We run a highly profitable project-based business, but buyers are telling us our multiple will be depressed because of our transactional revenue model. How do we restructure our core offerings into recurring revenue streams on our exit runway to force a higher valuation?

Question

Tyler Smith · Accepted Answer

Buyers do not just pay for historical performance: they pay for the predictability of future cash flow. If every year your sales team has to start at zero and chase new project revenue, buyers will price in that volatility by applying a much lower valuation multiple. Restructuring your business model to include recurring revenue is one of the most effective ways to drive up your valuation.

Begin by evaluating your core processes and existing customer needs. Identify services that can be converted into ongoing agreements, such as preventative maintenance, continuous monitoring, licensing, or long-term service level agreements.

Make this business model shift a central focus of your V/TO. Set a specific revenue target for contracted recurring services as part of your three-year goal. Then, break this down into quarterly Rocks for your sales and product teams to design, pilot, and sell these new recurring offerings.

You may need to adjust your sales compensation structure to reward recurring contracts over one-off, high-margin projects. While this transition might temporarily slow down your top-line growth as you turn away transactional deals, the resulting predictable cash flow will command a significantly higher valuation multiple. When buyers see that a large percentage of your monthly expenses are covered by contracted, recurring revenue, they will bid up your price.