EBITDA multiple

An EBITDA multiple is a valuation ratio buyers apply to a company's adjusted earnings to estimate its enterprise value. For MSPs, the multiple reflects recurring revenue quality, growth, client concentration and how transferable the operation is.

Also known as: earnings multiple, valuation multiple
Category: finance
Source: MSP Agenda editorial methodology

An EBITDA multiple is one of the simplest ways buyers estimate what a business is worth. They take the adjusted earnings before interest, tax, depreciation and amortisation and multiply by a number that reflects risk, growth and transferability.

Why it matters to MSPs

For MSP owners, the multiple is the lever that turns a small change in profit into a large change in sale price. The same level of profit produces a higher enterprise value when a buyer accepts a stronger multiple. Improving the factors that drive the multiple is often more valuable than simply growing revenue.

Monthly recurring revenue — Monthly recurring revenue is the total predictable monthly income an MSP receives from active client contracts, excluding one-off project work and variable usage charges.
Exit readiness — Exit readiness is the condition in which an MSP can be presented to buyers with clean financials, transferable operations, diversified revenue and a defensible valuation model.

Monthly Recurring Revenue
Monthly recurring revenue, usually shortened to MRR, is the income an MSP can count on receiving each month from contracted services. It is the single most watched number in a saleable MSP because buyers pay a higher multiple for stable, recurring income than for project revenue.
Service Profitability
In the MSP world, there is a massive difference between having a busy team and having a profitable business. You can sign every client that walks through the door, keep your engineers slammed with tickets, and hit record revenue numbers—and still find yourself with razor-thin margins at the end of the quarter.
MSP Valuation
For most MSP owners, the business is more than just a source of income; it is likely your largest financial asset. However, a business is only worth what a buyer is willing to pay for it, and in the world of managed services, that price isn't a random number.
Contract Renewal Rate
In the world of Managed Service Providers, few metrics speak as loudly as the Contract Renewal Rate. While many founders focus heavily on top-line growth and new client acquisition, the long-term enterprise value of an MSP is built on the foundation of recurring revenue and client longevity.
Billable Utilisation
In the world of Managed Service Providers, Billable Utilisation is the pulse of the business. It is the metric that tells you whether your technical team is generating revenue or simply costing you overhead.

Why it matters to MSPs

Related terms