OnwardLearn · Selling · Step 4. Know what buyers value most
Recurring revenue and contracts
The short version
- Revenue that repeats on its own is worth more than revenue you have to win again every time.
- Service agreements, maintenance contracts and subscriptions are the strongest kinds.
- Repeat customers without a contract count too, but for less.
- A contract only helps a buyer if it can transfer to them.
Three kinds of revenue
Recurring revenue comes in under an agreement without being sold again each time. Examples include maintenance contracts, service agreements, subscriptions and retainers.
Repeat revenue comes from customers who come back, but without an agreement. They choose you each time.
Project revenue is won job by job. Each job starts from zero.
Most businesses have a mix. Buyers look at how much of each you have.
Why buyers pay more for recurring revenue
Recurring revenue is predictable. A buyer can see next year's income before it arrives. Their lender can too. Predictable earnings carry less risk, and less risk supports a higher multiple.
Showing it clearly
Buyers want evidence, not a description. Be ready to show:
- A list of recurring agreements, with start dates, terms and annual value.
- How many agreements renewed last year, and how many did not.
- How long the average customer has stayed.
- Revenue split into recurring, repeat and project, by year.
Customer names can wait until later in the sale.
Contracts that can transfer
A contract helps a buyer only if it survives the sale. Some contracts end automatically when a business changes hands. Some need the customer's written consent first.
Check each major contract now. Lesson 5.6 covers contracts that have to transfer.
Building recurring revenue before a sale
If your customers already come back, a simple service or maintenance agreement can turn repeat revenue into recurring revenue. Buyers look for a track record, so agreements signed shortly before a sale count for less than ones that have renewed.
When you are ready to talk to someone
Nobody needs to know you read this. When you are ready, these are the questions to bring.
- For your accountant: "How much of my revenue is recurring, repeat and project work, for each of the last three years?" Listen for: a split by year, drawn from your records.
- For your M&A attorney: "Which of my customer contracts can transfer to a new owner, and which need consent?" Listen for: a contract-by-contract answer.
- For a broker or valuation professional: "How much would more recurring revenue change what buyers would pay?" Listen for: a reasoned answer tied to your industry and buyers, not a promise.
When you’re ready
How a sale actually happens, in plain language — before you decide anything. Make a free account — nothing is shared