Benchmarking against the public SaaS index: multiples and medians

A board member asks you: "We're raising at 8x forward revenue. Is that cheap or expensive?" You have thirty seconds to answer. Without a public market reference point, you're guessing. With one, you're reasoning.

This lesson gives you that reference point: how to read public SaaS (Software as a Service, meaning software sold via subscription and delivered over the internet) index medians, and how to use them to sanity-check a private company's valuation.

Why public indices matter for private valuation

Private SaaS companies don't trade daily, so they have no live market price. Investors and operators instead benchmark against baskets of comparable public companies (called "comps," short for comparables), then adjust for size, growth, and risk.

Two widely referenced trackers:

• BVP Nasdaq Emerging Cloud Index, maintained by Bessemer Venture Partners, tracking US-listed cloud and SaaS companies (Bessemer's public cloud data)
• Meritech Capital's public SaaS comps, which regularly publishes free benchmarking decks on US and European software multiples

These aren't official government indices like the S&P 500. They're curated, actively maintained baskets built specifically to track software economics: revenue growth, margins, and the multiple investors pay for a dollar of recurring revenue.

The core metric: EV / Revenue multiple

The headline number in SaaS valuation is EV/Revenue, meaning Enterprise Value (market capitalization plus debt minus cash, representing the total value of the operating business) divided by annual revenue.

Formula:

EV/Revenue = Enterprise Value / Trailing or Forward Revenue

SaaS companies are valued on revenue multiples rather than earnings multiples (like P/E) because most reinvest heavily and show thin or negative net income, especially pre-scale. Revenue is a cleaner proxy for size and durability given subscription contracts.

Worked example: A company has an enterprise value of $600 million and forward-year revenue of $75 million.

EV/Revenue = 600 / 75 = 8.0x

That's the multiple your board member quoted. Now you need a benchmark to know if 8.0x is rich or cheap.

Current benchmark ranges (treat as estimates)

As of early 2026, based on patterns from Bessemer's and Meritech's public trackers over 2024 to 2025:

• US public SaaS median EV/Revenue (NTM, next-twelve-months forward): roughly 6x to 7x for the broad index, estimate
• Top-quartile US SaaS (growth above 20% annually, strong margins): roughly 10x to 14x, estimate
• European public SaaS median EV/Revenue: typically 1 to 2 turns lower than the US median, often around 4x to 6x, estimate

Europe usually trades at a discount. Reasons cited by sell-side analysts and repeatedly discussed in industry commentary: smaller average company size, lower US institutional ownership, currency and cross-border friction, and historically lower revenue growth rates among listed European software names.

These numbers move with interest rates. When central bank policy rates rise, future cash flows are discounted more heavily, and high-multiple growth software compresses first, it happened sharply in 2022. Always check a current data source like Meritech's public comps before quoting a number in a live conversation.

Adjusting the multiple: the Rule of 40Rule of 40A SaaS health check: revenue growth rate plus profit margin should reach or exceed 40%. It balances how fast you grow against how much you burn.View full definition →

Raw multiples mean little without growth and profitability context. The Rule of 40 is the sector's shorthand health check:

Growth rate (%) + Profit margin (%) ≥ 40%

Where "profit margin" is usually free cash flowfree cash flowFree Cash Flow is the cash a company generates from operations after funding the capital expenditures needed to maintain and grow its asset base.View full definition → margin (free cash flow divided by revenue) or EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → margin (earnings before interest, tax, depreciation, amortization, divided by revenue), depending on the analyst's convention. Always check which one is being used before comparing companies.

Worked example: Your private company grows revenue at 30% annually and has a (negative) free cash flow margin of -5%.

30 + (-5) = 25

25 is below 40. That's a caution flag, not a stock, but a signal that growth alone doesn't justify a premium multiple.

Public SaaS index constituents scoring above 40 (per Bessemer's published tracker methodology) have historically commanded meaningfully higher EV/Revenue multiples than sub-40 peers, often a 2x to 4x turn premium, estimate, because it signals a business that's growing without burning excessive cash.

Putting it together: is 8x rich or cheap?

Back to the opening scene. Your private company:

• EV/Revenue: 8.0x
• Growth rate: 30%
• FCF margin: -5%
• Rule of 40 score: 25

Against a US public median of roughly 6x to 7x (estimate) and a Rule of 40 threshold of 40, this company is trading at a premium multiple despite a below-benchmark efficiency score. That's a flag for a buyer: you may be paying growth-company pricing for a business that hasn't yet proven it can grow efficiently.

Against the European median of roughly 4x to 6x (estimate), the premium looks even larger.

The counter-argument a founder might raise: private growth-stage multiples aren't directly comparable to public ones because public comps include a liquidity discount adjustment in reverse, meaning private shares are harder to sell, so in theory they should trade *lower* than public peers for the same fundamentals, not higher. If your private deal is priced above the public median without a clear growth or margin edge, that's worth pressing on directly in negotiation.

Net Revenue RetentionNet Revenue RetentionNet Revenue Retention measures the percentage of recurring revenue retained and grown from existing customers over a period, including upsell and expansion, net of downgrades and churn.View full definition →: the multiplier behind the multiple

One more figure drives how public markets price SaaS: Net Revenue Retention (NRR), the percentage of revenue retained from existing customers over 12 months, including upsells and minus churn (customer cancellations) and downgrades.

NRR = (Starting Revenue + Expansion - Downgrades - Churn) / Starting Revenue

Worked example: A cohort starts the year at $10 million in recurring revenue, expands by $1.5 million from upsells, loses $0.8 million to churn.

NRR = (10 + 1.5 - 0.8) / 10 = 10.7 / 10 = 107%

Public SaaS index constituents with NRR above 120% (best-in-class, estimate, common among top-tier US names like Snowflake or Datadog in past disclosed periods) typically command the highest multiples in the index. A broad public SaaS median NRR is roughly 100% to 110% as of recent reporting cycles, estimate; anything below 100% signals customers are shrinking their spend over time, a red flag regardless of headline growth.

When you assess a private company, always ask for NRR alongside the growth rate. A company growing 30% overall but with NRR of 95% is growing entirely through new logo acquisition (new customer wins) while losing ground with existing customers, a much riskier growth profile than one with NRR above 110%.

🎬 [VIDEO: "SaaS Metrics That Matter" - youtube.com/@SaaStr - SaaStr's practitioner-level breakdown of Rule of 40, NRR, and public comp benchmarking for operators and investors]

Key Takeaways

• EV/Revenue is the primary SaaS valuation multiple; benchmark against current US (roughly 6x-7x median, estimate) and European (roughly 4x-6x median, estimate) public comps, always sourced from a live tracker like Bessemer's or Meritech's before quoting.
• Rule of 40 (growth rate % + profit margin % ≥ 40) separates efficient growth from cash-burning growth; scores above 40 typically justify premium multiples.
• Net Revenue Retention above 110 to 120% signals a durable, expanding customer base and correlates with the highest multiples in the public index; below 100% is a red flag.
• Europe trades at a structural discount to the US, driven by company size, ownership base, and historical growth differences, not necessarily lower quality.
• Multiples compress when interest rates rise; never anchor to a remembered number from a prior year without checking current data.