Revenue Isn’t the Whole Story: How to Value a Private Company by Building Real Business Growth
- Julianna Francesca
- 2 days ago
- 5 min read
Updated: 24 hours ago
Introduction: Growth vs. Value
Many business owners believe that growth automatically means an increase in value.
They focus on top-line revenue, celebrate higher sales, and assume those numbers will impress a buyer or investor.
But revenue alone doesn’t determine what a company is worth.
If you want to understand how to value a private company, you have to look deeper at profitability, repeatability, and transferability. A business becomes more valuable when its growth is sustainable and structured to continue without the owner.
That is what separates growth from value.
The Three Levels of Business Growth
Growth has three layers, and only the highest layer creates real business value.
1. Revenue Growth: The Volume Layer
Revenue growth is about activity. It reflects more customers, more transactions, more volume. But without margin discipline or systems to sustain it, more revenue just means more work. And when revenue expands faster than systems, it can create instability.
Common Pitfall: Growing the top line faster than infrastructure, creating fragility instead of strength.
Many companies grow their sales numbers only to realize they have built more complexity, not more value.
2. Profit Growth: The Efficiency Layer
Profit growth is about optimizing how that revenue converts into earnings. It comes from pricing strategy, cost control, and improved customer mix. Profit growth creates financial breathing room but it still doesn’t guarantee salability.
Example: A profitable business can still sell for less if it’s over-reliant on the owner or one client.
A company that cannot prove its profits will continue without the owner will never receive top valuation multiples.
3. Sustainable Value Growth: The Transferable Layer
Value growth is about future earnings potential and risk reduction. Value growth happens when revenue and profit are both predictable and transferable. It’s what buyers and investors pay for not what you’ve done, but what they can rely on continuing without you.
That’s the essence of sustainable business value: revenue and profit that are both predictable and independent. It is the stage where the company can continue to perform independently, with clear systems, consistent marketing, and steady operations.
The Growth-to-Value Pyramid
Most owners build the base. Few finish the pyramid. But the multiple doesn’t just measure financial performance, it measures the quality of that performance. At Level 1 (Revenue Growth), buyers pay for effort. At Level 2 (Profit Growth), they pay for efficiency. At Level 3 (Value Growth), they pay for repeatability and risk reduction.
That’s the difference between a business that’s profitable and a business that’s valuable.
Common Pitfall Owners Forget: All valuation multiples (regardless of level) are applied to a company’s earnings, not its revenue. That means the quality of your earnings determines how meaningful that multiple really is.
Enterprise Value = Earnings × Multiple
In most private company transactions, this “earnings” figure is measured one of two ways:
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) — the standard used by financial and strategic buyers to evaluate mid-market businesses. It reflects operational profitability and excludes non-cash or discretionary expenses.
SDE (Seller’s Discretionary Earnings) — commonly used for smaller, owner-operated businesses. It adds back the owner’s compensation, benefits, and other personal expenses to show total cash flow available to a single owner-operator.
Even though smaller firms may be valued on SDE, the underlying principle is the same:
The multiple applies to earnings, not revenue. Stronger, more predictable EBITDA or SDE always commands the higher multiple.
Why Enterprise Value Is the Ultimate Metric
When you learn how to value a private company, you begin to see that buyers do not pay for past results. They pay for the future.
Enterprise Value (EV) represents what a buyer would pay for the entire business, including its debt and equity.
Enterprise Value = EBITDA × Valuation Multiple
EBITDA measures your earnings performance. The multiple reflects how the market values the quality and sustainability of those earnings. The stronger and more predictable those earnings are, the higher the multiple. That is the foundation of true business growth.
Sustainable growth increases both:
Higher EBITDA through margin optimization and recurring revenue.
Higher Multiple through lower risk, stronger systems, and brand equity.
That’s the formula for how to grow business value sustainably: build profit that buyers trust.
Marketing’s Role in Building Value, Not Just Leads
Most owners view marketing as a lead-generation expense. But strategic marketing builds long-term equity and that equity compounds in valuation.
Marketing Impacts Four Enterprise Value Drivers:
A company with consistent marketing systems and documented demand generation will always be valued higher than one dependent on owner-driven sales.
Marketing is not only about attracting customers. It builds the structure that makes demand durable and transferable, which directly supports valuation.
How Investors Define “Quality of Growth”
Buyers and investors do not reward raw size. They reward quality of growth.
High-quality growth is predictable, efficient, and diversified. It can continue without the founder, and it scales without major reinvestment.
Investors look for:
Recurring or subscription-based revenue models
Customer diversification (no single client >20%)
Documented processes for sales and marketing
Stable or growing margins year over year
Owner independence in operations and relationships
If your growth relies entirely on hustle and hope, it’s not value growth, it’s risk. And risk lowers your multiple.
Predictability always earns a premium.
Case Snapshot: The Sustainable Growth Differential
Company B grew slower AND grew smarter. Its systems, margins, and diversification created sustainable business value that commanded a 50% higher sale price.
Reminder: Understanding Multiples and Earnings
All valuation multiples are applied to a company’s earnings, not its revenue.
Enterprise Value = Earnings × Multiple
In private company valuations, earnings are usually calculated one of two ways:
EBITDA for mid-size and multi-owner companies
SDE (Seller’s Discretionary Earnings) for smaller, owner-operated businesses
SDE adds back the owner’s salary and personal expenses to reflect total cash flow available to one working owner.
Whether you use EBITDA or SDE, the principle is the same. Strong, documented, and repeatable earnings always command higher multiples.
Key Takeaway: Build Value, Not Just Growth
Revenue measures what you sell. Enterprise Value measures what you’ve built.
Said differently: Revenue measures performance. Enterprise Value measures strength.
If you want to understand how to value a private company, stop chasing volume and start building structure.
Sustainable business growth comes from predictability, efficiency, and independence, and those are the traits that buyers reward with higher valuation multiples.
That is how you turn growth into wealth.
Next Step
Ready to find out how your marketing and operations are influencing your valuation multiple?
Start with a Market-to-Multiple™ Valuation Report and see the gap between where your business performs and where it’s valued.