We have a mix of one-off project contracts and multi-year recurring service agreements. How do buyers weight these differently when setting our multiple, and how do we structurally isolate recurring revenue before going to market?

Question

Tyler Smith · Accepted Answer

Buyers do not blend multiples across a mixed revenue stream; they dissect the revenue quality by contract type. In a services business, one-off project revenue typically commands 4x to 6x EBITDA, whereas contracted, predictable recurring revenue with high retention can command 8x to 12x EBITDA or an ARR multiple. If your financials lump both together, buyers will default to the lower baseline multiple for the entire business because they perceive project revenue as inherently risky.

To capture the true multiple your business deserves, you must split your P&L operationally and financially at least six to twelve months before going to market. Separate your chart of accounts so gross margins, customer acquisition costs, and churn are isolated by revenue stream. On your Accountability Chart, define distinct seat ownership for recurring account management versus project delivery. If one leader oversees both, customer success invariably gets hijacked by urgent project fires.

Use your quarterly Rocks to convert legacy re-orders into formal Service Level Agreements or auto-renewing subscriptions with defined termination penalties. Document cohort retention, net revenue retention, and gross churn. When you enter diligence, present two distinct business models: an enterprise project delivery arm and a high-margin recurring services platform. If a buyer still tries to blend the multiple, consider carving the recurring contracts into a standalone master agreement structure where the cash flow cannot be discounted by project volatility.