The revenue model of a business is often a key determinant of the interest and valuation consideration in M&A or investment transactions. Revenue streams that are recurring, have high gross margins and based on long-term contracts (e.g. SaaS subscription) provide significantly higher enterprise valuation multiples compared to non-recurring and transient forms of income (e.g. licensing, project-based). In this article, we cover the different types of revenue models, their financial characteristics and the valuation multiples they attract in the markets. Allied Advisers published this report for entrepreneurs and investors to better evaluate how to price their product and services and valuation implications associated with various revenues models.
