We generate strong revenue and high margins, but our business runs on project-by-project transactional sales with no recurring contracts. What structural changes do we need to make to our client agreement structures over our runway to get a buyer to pay a recurring revenue multiple instead of a transactional discount?

Question

Tyler Smith · Accepted Answer

Buyers do not pay premium multiples for unstable project revenue because they have to reinvent the sales cycle every single month. They pay high multiples for predictability. If your revenue is entirely transactional, your primary operational goal on your three year runway must be to convert those transactions into predictable revenue streams.

Begin by analyzing your customer relationships. Look at your EOS® Scorecard. Do you have repeat clients who buy from you every year even without a formal contract? If so, you have the raw material for recurring revenue.

Your next quarterly Rock should be to design a transition program that converts transactional clients into master service agreements or monthly advisory retainers. Frame this transition as a benefit to the client, offering them guaranteed capacity, priority scheduling, or fixed pricing in exchange for a committed long term contract.

Use the 3-Year Picture™ in your V/TO® to track the percentage of revenue that is contractually recurring. A buyer looking at your financial records will discount a business with high margins but zero contracted revenue. If you can show that sixty percent or more of your revenue is locked in through multi-year agreements, you will dramatically increase your valuation multiple and expand the pool of interested buyers.