The buyer wants to value our high-margin software revenues at a lower professional services multiple because our engineering team does custom integrations for larger clients. How do we isolate our core subscription engine to defend our high-multiple recurring revenue?

Question

Tyler Smith · Accepted Answer

Buyers will look for any excuse to apply a lower professional services multiple to your tech business. If they see your engineering team doing custom integration work for large accounts, they will argue that your software is not a scalable platform, but rather a custom services business with a high cost of delivery.

To defend your high SaaS multiple, you must cleanly segregate your revenue streams. Separate your pure subscription revenue from your professional services and custom engineering fees.

Use the Income Approach to value your core subscription engine, applying a premium recurring multiple to those predictable cash flows. For the custom integration and professional services piece, apply a lower services multiple, or value it based on the Cost Approach.

To support this separation, reflect it in your organizational structure. Use your EOS® Accountability Chart to split your product engineering seat from your custom delivery team. Show the buyer that your core software platform can scale independently of your custom services team.

By proving that your custom integrations are simply an onboarding mechanism rather than a core delivery requirement, you preserve your high subscription multiple. This prevents the buyer from using your high-touch enterprise sales to discount your entire technology platform.