You know how sometimes you hear people say things like, “That tech startup is worth 10 times its sales!” or “That little coffee shop might go for half its annual revenue”? Well, that’s essentially the Times Revenue Method in action.

At its heart, it’s super simple:

You take a business’s annual sales (its revenue) and multiply it by a special number, called a ‘revenue multiple.’

So, if a business pulls in $1 million in sales a year, and the “multiple” for its type of business is, say, 3, then its estimated value would be $3 million. Easy peasy, right?

Why do people use it?

• It’s quick and dirty: You don’t need a fancy finance degree or tons of complicated spreadsheets. Just two numbers, and boom, you’ve got a ballpark figure. This is especially handy for smaller businesses or startups that might not have years of detailed financial history.

• Focus on growth: For young companies, especially in fast-growing sectors like tech, revenue is often the main story. They might not be making huge profits yet because they’re reinvesting everything into growth. So, valuing them based on their sales makes a lot of sense.

• Industry benchmarks: It gives you a quick way to see how your business stacks up against others in your industry. If similar businesses are selling for 2x revenue, and yours is only at 1x, it might signal something to look into.