We have a significant portion of what we call recurring revenue, but the buyer's investment banker is classifying it as re-occurring transactional revenue and applying a lower services multiple. How do we prove our contract structures and customer behavior warrant a software-style valuation multiple?

Question

Tyler Smith · Accepted Answer

To secure a premium software-style multiple, you must demonstrate that your revenue is contractually locked and operationally automated, not just repeat business. Buyers look for predictability. If your customers must actively choose to buy from you each month, that is re-occurring, not recurring.

Start by analyzing your customer contracts. You need to show auto-renewal clauses, multi-year commitments, and clear termination penalties. Use your EOS Scorecard to track your monthly recurring revenue and annual recurring revenue as core measurables. This proves to the buyer that your leadership team runs the business on predictable data.

Next, leverage your technology. If you have built automated billing systems or integrated client portal workflows, show how these systems process transactions without manual intervention. This proves the revenue is scalable and independent of headcount.

Finally, map this to your Accountability Chart. Show the buyer that your customer success seat is separate from sales, focused entirely on driving adoption and retention. When you prove that your contracts legally bind the customer, your technology automates the delivery, and your EOS structure systematically manages retention, the buyer can no longer justify a low services multiple. You shift the conversation from historical delivery to guaranteed future cash flows.