Our customers buy from us every single month like clockwork, but the buyer's advisory team is labeling this as transactional reoccurring revenue rather than contractual recurring revenue to justify a lower multiple. How do we apply IVS 105 principles to defend our valuation?

Question

Tyler Smith · Accepted Answer

Under the International Valuation Standards, specifically IVS 105, the income approach is based on the expectation of future economic benefits. A buyer trying to discount your valuation based on the lack of long-term contracts is ignoring the historical operational reality of your cash flow. To defend your valuation, you must shift the debate from contract terminology to empirical predictability. Build a detailed cohort analysis that tracks customer retention over a multi-year period. If your monthly customer cohort shows a flat decay curve, you can prove that your transactional revenue behaves exactly like contractual recurring revenue. Demonstrate that your customer acquisition and delivery systems are fully systematized. Show how your automated workflows and customer service processes keep clients locked in without the need for restrictive contracts. This operational consistency demonstrates to the buyer that the probability of future economic benefits is extremely high, which satisfies the core requirement of IVS 105. By presenting data-driven proof of customer stickiness alongside your documented workflows, you can dismantle the buyer's argument for a transactional discount and secure a premium multiple.