Machine Shop Valuation Multiples: How Much Is Your Shop Worth?

What Are Machine Shop Valuation Multiples?

Machine shop valuation multiples are financial ratios used to estimate the market value of a machining business. These multiples are derived from actual sales of comparable businesses and are applied to financial metrics like earnings or revenue. They help business owners set realistic asking prices and help buyers make data-driven decisions.

For example, if a shop earns $250,000 in profit and sells for $750,000, its SDE multiple is 3.0x. These benchmarks help standardize the valuation process across the industry.

Most Common Valuation Multiples in the Machining Industry

1. Seller’s Discretionary Earnings (SDE) Multiple

SDE is one of the most popular metrics for small and mid-sized machine shops. It includes profit plus owner compensation and other discretionary expenses. For machine shops, SDE multiples usually range from 2.0x to 3.5x. The actual figure depends on revenue stability, equipment quality, and customer concentration.

Example:
If your shop reports $350,000 in SDE and receives a 3.0x offer, the valuation is:
$350,000 × 3.0 = $1,050,000

A machine shop with steady cash flow, clean books, and low risk usually falls at the higher end of the range.

2. EBITDA Multiple

Larger or more structured machine shops use EBITDA instead of SDE. EBITDA multiples typically fall between 3.5x and 6.0x. A strong management team, recurring contracts, and low capital expenditures can push this multiple higher.

It measures profitability before interest, taxes, depreciation, and amortization.

Typical Range: 3.5x – 6.0x
Example:
A CNC machining business generating $600,000 in EBITDA may be valued between:
$600,000 × 4.5 = $2,700,000
and
$600,000 × 6.0 = $3,600,000

The higher multiple is often due to a professional team, scalable operations, and recurring contracts.

3. Revenue Multiple

Revenue multiples apply when earnings fluctuate or during early growth phases. Although less precise, they can offer an early estimate.

Typical Range: 0.6x – 1.2x
Example:
A machine shop with $1.2 million in annual revenue and strong future potential might attract:
$1,200,000 × 0.9 = $1,080,000

Premium services and niche industries—such as aerospace or defense—can support a higher revenue multiple.

What Drives the Value of a Machine Shop?

Industry Trends

High-demand sectors like aerospace, semiconductors, or medical devices boost valuations. Shops serving construction or low-margin segments often trade at lower multiples.

Example:
An aerospace supplier with NADCAP certification and multi-year contracts might sell at 6x EBITDA.

Customer Base

Valuation improves with a well-diversified client portfolio. If a single client generates more than 30% of revenue, buyers view it as a risk.

Example:
A shop with 100+ clients and none above 10% may sell for 3.3x SDE. In contrast, a shop with two major clients—one covering 60% of income—might drop to 2.2x.

Workforce Stability and Skills

A reliable, well-trained workforce adds value. Buyers want teams they can retain. High turnover or dependence on one skilled machinist lowers valuation.

Tip:
Document training procedures and implement employee retention plans to increase buyer confidence.

Condition and Age of Equipment

Outdated or unserviceable equipment reduces buyer interest. Shops with state-of-the-art CNC machines, integrated ERP systems, and well-maintained tooling receive higher offers.

Example:
A facility with $500,000 in modern equipment may be appraised at a 0.3x higher multiple than one needing replacement machinery.

How to Maximize Your Machine Shop’s Value

✅ Maintain Clean Books

Transparent and verifiable financial records are a must. Remove personal expenses and document every transaction clearly.

✅ Reduce Dependency

Avoid relying on one client, one supplier, or one key employee. Spread the risk.

✅ Upgrade Equipment Strategically

Target investments that improve productivity. Consider automation and data monitoring tools.

✅ Improve Profit Margins

Cut waste and optimize materials usage. A leaner shop is more profitable and more appealing.

✅ Build Recurring Revenue

Lock in annual contracts or long-term orders. Buyers pay a premium for predictability.

Real-World Valuation Examples

Example 1: Small Manual Shop

• Revenue: $900,000
• SDE: $275,000
• Key Issues: Old machinery, single large client, low-margin jobs
• Multiple: 2.1x
• Valuation: $577,500

Example 2: Automated CNC Shop

• Revenue: $2.2 million
• EBITDA: $500,000
• Strengths: Recurring aerospace contracts, modern equipment, ERP system, low client concentration
• Multiple: 5.5x
• Valuation: $2,750,000

Final Thoughts: Know the Numbers Before You Sell

Machine shop valuation is both an art and a science. While multiples provide a baseline, each business is unique. Operational efficiency, industry trends, and risk factors shape the final price. Whether you're planning an exit or simply want to increase your company’s worth, understand your multiple and work steadily to improve it.

Consider a professional valuation before putting your business on the market. You’ve built a legacy of precision—make sure the price reflects it.