Service business valuation calculator
This service business valuation calculator estimates a value range for a service business with the SDE multiple method: what the business pays one owner-operator, times a multiple, plus the value of its equipment and vehicles. It is a planning estimate, not an appraisal.
Estimated value, mid
2.4× SDE of $190,000, plus $50,000 of equipment and vehicles. These are the starting values; enter your business’s own.
2.0× to start, +0.2 for more than 5 years in business, +0.2 for more than 3 employees: 2.4× SDE.
| Measure | Low | Mid | High |
|---|---|---|---|
| Value | $411,000 | $506,000 | $601,000 |
| × SDE | 1.9× | 2.4× | 2.9× |
| × Revenue | 0.82× | 1.01× | 1.20× |
A rough estimate for planning only. A real valuation depends on much more than these inputs — ask a business broker or M&A advisor for one.
SDE
What the business pays its owner
SDE, seller’s discretionary earnings: net profit before the owner is paid, plus the owner’s salary, plus the perks the business pays for. It is the number the multiple multiplies.
Revenue minus every expense except what the owner takes. Work it out with the profit margin calculator.
Vehicle, phone, insurance and the like.
× Multiple
What a buyer pays more for
The multiple starts at 2.0 and rises in eight steps with size, recurring revenue, time in business and a team that does the work without the owner. Each step is a numbered stop, here and on the route.
What every business begins with, before any of the eight steps.
Maintenance contracts, service agreements and repeat customers. See the recurring maintenance plan program.
A team that works without the owner on every job. What each one costs: the labor cost calculator.
Range 1.9× to 2.9×
+ Assets
What it owns
The equipment and vehicles the business owns, added to the earnings at their value.
Equipment and vehicles.
How this calculator sets the multiple
The multiple starts at 2.0 and rises with the things that make future earnings steadier for a buyer: size, recurring revenue, time in business and a team that does the work without the owner. These steps are the calculator’s own assumptions, published so you can see what moves the number. With the starting values — $500,000 of revenue, 25% recurring, 8 years, 5 employees — the multiple is 2.4, and $190,000 of SDE is valued at $506,000 including $50,000 of assets.
SDE
With your numbers
$190,000
$100,000 + $75,000 + $15,000
Net profit before the owner is paid, plus the owner’s salary, plus the perks the business pays for, such as a vehicle, phone and insurance.
× multiple
With your numbers
× 2.4
2.0 + 0.2 + 0.2 · the range is 1.9× to 2.9×
Starts at 2.0. Each of these adds to it, and each is a numbered stop on the value route — blue once your business has earned it:
- 1Revenue over $1 million+0.5
- 2Revenue over $2 million+0.5
- 3Recurring revenue over 30%+0.3
- 4Recurring revenue over 50%+0.3
- 5More than 5 years in business+0.2
- 6More than 10 years in business+0.3
- 7More than 3 employees+0.2
- 8More than 8 employees+0.2
More employees means a business less dependent on the owner. Maintenance agreements are recurring revenue: a guide to building a recurring maintenance plan.
+ assets
With your numbers
+ $50,000
equipment and vehicles
The business’s equipment and vehicles, added to the earnings at their value.
= value
With your numbers
= $506,000
$411,000 to $601,000
Mid: SDE × the multiple + assets.
Low: the multiple − 0.5, never below 1.5.
High: the multiple + 0.5.
As a multiple of revenue, each value is divided by annual revenue.
Valuing a service business, answered
How are service businesses valued?
Small service businesses are usually valued as a multiple of SDE, seller’s discretionary earnings. The multiple depends on the size of the business, how much of its revenue recurs, how long it has run, how much it depends on the owner, and the market at the time of sale. This calculator’s multiple starts at 2.0 and moves with those factors in the eight steps set out on this page.
What is SDE (seller’s discretionary earnings)?
SDE is the total financial benefit the business gives a single owner-operator: net profit, plus the owner’s salary, plus perks the business pays for such as a vehicle, phone and insurance, plus any one-time expenses. It is the usual basis for valuing a small business, because a buyer who runs it will receive all of it.
What increases the value of a service business?
Recurring revenue such as maintenance agreements, a business that runs without the owner on every job, trained employees, documented processes, a broad customer base with no single dominant customer, and steady growth. Each makes future earnings more predictable for a buyer.
Keep the records a buyer will ask for
A buyer will ask where each number on this page comes from. Business Genie keeps customers, jobs, invoices and payments together, with a CRM, job costing and QuickBooks Online sync. Free for a month, no credit card to start.