SDE multiples by industry

Seller's Discretionary Earnings (SDE) is the standard profitability metric used to value owner-operated businesses. It represents the total financial benefit available to a single owner-operator and is calculated by adding back the owner's salary, personal benefits, non-recurring expenses, and non-cash charges (like depreciation and amortization) to the business's net income.

When a buyer says a business is "worth 3x," they mean 3x the annual SDE. A business generating $400,000 in SDE at a 3.0x multiple would have an indicated value of $1,200,000. The multiple itself is determined by the industry, the quality of the business, and local market conditions.

SDE multiples are not arbitrary — they emerge from actual transaction data, broker surveys, and buyer behavior observed across thousands of deals. The process works in three layers.

Industry baseline. Every industry has a baseline multiple range shaped by structural characteristics: how predictable the revenue is, how capital-intensive the operations are, how transferable the customer relationships are, and how regulated the business is. Pest control companies (3.0–4.5x) trade at higher multiples than bakeries (1.2–1.8x) because subscription revenue is inherently more valuable to buyers than walk-in traffic.

Business quality adjustment. Within each industry range, individual business characteristics move the multiple up or down. Five factors carry the most weight: recurring revenue percentage, operating history, team depth, earnings quality, and geographic market fit. A plumbing company with 70% recurring revenue and a 15-person team will price near the top of the 2.4–3.1x range, while an owner-dependent shop doing project work will price near the bottom.

Market conditions. Interest rates, SBA lending availability, buyer demand, and local economic trends create the macro environment. In strong buyer markets like DFW — where multiple buyer types compete for quality deals — multiples tend to run at or above national medians.

The low multiple is the floor — what a minimally-transferable business in that vertical typically commands. The high multiple represents best-in-class operators with strong recurring revenue, deep teams, and minimal owner dependency.

The spread (the gap between low and high) tells you how much individual business quality matters. Veterinary practices have a 2.0x spread — meaning the difference between a marginal practice and a top-tier one can represent hundreds of thousands in deal value. Self storage has a 2.0x spread driven by occupancy variance and expansion potential.

The midpoint is a useful benchmark, but no business sells "at the midpoint" by default. Where you land is determined by specific factors that buyers evaluate during diligence — factors that vary by industry but follow consistent themes.

The Dallas-Fort Worth metroplex is the fourth-largest metro in the United States and one of the fastest-growing regions by population and business formation. This creates conditions that push business multiples higher than national medians in several categories.

Buyer depth is the primary factor. DFW attracts a mix of private equity-backed search funds, independent sponsors, SBA-financed owner-operators, and strategic acquirers looking to expand existing platforms. This competition for quality deals tightens the spread between ask and close for well-positioned businesses.

Population growth supports demand-side fundamentals. North Texas added over 170,000 residents in the most recent census year, translating into sustained demand across services, healthcare, food and beverage, and retail. Businesses with strong geographic positioning in high-growth corridors (Frisco, McKinney, Celina, and the west Fort Worth corridor) often command premiums above the ranges shown here.

However, not all DFW businesses benefit equally. Businesses in saturated sub-markets, those with high owner dependency, or those without documented systems often trade at or below the low end of their industry range — regardless of location.