By Phillip Mitchell, Founder & Chief Brokerage Officer, AIExchange.club
Figures are as of October 2026, from our own valuation guide and the source linked in the text. Examples are illustrations, not real deals. This is general information, not legal, tax or financial advice.
The usual rule of thumb for selling a business is a multiple of its yearly profit. For a small software, app or AI business, that means about 2x to 5x seller's discretionary earnings (SDE), depending on size. A $200,000-a-year business with $80,000 of SDE would land around $200,000 to $320,000 using the 2.5x to 4.0x range for its size, which is 1.0x to 1.6x its revenue.
That's a starting range, not a price. Search for other rules and you'll get answers that differ by 10x, because most were written for restaurants and shops. This guide puts the common rules side by side on one business, shows the one that fits a small software owner, and explains why buyers move the number up or down.
The common rules of thumb on one business
Here's an illustrative business: $200,000 in annual revenue and $80,000 in SDE (profit with the owner's pay added back; see SDE vs EBITDA). Run it through the rules you'll find online:
| Rule of thumb | The math | Price it gives |
|---|---|---|
| 60% to 70% of annual sales (older main-street rule) | $200,000 x 0.6 to 0.7 | $120,000 to $140,000 |
| 1.3x to 2.5x SDE (main-street range) | $80,000 x 1.3 to 2.5 | $104,000 to $200,000 |
| 2x to 4x SDE (often quoted for small online businesses) | $80,000 x 2 to 4 | $160,000 to $320,000 |
| 2.5x to 4.0x SDE (our range for $120K to $600K ARR) | $80,000 x 2.5 to 4.0 | $200,000 to $320,000 |
| 1x to 10x ARR (the wide range for the software category) | $200,000 x 1 to 10 | $200,000 to $2,000,000 |
Five rules, five answers, and the last one is a ten-fold range. The problem is rarely the math. Each rule was built for a different kind of business, and the right one depends on what you're selling.
What a rule of thumb is good for
A rule of thumb gives you a first range in a minute. It's good for deciding whether a sale is worth exploring, or for sense-checking an offer. America's SBDC puts it well: each industry usually has three or more rules, they can give quite different answers, and a more supportable valuation is needed when the stakes are real (America's SBDC, 2018). Their own example uses a dental practice, where one rule gives $500,000 to $700,000 on $1,000,000 of collections and the profit-based rules can spread even wider.
So use the rule that matches your type of business, then adjust for what a buyer would find when they look inside it.
The rule that fits a small software business
Under about $1M in revenue, buyers price a software business on SDE, and the multiple rises with size. These are the ranges from our SaaS valuation guide:
| Annual revenue | Usual basis | Typical multiple |
|---|---|---|
| Under $120K ARR | SDE | 2.0x to 3.2x |
| $120K to $600K ARR | SDE | 2.5x to 4.0x |
| $600K to $1M ARR | SDE | 3.0x to 5.0x |
| $1M to $5M ARR | ARR or EBITDA | 2.0x to 4.0x ARR |
| $5M to $10M ARR | ARR | 3.5x to 5.5x ARR |
The revenue-based rules ("a software company is worth 5x to 10x revenue") describe venture-backed companies, not a business that makes its owner a living. Our multiples guide covers the category ranges in more detail.
Two questions people ask
Is a business worth 3 times profit? For a small software business, 3x SDE is in the middle of the normal range. In the example above, 3x $80,000 is $240,000. Whether yours deserves more or less than 3x depends on the factors in the next section.
How much is a business worth with $1,000,000 in sales? Revenue alone doesn't tell you. Take two illustrative businesses that both bring in $1,000,000:
| Business A | Business B | |
|---|---|---|
| Revenue | $1,000,000 | $1,000,000 |
| SDE margin | 30% | 10% |
| SDE | $300,000 | $100,000 |
| Multiple used | 3x to 5x | 2x to 3x |
| Price range | $900,000 to $1,500,000 | $200,000 to $300,000 |
Same revenue, and the prices are up to $1.3 million apart. Profit and risk set the price, not sales.
Why the rules miss: what buyers adjust for
A multiple is a range, and buyers pick a spot in it. On an $80,000 SDE business, every full point of multiple is worth $80,000: 2.5x is $200,000, 3.5x is $280,000. What moves you up or down:
- Churn. At 5% monthly churn you keep about 54% of customers over a year. At 2% you keep about 78%. The second business is a safer bet and gets a higher multiple. Net revenue retention explains how to measure yours.
- Customer concentration. If one customer is 30% of a $200,000 business, that's $60,000 of revenue that could leave, which could take most of the $80,000 SDE with it. Buyers either lower the multiple or push part of the price into an earnout.
- Owner dependence. A business that runs without you is worth more than one that needs 50 hours a week from you. Buyers ask how many hours the work really takes.
- Margin after model costs (AI businesses). Every model call is a cost that grows with usage. At $10,000 of monthly revenue with $3,000 of model costs and $800 of hosting, gross margin is 62%. If usage doubles and the price doesn't, margin falls to 32%. Buyers test for that, and our AI company valuation guide shows how it affects price.
- Growth and age. A business that has grown steadily for three years looks safer than one that spiked last quarter.
- Clean books. Add-backs you can't document don't count. In our prep guide, $4,800 of undocumented personal expenses costs $14,400 at a 3x multiple.
Turn the rule into a real number
- Work out your SDE. Profit, plus your pay, plus personal and one-off costs you can document.
- Pick the multiple range for your size from the table above, and place yourself in the lower, middle or upper part based on the factors in the last section.
- Check it against an estimate. Put your numbers into the estimator below, then compare it with what buyers on a marketplace are asking for similar businesses.
What's your SaaS worth?
= $120,000 ARR
45% of revenue is typical
Show the math
An estimate, not an appraisal. It can't see your code, your contracts, or your competitive position. Treat it as a starting range.
Get a full valuation →If the number looks good, the next job is making it provable. Our 12-month prep checklist and the guide to selling a SaaS business cover that.
Frequently asked questions
What is the rule of thumb for selling a business?
Most small businesses are priced as a multiple of seller's discretionary earnings. For a small software or AI business, that is about 2x to 5x SDE, rising with size. Other rules, like a percentage of sales, exist but are less reliable.
How much should a business sell for?
Enough to match what a buyer expects to earn from it, adjusted for risk. In practice, take your SDE, apply the multiple range for your size, and then place yourself in that range using churn, concentration, owner dependence and margin.
When selling a business, how do you value it?
Add up the profit the owner takes out, including their pay and documented one-off costs, to get SDE. Multiply by a range that fits the business's size and risk, then compare the result with what similar businesses are asking.
Is a business worth 3 times profit?
Sometimes. For a small software business 3x SDE is a middle-of-the-range figure, but a business with high churn or one big customer may get less, and one with strong retention and little owner dependence may get more.
How much is a business worth with $1,000,000 in sales?
It depends on profit. In our example, a 30% margin business was worth roughly $900,000 to $1.5 million and a 10% margin business roughly $200,000 to $300,000. Revenue alone doesn't set the price.
Next step
If you're ready to sell, listing on AIExchange.club is free, and the flat 10% success fee is only paid when your deal closes. The deal room, escrow and in-platform contracts are included (see fees and pricing). We list businesses that are already making money.
List your AI-powered business →
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