When a buyer looks at your P&L, they aren’t just looking at how much money you make. They are looking at your revenue and how you make it. The quality, source, and predictability of those revenue streams are what truly determine the multiple a buyer is willing to pay.
In the M&A (Mergers and Acquisitions) world, we classify revenue into two main buckets:
1. Project Revenue (Hunting)
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The Model: You sell a roof, build a website, or install an HVAC unit. Once the job is done, you have to go out and find a new customer to replace that revenue next month.
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The Valuation: Lower. The buyer views this as risky because every year starts at zero. If you don’t “hunt,” you don’t eat.
2. Recurring Revenue (Farming)
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The Model: Maintenance contracts, software subscriptions, retainers, or auto-ship supplies. The customer pays automatically.
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The Valuation: Premium. Buyers will often pay 2x to 3x higher multiples for this type of revenue because it is predictable and guaranteed for the future.
How to Pivot (Even if you are a “Project” Business)
You don’t need to be a software company to have recurring revenue. Almost any industry can adapt:
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HVAC/Plumbing: Don’t just fix the leak; sell a $20/month “Priority Membership” that includes an annual inspection.
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Landscaping: Move from “call when the grass is long” to a flat monthly fee for year-round care.
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Professional Services: Move from hourly billing to a monthly retainer for access and ongoing support.
The Math of the Pivot
Imagine two businesses, both with $500k in profit, but different revenue structures:
| Aspect | Business A (Project Based) | Business B (Contract Based) |
| Profit | $500,000 | $500,000 |
| Multiple | 3x | 5x |
| Sale Price | $1.5 Million | $2.5 Million |
By simply changing how you bill, you could add $1 Million to your net worth.
The Strategy:
Spend the next 12 months trying to convert just 20% of your top customers into a recurring model. Even a small base of guaranteed acts as a safety floor that buyers love and will pay a premium to acquire.