The buyer is discounting our recurring maintenance contracts because they are not legally structured as multi year SaaS agreements. How do we prove the structural stickiness of this revenue to maintain our recurring multiple?

Question

Tyler Smith · Accepted Answer

Buyers love the term recurring revenue, but they will look for any excuse to classify your contracts as reoccurring instead of truly recurring to justify a lower multiple. If your maintenance contracts are annual or auto renewing without long term legal lockups, you must prove their operational stickiness through hard metrics.

Start by presenting your historical retention and churn rates. A customer cohort analysis showing that your average client stays for five or more years is far more convincing to an experienced buyer than a legal document that can still be canceled. Track your net revenue retention and customer lifetime value. If these metrics are strong, it proves your services are deeply integrated into your clients' operations.

Next, show the buyer how you manage these accounts. Demonstrate that your customer success team uses a consistent, documented process to manage renewals and that these accounts do not depend on personal relationships with the owner. Using your EOS® weekly scorecard, you should be tracking leading indicators of customer health, such as system usage or service ticket response times. When you can show a buyer a historical scorecard showing consistent, high performing operational metrics, you prove that your revenue is highly predictable. This operational evidence defeats the buyer's attempt to discount your valuation based on contract structure alone.