How to Value a Business Based on Turnover? 

Wondering how to value a business based on turnover? You aren’t alone.

When valuing a business based on revenue, one of the most common approaches is to use business valuations based on turnover, often referred to as the times revenue method.   

This valuation method takes the company’s annual revenue and applies an industry-specific multiple to estimate its overall worth.  

For example, a small business might be valued at 1x or 2x its turnover depending on several factors, including profit margins, recurring revenue, growth potential, and overall market conditions.   

This approach offers a fast and widely used way to get a ballpark estimate, especially when comparing companies in the same sector.  

How to Use Turnover to Value a Company?  

You can complete this valuation process in just two steps:  

1. Calculate your average weekly revenue  

Take your total sales for the year (excluding taxes) and divide it by the number of weeks. If you’re using a partial year’s data, adjust the number of weeks accordingly. This gives you your average weekly turnover.  

2. Apply your sector multiplier  

Refer to industry standards to find the appropriate multiplier for your sector. This is often based on the number of weeks or an industry-wide revenue multiple. Multiply your average weekly turnover by this multiple to estimate your company valuation.  

Business Valuation = (Turnover / Number of weeks) × Sector Multiple  

Example:  

Let’s say your annual revenue is $780,000, and you’re operating for 52 weeks. That gives you an average of $15,000 per week. If the industry standard for your sector is 10x weekly turnover, then:  

$15,000 x 10 = $150,000 business value  

Who Benefits from Turnover-Based Valuation?  

The time’s revenue method is particularly helpful for early-stage or high-growth companies that may not yet be profitable. Think software-as-a-service (SaaS) startups or subscription-based models with strong recurring revenue. Due to their long-term earning potential, these businesses are often valued in the 3–4x revenue multiple range.  

In contrast, if the business is growing more slowly, has low-profit margins, or has limited recurring revenue, the multiplier might drop to 0.5 or 1x revenue, especially in industries with tighter competition or flat growth.  

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Drawbacks of the Turnover Valuation Method  

While using revenue streams as the basis for valuation is convenient, it’s not always the most accurate. Revenue doesn’t always reflect the bottom line.   

A business may grow its sales, but if its expenses grow even faster, that’s a problem. Without factoring in net income, you might overvalue a business losing money.  

This is why many professionals consider other business valuation methods, such as those focusing on earnings (like EBITDA or net profit), to get a more realistic picture of a company’s worth.   

These earnings-based approaches are better for analyzing whether the company is profitable or just burning cash.  

Using turnover to value a business is like judging a bakery by how many cupcakes it sells without checking how much it costs to bake them. You get a sense of activity but not necessarily of profitability.  

FAQs  

How Many Times is the Turnover of a Company Worth?  

The number of times a company is worth its turnover varies by industry standards and growth potential.   

In general, small businesses might be valued at 0.5x to 2x annual revenue, while high-growth companies—especially those in tech or SaaS—could fetch 3x to 5x or more.   

The multiple depends on profit margins, recurring revenue, and overall market conditions.  

How To Calculate the Valuation of a Company from Turnover?  

To calculate a company valuation based on turnover, divide the annual revenue by the number of weeks (or months) to get an average, then multiply that figure by your industry-specific revenue multiple.  

Formula:  

Business Valuation = (Turnover ÷ Number of Weeks) × Sector Multiple  

This approach is part of the business valuations based on the turnover method and gives you a quick ballpark figure, which is especially helpful when comparing companies in the same sector.  

How To Calculate the Value of a Business Based on Revenue?  

Using the times revenue method, multiply your total revenue stream (usually annual) by a revenue multiple. This multiple is often determined by industry trends and the business’s profit margin, scalability, and stability. So:  

Business Value = Revenue × Revenue Multiple  

Keep in mind that this method of valuation offers a fast estimate but doesn’t factor in the actual bottom line. So, it’s best used alongside other business valuation methods.  

What is a 5x Revenue Valuation?  

A 5x revenue valuation means the business is valued at five times its annual revenue. For example, if your company brings in $1 million annually, it would be worth $5 million under this model.   

This is typically reserved for companies with strong recurring revenue, high growth prospects, and solid unit economics.  

Is a Business Worth 3 Times Profit?  

In many cases, yes—especially when using profit-based valuation models. Depending on the industry, a business might be valued at 3x net profit or EBITDA (earnings before interest, tax, depreciation, and amortization).  

This is often more accurate than valuing a business based on revenue alone since it reflects the company’s true earning power.  

Is There a Formula for Valuing a Business?  

There are several, depending on which valuation process you use. Here are two widely accepted examples:  

Revenue-based formula:  

Business Value = Revenue × Revenue Multiple  

(Common for early-stage or high-revenue, low-profit businesses)  

Profit-based formula:  

Business Value = Net Profit × Earnings Multiple  

(Ideal for established businesses with stable cash flow)