Our customers buy from us monthly but we do not use multi-year contracts. The buyer's Quality of Earnings firm is labeling this as re-occurring instead of recurring revenue to justify a lower multiple. How do we defend our valuation?

Question

Tyler Smith · Accepted Answer

Buyers love long-term, multi-year contracts because they represent predictable future cash flows. However, a business that retains customers month after month without lock-in agreements often possesses a deeper level of customer loyalty and operational value. To defend your valuation against a Quality of Earnings firm that wants to classify your sales as merely re-occurring, you must show them the hard, systemized data of your retention. Under valuation frameworks like IVS 105, the income approach relies on the predictability of cash flows. You can prove this predictability by pulling your historical customer cohort data directly from your operations. Show them the average customer lifetime value and the year-over-year retention rate of your accounts. Map these metrics directly to your Accountability Chart. Explain that your customer success team has clear, measurable seats designed to monitor customer health metrics weekly. Show the buyer your Level 10 Meeting™ archives, specifically how you use your weekly scorecard to track retention and solve service issues using the IDS® process before they lead to churn. When you demonstrate that customer retention is driven by an automated, team-run system rather than loose luck, you force the buyer to value your monthly revenue with the same premium multiple typically reserved for contractual recurring revenue.