We operate a tech-enabled services firm and are getting conflicting advice on whether we should be valued on a multiple of revenue or a multiple of EBITDA. How do we determine which valuation methodology aligns best with our operational structure before we approach buyers?

Question

Tyler Smith · Accepted Answer

Your valuation methodology depends entirely on your unit economics and how your operations are structured. Revenue multiples are typically reserved for high-margin software companies with low marginal costs, where every dollar of new sales flows almost entirely to the bottom line. EBITDA multiples are used for traditional service organizations where growth requires a corresponding increase in head count and operational overhead.

If your tech-enabled services firm has automated major parts of its delivery using proprietary workflows, your margins should be significantly higher than standard service firms. In this scenario, you must look at your capitalization of earnings. If your gross margins are high and your customer retention is highly predictable, you can make a strong case for a technology-style revenue multiple.

However, if your delivery still relies heavily on manual labor, trying to force a revenue multiple will backfire. Buyers will quickly see through the positioning during due diligence. Instead, focus on maximizing your EBITDA multiple. Use your V/TO® to show buyers how your proprietary technology acts as an operational lever, allowing you to scale without a linear increase in staff. Show them how your operating model drives higher EBITDA margins than the industry average. By presenting clean operational data that proves your technology reduces labor costs, you can demand a premium EBITDA multiple that rivals technology companies, rather than settling for a generic service industry benchmark.