Business valuation formulas vary by industry and size, with the most common approach being a multiple of earnings (EBITDA) or revenue. A standard formula is Value = Annual Earnings (or Revenue) × Industry Multiplier V a l u e = A n n u a l E a r n i n g s ( o r R e v e n u e ) × I n d u s t r y M u l t i p l i e r . For small businesses, this is often 2–3x earnings, while for larger or tech firms, it can be 3–7x or higher.
Revenue/earnings multiple
A more common – and simpler – method of valuing small- and medium-sized businesses uses a multiple of revenue or earnings/EBITDA. This calculation involves taking a company's earnings after all business expenses are paid and using a current industry multiplier to generate a value.
Business valuation in Shark Tank is calculated using the equity offered, investment amount, growth potential, scalability, and risk. Sharks divide the investment by equity asked and then adjust valuation based on market size, margins, and execution capability.
Service businesses typically sell for 2-3x their annual profit because they often depend heavily on the current owner's relationships and expertise. Manufacturing companies tend to command higher multipliers, often 4-5x their annual profit, due to their tangible assets and established processes.
Times revenue method
The multiplier typically ranges between 0.5 and 2, with lower values used for slower-growing industries and higher values for industries anticipated to grow rapidly. It's a good idea to consult with an independent financial advisor to determine the appropriate multiplier for your specific industry.
The founders who famously turned down a $30 million offer on Shark Tank were the sisters behind the dating app Coffee Meets Bagel (Dawoon, Arum, and Soo Kang) in 2015, with Mark Cuban offering to buy the whole company, the biggest in the show's history, but they declined to keep control and grow it themselves. As of 2025, their company's net worth was estimated at $150 million, with annual revenue around $36 million, showing they made a successful decision.
Use earnings multiples.
A more relevant measure is probably a multiple of the company's earnings, or the price-to-earnings (P/E) ratio. Estimate the earnings of the company for the next few years. If a typical P/E ratio is 15 and the projected earnings are $200,000 a year, the business would be worth $3 million.
The answer is—it depends. According to the Corporate Finance Institute, the average net profit for small businesses is 10%, while 20% is considered good.
The most commonly used rule of thumb is simply a percentage of the annual sales, or better yet, the last 12 months of sales/revenues.
12 common valuation mistakes
The biggest Shark Tank miss is widely considered to be Doorbot (now Ring), which the Sharks passed on in 2013 but was later acquired by Amazon for $1 billion in 2018, a massive missed opportunity for the investors. Another significant missed deal, though not a "missed company" but a rejected offer, was the founders of Coffee Meets Bagel turning down Mark Cuban's record $30 million offer for the whole company, though they raised millions in later funding, says Entrepreneur.
For example, a business with an annual revenue of $200,000 and a valuation multiple of 2.5 would have a value of $500,000. However, the accuracy of a revenue-based valuation relies heavily on selecting the right multiple for your business.
High-end items (e.g., watches, cars, yachts) can have valuations manipulated through fictitious invoices or staged private sales. Criminals artificially raise or lower reported prices, disguising illicit proceeds as legitimate gains or concealing true wealth.
Our small business valuation calculator is a tool that helps business owners and entrepreneurs estimate their business's value by considering financial metrics like revenue, profit, and market trends. Our free business valuation calculator estimates your business's current value using the "Discounted Cash Flow" method.
Earnings-based valuation determines your business's worth by multiplying annual earnings by an industry-specific multiplier. A multiplier is the number buyers use to value a business based on its earnings. Think of it as the “price tag factor” that turns annual profit into a total business value.
Allow us to introduce the “Four Pillars of Value”: revenue, cost, risk, and time. These pillars are not mutually exclusive but together form a robust framework to articulate and maximize value. Let's break them down and see how they specifically apply to the legal services industry.
Three More Ways to Value a Company