The reason that SaaS companies command these types of multiples is threefold. First, in a well-run SaaS business, the revenue shows up again and again, every month, for every customer that you bring in (as long as you do your job right and deliver ongoing value). Even better, there’s usually a decreasing amount of effort required to retain a customer after they’ve been around a while.5 Then, as the company keeps going, a world-class SaaS company gets to that Holy Grail—Net-Negative Revenue Churn, expanding ARPA6 on customers it already has.
