Valuation
Two Similar Companies, Big Difference in Value
Why growth rate so often explains a large value gap between similar companies, and the questions buyers use to test a growth story.
By Michael D. Rubin, CEO & Founder · Updated September 2026 · 717 words
When two companies with the same earnings sell for very different prices, the growth rate is usually the reason, and more precisely, how believable that growth is. Buyers pay for future earnings, so a company that is growing steadily earns a higher multiple than an otherwise similar one that is standing still, but only if its growth story survives close questioning.
Size, margins, management and the rest of the usual checklist all matter. Growth is the item that most often separates two companies that look alike on paper, and it is also the one owners most often present badly.
Why growth moves the multiple
A buyer paying today is buying the earnings of the next several years. If those earnings are rising, the price looks cheaper with every year that passes. Growth also helps the buyer's financing, because lenders are more comfortable with rising cash flow, and it helps private equity buyers, who plan to sell the company again later at a larger size.
In MDR & Associates' experience, profitable companies with $3 million to $100 million in revenue most often sell for three to seven times adjusted EBITDA, which is operating profit after owner-specific costs are added back. A steadily growing company with proven demand tends to sit toward the upper part of that band; a flat one, even with identical profit, tends to sit lower.
The questions that test a growth story
Buyers do not take a growth rate at face value. Expect questions like these:
- Are the projections believable, given how well the company has hit its own forecasts in the past?
- Where does the growth come from: price increases, more volume from existing customers, new customers, new services, or an acquisition?
- Which products or services are producing it, and will demand for them continue?
- How is the company finding new customers, what does each one cost to win, and why do they choose you?
- How much of the future revenue is under contract, and for how long?
- How firm are those contracts and orders: can customers cancel, delay or reduce them easily?
Durable growth and fragile growth
| Feature | Growth buyers pay for | Growth buyers discount |
|---|---|---|
| Source | Many customers and repeatable sales efforts | One large new account or a single project |
| Contracts | Multi-year agreements and renewals | Short-term or easily canceled orders |
| Margins | Steady or improving as revenue grows | Falling, because growth was bought with discounts |
| Who drives it | A sales team and systems | The owner personally |
| Track record | Several years of results close to forecast | A recent jump with no history behind it |
Build the evidence before you go to market
A growth story is only as strong as the data behind it. Start collecting these at least a year before a sale:
- Monthly revenue by customer and by service line, so a buyer can see where growth actually comes from.
- Retention and repeat-purchase figures for existing customers.
- A pipeline or backlog report, updated regularly.
- A register of customer contracts with start dates, end dates and renewal terms.
- Your past forecasts compared with actual results.
- What you spend to win a new customer, and how long they typically stay.
Presenting growth without overselling it
Projections that look like a hockey stick invite skepticism. It is better to present a conservative forecast you can beat, supported by the evidence above, than an ambitious one a buyer will cut in half. Remember that buyers will not pay you for growth they would have to create themselves; they pay for growth your company has already set in motion.
When growth is real but recent, an earnout, a payment tied to results after closing, can bridge the gap between what you believe the future holds and what a buyer will pay for today. Our answer on how recurring revenue affects the sale price explains why contracted growth is valued most highly.
How MDR & Associates presents a growth story
The confidential marketing package and HD video we prepare for every company set out the growth story with the data behind it, and we test it against the questions buyers will ask before any buyer sees it. The ten-step process shows where that happens. A formal written report is available through our business valuation service. To see how your growth rate affects your range, request a free valuation snapshot.
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Questions owners ask next
Does fast growth always mean a higher price?
No. Growth that depends on the owner, on one customer or on price cuts can lower value. Buyers pay for growth that is repeatable, profitable and supported by contracts or a proven sales process. Rapid growth can also consume cash for receivables and inventory, which buyers take into account.
Should I include projections in my marketing materials?
Usually yes, but keep them grounded. Show the assumptions, the history behind them and the contracts or backlog that support them. Buyers compare projections with your past record of hitting forecasts, so realistic numbers build more credibility than ambitious ones.