Valuation guide
Marketing technology business valuation
Marketing technology businesses range from pure software products to technology enabled services. Buyers and investors draw sharp distinctions between the two, and most businesses sit somewhere in between. This guide explains the questions that follow.
Business model characteristics
At one end sit software products with subscription revenue, high gross margins and customers who self-serve. At the other sit services businesses that use technology to deliver, where revenue is tied to people's time. Many marketing technology businesses blend the two: a product with a services layer, or a services business with a proprietary tool. Buyers will want to understand the split precisely, because they value each component differently.
Adtech businesses add their own considerations: the position in the supply chain, dependence on particular platforms or data sources, and the regulatory environment around data and privacy.
Value considerations
- Product ownership. Whether the technology is owned, licensed or built on third-party platforms, and how defensible it is.
- Revenue quality. The proportion of recurring, contracted revenue; contract lengths; and how revenue is recognised. Buyers distinguish recurring product revenue from recurring services revenue.
- Customer retention and expansion. Gross and net retention, churn and the pattern of customers growing their spend over time.
- Gross margin. Product gross margins and services gross margins, shown separately, with hosting and delivery costs properly allocated.
- Customer concentration. As with agencies, dependence on a few large customers is examined closely.
- Data and platform dependence. Reliance on platform APIs, data access or partners whose terms could change.
- Growth efficiency. What it costs to acquire a customer relative to the value the customer produces, and whether growth is funded sustainably.
Questions a buyer may explore
- How much revenue is product subscription, how much is recurring services and how much is project work?
- What are gross and net revenue retention, and how have they trended?
- Who owns the intellectual property, and are there any third-party components with restrictive licences?
- How is the product roadmap funded, and how much engineering capacity is needed to maintain it?
- Which platforms, APIs or data sources does the product depend on?
- How does the business handle data protection and privacy obligations?
Preparation points
- Separate product and services revenue and margin in management reporting.
- Build retention and cohort analysis that can be reconciled to the accounts.
- Document IP ownership, open-source usage and third-party licences.
- Map platform and data dependencies and the contractual basis for each.
- Prepare a clear statement of how customers are acquired and what that costs.
On "SaaS multiples"
Technology businesses attract a lot of public commentary about valuation multiples. Those figures are applied to revenue or profit in ways that depend heavily on growth, retention and margin, and they move with the market. We do not quote them here, and nothing on this page should be read as a benchmark.
Frequently asked questions
Will my services revenue be valued like my product revenue?
Usually not. Buyers tend to value product and services revenue separately, which is why presenting them clearly is in a seller's interest. A credible services layer can still be valuable, particularly to a strategic buyer.
Does building on a major platform's market reduce value?
It can create both opportunity and risk. Buyers will want to understand the terms of the dependence and how the business would be affected by changes to them.
Are investors and strategic buyers looking for different things?
Often. Investors tend to focus on growth, retention and unit economics; strategic buyers on fit with their own products and customers. The right buyer group depends on the business and the founders' objectives.
Related resources
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