EBITDA Margin Explained for Business Owners
EBITDA Margin Explained: Why Buyers Look at This First
If you’re preparing to sell your business, one of the first metrics buyers will zero in on is your EBITDA margin.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a clear way to measure operating profitability. Unlike net income, it removes financing and accounting decisions, giving buyers a cleaner picture of how much profit your business truly generates.
At Breakwater M&A, we work with founders of service businesses ($2M–$20M revenue) to strengthen EBITDA before going to market — because this single ratio can have an outsized impact on valuation.
What Is EBITDA Margin?
The EBITDA margin measures how much of your revenue remains as profit after operating expenses (like salaries, rent, and marketing), but before interest, taxes, and depreciation.
Formula: EBITDA Margin = EBITDA ÷ Revenue
In plain English: it tells you how much profit your core business produces from every dollar of sales.
The Gold Standard
For most service businesses, an EBITDA margin of 20%+ is considered strong.
This means that for every $1 in revenue, at least $0.20 drops to the bottom line as operating profit.
Why Buyers Care
EBITDA margin is a key valuation driver because it shows:
Efficiency – Are you running lean operations or carrying excess costs?
Resilience – High margins give more cushion in downturns.
Scalability – Buyers want to know if the business can grow without margin erosion.
Comparability – Stripping out financing and taxes makes it easy to compare across businesses and industries.
In short: stronger EBITDA margins usually mean stronger offers and better multiples.
How to Improve EBITDA Margin
Improving this ratio before a sale can have a direct impact on your exit value. Practical steps include:
Tighten overhead – review expenses regularly for efficiency.
Strengthen pricing – ensure your rates reflect value delivered.
Automate or outsource – reduce costs tied to repetitive processes.
Focus on profitable revenue – prioritize contracts and customers with higher margins.
Closing Comments
The EBITDA margin is one of the most important profitability metrics buyers look at — because it shows the true earning power of your business. A strong margin tells buyers your operations are efficient, resilient, and attractive.
If you’re planning to sell within the next 1–3 years, focusing on improving EBITDA margin can directly increase your company’s valuation.
📈 Want to sell your business?
At Breakwater M&A, we help founders of $2M–$20M revenue businesses sell for maximum value with minimal stress.
Learn more and book your discovery call HERE