What is T2D3?
T2D3 stands for “triple, triple, double, double, double,” and was introduced as a concept by SaaS (Software as a Service) investor Neeraj Agrawal. In brief, the metric-turned-method involves two years of tripling annualized revenue growth, then three years doubling it.
How do you value a small business based on revenue?
Small business valuation often involves finding the absolute lowest price someone would pay for the business, known as the “floor,” often the liquidation value of the business’ assets, and then determining a ceiling that someone might pay, such as a multiple of current revenues.
How do you value a software service company?
Valuing a Software Company
- Sales Multiple. A quick and easy way to estimate the value of a software company is by applying a multiple to your annual revenue.
- Price Earnings Ratio.
- Internal Rate of Return Method.
- Free Cash Flow Model.
- Replacement Value.
- Book Value Method.
- Liquidation/Salvage Value.
- Similar Company Transactions.
What is a good valuation multiple for a SaaS company?
A rule of thumb would be if your business is growing at twice the average rate, the valuation multiple would grow by 50\%. For example, a $3.0 million SaaS company growing at 100\% (twice the rate of its peers) would get a growth premium of 2.8 (50\% of the baseline multiple of 5.7), making it worth about 8.5 times revenue, or $26 million dollars.
What is the rule of 40 for SaaS?
The rule of 40 is a key SaaS metric for assessing the health of a SaaS business and is based on two important metrics: growth rate and profit margin. When the rule of 40 first made its debut, the industry was forgiving on how you got to 40. That’s starting to change.
What is the growth rate of a SaaS company?
Similarly, a $60 million SaaS business growing at 50\% is also growing twice as fast as its peers, and would also garner a similar growth premium. There are four other metrics that will impact a company’s value beyond the current state of the public market and its growth rate.
How do you measure the health of your SaaS?
Start with the Rule of 40. The rule of 40 is calculated by: (growth rate + profit margin) x 100. As its name so subtly implies, a good rule of 40 score is greater than or equal to 40. The rule of 40 is a key SaaS metric for assessing the health of a SaaS business and is based on two important metrics: growth rate and profit margin.