M&A timing isn’t about guessing.
It’s about positioning.
One of the most overlooked — yet powerful — ways to control that timing is by anchoring your business to industry-specific profitability benchmarks.
Why?
Because buyers aren’t just evaluating your growth — they’re comparing your margins, cash flow, and efficiency against your peers. The closer you are to outperforming your cohort, the more leverage you have in the market. The further you lag, the more scrutiny — and discounts — you invite.
In this article, I’ll show you how founders can:
- Identify relevant benchmarks
- Evaluate when profitability aligns with optimal exit windows
- Avoid the mistake of “exiting too early” or “too late”
- Use profitability as a narrative to attract premium buyers
At Legacy Advisors, we don’t just help companies exit — we help them exit well, and profitability benchmarking is one of our secret weapons.
Why Profitability Matters More Than Ever
Buyers have always cared about margin. But in today’s market — with capital efficiency under the microscope — profitability is more than a metric. It’s a signal.
It tells buyers:
- How disciplined your business is
- How effectively you allocate resources
- Whether your growth is sustainable
- And how quickly they can recover their investment
That’s why profitability is often the first filter buyers apply when evaluating deals.
Benchmarking 101: The Metrics That Matter Most
Let’s be clear — profitability isn’t a single number. Depending on your model and industry, different metrics apply. But the most common and useful include:
- Gross Margin – Tells buyers how scalable your revenue is
- EBITDA Margin – The gold standard for deal modeling
- Net Income Margin – Useful for cash-focused buyers
- Rule of 40 (for SaaS) – Growth % + EBITDA margin
- CAC Payback – Relevant for high-growth, venture-backed companies
- Free Cash Flow Margin – Essential for cash-rich businesses or capital-intensive models
Your goal isn’t just to know your number — it’s to compare that number to your market.
Where to Find Benchmark Data
Use sources like:
- Private equity and investment banking reports
- Industry trade associations
- SaaS Capital, KeyBanc, OpenView (for tech/SaaS benchmarks)
- IBISWorld and Pitchbook
- Public comps in your sector
- Direct buyer conversations (yes, they’ll tell you)
At Legacy Advisors, we often use a proprietary index of margin and valuation benchmarks by sector, which we triangulate with buyer interviews.
The Ideal Time to Exit: The “Benchmark Inflection Point”
Founders often ask, “When is the best time to sell?”
The real answer is:
When your business outperforms its peer group on key profitability benchmarks — and your forecast shows it staying there.
We call this the benchmark inflection point.
It’s that strategic window when:
- Your margins exceed industry average
- You’ve proven cost discipline
- You’ve de-risked growth assumptions
- And you can defend your forecast with real data
Deals done at the inflection point typically yield:
- Higher multiples
- Lower earnouts
- More cash at close
- Faster diligence cycles
Real-World Example: Outperforming the Benchmark
We worked with a founder running a marketing tech company with $7.3M in revenue and $2M EBITDA (27.4% margin). The industry average was closer to 18–20%.
Buyers noticed immediately.
- They asked fewer diligence questions
- They focused more on growth levers than financial risk
- The LOIs came in faster
- The final valuation was 22% higher than initial comps
The founder hit the benchmark inflection point — and we launched while the data was hot.
When Founders Exit Too Early
Here’s what we see happen far too often:
- Founder raises capital
- Hits $5M in revenue
- Margins are 5–7%
- Growth is exciting, but burn is high
- Buyers love the vision, but not the cash profile
They offer:
- Lower multiples
- Heavy earnouts
- “Come back when your EBITDA margins are healthy”
The founder walks away frustrated — or worse, takes a deal with structure that limits upside.
You may think you’re ready to sell. But if you’re below profitability benchmarks, buyers will use that to reduce your value.
When Founders Exit Too Late
The flip side?
Waiting until margins start to shrink again — maybe because:
- Customer acquisition is getting more expensive
- Product innovation has slowed
- Ops inefficiencies have crept in
- You’re burning out and starting to pull back
Margins dip from 22% → 15% → 10%…
Buyers now think:
“The story’s over. The best days are behind them.”
Even with decent revenue growth, you’ll struggle to hold premium value.
Timing the exit at — or just before — peak margin performance lets you exit on your terms.
Using Benchmarks in Buyer Conversations
Here’s how we coach our Legacy Advisors clients to use benchmarking strategically:
- Know your number: Walk into every buyer call with your current and trailing 12-month EBITDA margin.
- Know their expectations: “What EBITDA range do you typically look for in this space?”
- Position your story: “We’ve exceeded industry margins by 400bps over the last two years — and we’re still expanding.”
- Support with data: Include a slide in your CIM or pitch deck that compares your metrics to industry averages.
