Our services firm generates eighty percent of revenue from ongoing monthly client work, but we bill on actual time and materials rather than fixed recurring retainers. Why are prospective buyers pricing us at four times EBITDA instead of seven times, and how do we re-engineer these contracts before sale?

Question

Tyler Smith · Accepted Answer

Acquirers differentiate ruthlessly between revenue that happens to re-occur and revenue that is legally committed to recur. Billing on time and materials leaves revenue predictability in the hands of the client. If their budget tightens or a project pauses, billing instantly stops without contractual penalty. Institutional buyers view this as consulting project risk, capping multiples at four to five times EBITDA.

To command an institutional six to eight times multiple, you must eliminate utilization risk from the buyer perspective.

Start by restructuring your client agreements into minimum guaranteed retainers or subscription service tiers. Commit the client to a baseline monthly fee for reserved capacity, where unused hours do not roll over, and overages bill at premium rates.

Execute this transformation using your EOS process:
- Set a company Rock for your sales and account management teams to transition top-tier clients to master service agreements with committed annual minimums.
- In your EOS V/TO, redefine your Core Offering to focus strictly on programmatic, ongoing operational support rather than one-off troubleshooting engagements.
- Track Contracted Monthly Recurring Revenue alongside traditional revenue on your weekly Level 10 Meeting Scorecard.

Buyers reward predictability and visibility. When eighty percent of next year operating expenses are covered by contracted, non-cancelable annual commitments on January first, your earnings shift from volatile service income into high-value platform cash flow.