not a tax agent and do not give tax, legal or financial advice; your accountant and lawyer apply the valuation in their own fields. Our reports follow the guidelines of APES 225 Valuation Services. A valuation written to a predetermined number is not an independent valuation, and we do not prepare one. Oliver Group's fees are set by the annual turnover of the business: a Small Business Valuation is $1,495 + GST for turnover under $2 million, a Medium Business Valuation is $2,495 + GST for turnover between $2 million and $10 million, and a Large Business / Start-Up Valuation is $3,495 + GST for turnover over $10 million or for a start-up. A small-business draft is delivered in 2 business days and a medium-business draft in 3 business days; the delivery date for a Large Business / Start-Up Valuation is agreed before commencement. Delivery time starts once payment and all required information have been received. The fee is fixed in writing before work begins and never depends on the concluded value.