- Tie it to valuation: “Given our margin profile and scalability, we believe a premium multiple is warranted.”
You’re not just sharing metrics — you’re selling confidence.
From the Podcast: Profitability = Leverage
In Episode 8 of the Legacy Advisors Podcast (listen here), I broke down how buyers — especially strategic acquirers — look at margin performance to determine not just price, but structure.
If your EBITDA margin is strong:
- Buyers assume the business is well-run
- They trust your forecast
- They pay more up front
- They negotiate less aggressively
As I said on the show:
“Profitability isn’t about bragging rights. It’s about negotiating power.”
What We Teach in The Entrepreneur’s Exit Playbook
In The Entrepreneur’s Exit Playbook (available here), we emphasize that exit readiness isn’t about hitting a revenue number — it’s about building a business that looks great through a buyer’s eyes.
Benchmarks help bridge the founder mindset with buyer expectations.
When you know where you stand — and where you’re going — you don’t just participate in the deal process. You drive it.
How to Start Benchmarking Today
- Gather internal data – Revenue, gross profit, EBITDA, net income, CAC, churn
- Review public comps – Look at 10Ks, investor decks, or broker reports in your space
- Get third-party insight – Ask your CFO, banker, or advisor for benchmark reports
- Build your narrative – What makes your margins possible? Why are they sustainable?
- Identify timing gaps – If you’re close to breaching the benchmark, plan 12–18 months of growth and optimization before launching a process
Final Thoughts
Your profitability tells a story.
The question is: Are you using it to your advantage — or letting buyers use it against you?
Benchmarking isn’t about being perfect.
It’s about knowing where you stand — and using that knowledge to time your exit when the leverage is in your favor.
So ask yourself:
- Are you above, at, or below industry benchmarks today?
- What will it take to move up — and how fast can you get there?
- What would a buyer see if they looked at your trailing 12 months right now?
Your exit isn’t just about revenue or hype.
It’s about efficiency, sustainability, and how you stack up when it counts.
When you’re outperforming the field — and you can prove it — it’s time to go to market.
And the market will notice.
Frequently Asked Questions About How to Use Profitability Benchmarks to Inform M&A Timing
Why are profitability benchmarks important in timing an M&A exit?
Because they tell you when your company is outperforming the market — and buyers love buying winners. Profitability benchmarks give you a sense of how your margins, EBITDA, and efficiency stack up against your peers. When you’re above average, your company becomes more attractive, your narrative is stronger, and buyers are more willing to pay a premium with less structure. As Ed Button, Jr. explains in both Legacy Advisors strategy sessions and podcast episodes, knowing when you’re exceeding industry standards helps you time the exit while you still have leverage — not after you’ve peaked or plateaued.
What benchmarks should founders focus on before selling?
The most universally important benchmarks include:
- EBITDA Margin — the go-to metric for most M&A buyers
- Gross Margin — signals scalability and operational efficiency
- Net Income Margin — especially for cash flow-conscious acquirers
- Free Cash Flow Margin — highly attractive for private equity buyers
- Rule of 40 — for SaaS businesses (EBITDA + YoY Growth %)
- Customer Acquisition Cost (CAC) and Payback — for VC-backed or high-growth companies
The key is to identify which metrics are most relevant for your industry and buyer type, then compare them against published benchmarks or PE-backed peer data.
What happens if I try to exit before hitting profitability benchmarks?
You’ll likely face lower valuations, higher structure, and more friction during diligence. Buyers see underperformance as a risk — and they’ll protect themselves through earnouts, escrows, and reduced upfront cash. They may even ask you to “come back later” once your margins improve. Exiting too early means you’re asking the buyer to pay for your future optimization — and unless your growth story is bulletproof, most won’t. As Ed notes in The Entrepreneur’s Exit Playbook, buyers don’t pay based on potential — they pay based on proof.
How can benchmarking help me avoid missing my ideal exit window?
Profitability benchmarking gives you a clear signal when you’re nearing — or have reached — the benchmark inflection point: the window where your margins are higher than average, your growth is still climbing, and your forecast is believable. If you monitor these trends over time, you’ll start to see patterns — both in your business and in your industry. By tracking your performance against those benchmarks quarterly, you avoid waiting too long (when your margins may decline) or jumping too early (when you haven’t built enough valuation momentum).
How should I present my benchmark performance to potential buyers?
Use your benchmark data to tell a confident, compelling story. Include slides in your CIM or pitch deck that show how your EBITDA margin, gross margin, and other key metrics exceed your peer group. Explain why — what systems, people, or strategies make your results sustainable? Be ready to support your claims with financial statements, KPI dashboards, and historical performance. When buyers see that your business consistently beats the market and can explain why, they’re much more likely to believe your forecast — and your valuation expectations.