Insights / Interactive guide
How to value a tech services business: interactive valuation calculator
Highlights
- There's no magic formula. Services businesses with similar numbers sell for very different multiples, because buyers price how secure the revenue is as much as how much profit it makes.
- Services are valued on profit (EBITDA). Profit is the base; what sits under it moves the multiple.
- Use the tool below to see what moves a business up or down its range. Then look past the headline: in services, more of the price tends to depend on what happens after the sale. Try the calculator ↓
What drives your valuation
Every buyer runs their own numbers, but three things drive the valuation.
1 · Track record
What you've built
Growth, profitability, how secure your revenue is, and how hard you are to replace.
2 · Growth potential
The room you have left
How much more you can grow if you keep doing what you do today.
3 · External factors
Market and buyer
Market conditions, and why this particular buyer wants you, now.
Service business valuation calculator: where could your business sit?
Unlike a typical valuation calculator, this one won't give you a single number, because at this size there isn't one. Pick your size, then move the sliders: the range is wide at every size, and these are the levers that move a business within it.
What moves you in the range
Based on market research and our own deal data. This tool shows how different factors move a business within the range; it doesn't give you a multiple or a valuation.
What moves you in the range
Profitability: the base everything rests on
Services are valued on EBITDA, so profit is what the multiple is applied to. Without a decent profit base, a sale is hard. Margins also show how well the business is run: pricing, utilisation and delivery.
Quality of revenue: the biggest lever on the multiple
How much of your revenue repeats: retainers, managed services, long contracts, clients who stay year after year. Project revenue has to be won again every time, so buyers value it less.
Firm A
Growth came from a few large projects. Next year's revenue still has to be won.
Firm B
Growth came from retainers and managed contracts that renew. Much of next year's revenue is already there.
Recurring revenue in practice
In a study of IT services acquisitions, a dollar of managed services revenue was valued at about twice a dollar of project revenue.
Source: ConnectWise Service Leadership
Growth: where it comes from matters
Buyers look at growth, but in services they look at its source: repeat clients and new recurring contracts count for more than a run of large one-off projects.
Customer concentration: a risk buyers price in
If a few clients make up a large share of revenue, losing one would hurt, and buyers price that risk in. It shows up both in the valuation and in the deal structure (see below). Here's how it played out in the sale of an IT services business.
Defensibility: how hard you are to replace
A clear specialism, mission-critical work, your own products or IP. General work that competes on price is the most exposed, especially as AI changes how routine delivery is done. Certifications and partner status count too: more and more clients require them, so buyers check that you have the ones your clients need.
Growth potential: the room you have left
Growing from $5m to $10m in revenue gives a bigger base to value, but if it takes you close to a ceiling, for example a home market you've nearly saturated, the multiple can come down. A buyer pays for the next two years, not just the last two.
Watch out
Growth potential is the one founders underestimate. Buyers pay for the room you have left to grow, not only for how big you are today.
External factors: market and buyer
Market conditions are what they are, but a down market rarely hits everyone equally: buyers start valuing things differently, so stay on top of what they're looking for now. And a lot has to line up for one buyer to be ready to make an offer at a given moment: a strategic gap to fill, a market to enter, capital to deploy this year. The way to find that buyer is the widest possible coverage, so you don't miss the one for whom everything aligns.
This is why we built our process and technology around reaching as many relevant buyers as possible. See how our process works →Look past the headline: how the price is paid
Watch out
Founders often fixate on the multiple. It's usually better to focus on how much cash you'll actually receive. You'll hear impressive headline numbers, but what sits underneath them varies a lot, and many founders underestimate this when they sign the LOI.
The headline price is rarely paid in one go. Part of it is guaranteed, part of it depends on what happens after the sale, and that part may never arrive.
So compare offers on what you're sure to receive, not only on the multiple. Take two offers for the same business, with $3m in EBITDA: one at a valuation multiple of 8x EBITDA, the other at 6x EBITDA.
Offer A
$24m headline price
$9.6m cash upfront
$14.4m earn-out
Offer B
$18m headline price
$15.3m cash upfront
$2.7m earn-out
Offer A sounds a third bigger.
Offer B puts $5.7m more in your pocket on day one.
Earn-outs in practice
Across US private deals, sellers have received about 21 cents for every dollar of maximum earn-out. The conditional part is real money only if it pays out.
Source: SRS Acquiom, 2026 earnouts study
In services deals, part of the price is often paid later, through an earn-out. The reason is how much of next year's revenue is locked in: project work has to be won again, and client relationships often sit with the founder or a few key people. The buyer pays part of the price once it sees that revenue stay. With high customer concentration, little recurring revenue or thin margins, a buyer may keep the headline price but move more of it into an earn-out or deferred payments. Negotiating the structure can be worth more than a couple of points on the multiple.
More on this in our guide to deal structure, and in Signing an LOI? Here's what you need to know.
Questions founders ask
How do you value a service business?
Usually as a multiple of EBITDA. There's no magic formula that gives you a single number, and the smaller the business, the truer that is. The multiple depends on how much of your revenue repeats, your margin, your growth, how spread your clients are, how hard you are to replace, and the buyer. Use our interactive valuation calculator above to see how each of them moves a business within its range, and talk to us for an honest view of your own numbers.
Is a services business valued on revenue or profit?
On profit, usually a multiple of EBITDA. Revenue matters for scale, but two firms with the same revenue can be worth very different amounts depending on their margin and how much of their revenue repeats.
Which EBITDA do buyers use?
Adjusted EBITDA. Buyers adjust your reported EBITDA for one-off costs and income, and for what the business would pay to replace you: if you pay yourself well below or above a market salary for your role, that changes the number the multiple is applied to. In a smaller business, this adjustment can make a big difference.
Does recurring revenue increase the value of an IT services business?
Yes, usually more than anything else. Revenue that repeats, from managed services, retainers or long contracts, is worth more to a buyer than the same revenue from projects, because it doesn't have to be won again.
Do certifications and partner status increase the value of my business?
Rarely on their own. Buyers expect the certifications your clients need and check them during due diligence. What lifts the value is what they help you win: specialist, mission-critical work and clients who stay.
Get in touch
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Last updated October 2026