By Pete Gatt – Founder, Emanda
If you’ve ever asked yourself “What’s my business actually worth?” — you’re not alone. For many small and medium business owners, that question sits just out of reach, buried under spreadsheets, accounting terms, and consultant fees.
That’s exactly why we built Emanda — to help everyday business owners understand their value and prepare for opportunities like funding, succession, or sale. Whether you're using the app or just exploring the process, here are the key valuation concepts explained in plain language.
Your annual revenue is how much money your business brings in before any expenses — it’s a clear snapshot of scale. To calculate it, take your average monthly revenue and multiply it by 12. So, if you typically earn $10,000 a month, that’s $120,000 a year.
Why it matters: Revenue is the starting point for most valuation models. Investors, advisors and potential buyers look at this figure to assess business size and growth potential.
Recurring revenue comes from ongoing, consistent sources — like subscriptions, retainers, or long-term contracts. If you earn $5,000 each month from software subscriptions or maintenance plans, your annual recurring revenue is $60,000.
Why it matters: Businesses with recurring revenue are often valued higher because their future income is more predictable. It shows your customers trust you enough to stick around.
This is your track record — what you’ve earned over previous years. It helps tell the story of how your business is performing over time. Are you growing steadily? Are there ups and downs?
Why it matters: Buyers and investors use this data to evaluate consistency, understand seasonality, and assess long-term potential. It’s your business’s version of a resume.
Gross margin shows how much money you keep after covering the direct costs of producing your product or service. For example, if you make $100,000 in sales but it costs $40,000 to deliver them, your gross margin is 60%.
Why it matters: A healthy margin means your core offering is profitable. It tells you whether you're pricing right or if your delivery costs are too high.
Average profit is what remains after covering all expenses — wages, rent, software, everything. Calculate it over multiple years to smooth out any anomalies.
Why it matters: Profit is what you can reinvest or take home. It’s also a key figure used in more traditional valuation models, like profit multiples.
Retention measures how many customers you keep over time. For example, if you start the year with 100 clients and end with 80, your retention rate is 80%.
Why it matters: It costs far more to acquire a new customer than to keep an existing one. High retention shows satisfaction and builds stable, compounding growth.
Why it matters: A strong business will have an LTV that’s 3x or more than its CAC. This ratio is crucial for understanding the payback period and scaling profitably.
This is your total revenue divided by the number of customers — simple, but powerful. It tells you how much the average customer contributes financially.
Why it matters: If your average spend is low, you might explore upselling or improving pricing. If it’s high, protecting that relationship becomes critical.
This metric is about stability. If your contracts average 12 months, your revenue is more secure than if clients drop off after 3 months.
Why it matters: Longer contracts increase predictability and improve valuation. It also reflects customer trust and satisfaction.
TAM is the total possible market demand for your product or service. You calculate it by estimating how many businesses need your solution, and multiplying that by your average revenue per customer.
Why it matters: TAM tells you and investors how much room there is to grow. A big market gives confidence that your business can scale.
Barriers might include proprietary software, exclusive contracts, strong brand recognition, or even your hard-earned customer relationships.
Why it matters: A high barrier to entry keeps competitors at bay and increases your value. It also makes your business more defensible during tough times.
This is what makes your business unique. It could be your tech, your team, your speed, your model — anything that gives you an edge.
Why it matters: The secret sauce is often what gets investors and acquirers most excited. It explains why you’ll keep growing while others stall.
Once you’ve found your edge, build a pitch around it. Don’t just talk about what you do — explain why it matters, who it helps, and why no one else can do it like you.
Why it matters: A well-crafted pitch backed by solid numbers turns curiosity into interest, and interest into action.
Final Thoughts
Understanding business valuation isn’t just for buyers or investors — it’s for founders who want to make smarter decisions, grow with purpose, and be ready when opportunity knocks.
That’s why Emanda exists. We help you turn all these metrics into real-time insights, so you’re not left guessing. You’ll know your value, and you’ll be able to show it clearly to anyone who asks — whether that’s a bank, a buyer, or a future business partner.
You don’t have to be a finance expert. You just need the right tools and a bit of guidance.
Let us help with both.
“Working with the Emanda App, I was able to very quickly get an idea of what my company was worth. More importantly, I learnt what goes into that number and how it connects to my business strategy”.
