I was speaking recently with the owner of a B2B service business, about $5 million in revenue, profitable, good clients, and a solid team. He’d been at it for fifteen years and had started wondering what the business was actually worth.
When we worked through it, the number came in lower than he expected. Not dramatically, but enough to catch him off guard. He assumed a decade and a half of consistent work would translate more directly into value.
The issue wasn’t the profit. It was the structure. Almost all of his revenue came from project work, time-based, custom, re-earned from scratch every quarter. Good clients who kept coming back, but nothing was under contract. Nothing is guaranteed going forward.
Buyers see that and apply a discount. They have to. They can’t verify what loyalty looks like after closing.
Same profit. Different multiple.
Most owners think value is a function of earnings. Earn more, the business is worth more. That’s true, but only part of the story.
The other part is the multiple applied to those earnings. And that multiple is driven almost entirely by how predictable the income is. Two businesses with identical profits can sell for very different prices depending on whether that profit comes from contracts or from relationships that haven’t been formalized.
Research from the Consortia Advisory "Business Valuation Multiples by Industry 2026" guide, published in April 2026, shows that companies with recurring revenue retainers, service agreements, and multi-year contracts command 20 to 40 percent higher multiples than comparable project-based businesses. In some service industries, the gap is wider.
A B2B service business moving from project billing to annual retainers can add a full turn or more to its valuation multiple, without a single new client. On a business with $600,000 in annual profit, one extra turn is $600,000 at the closing table. The work is the same. The clients are the same. The structure isn’t.
Most owners already have what they need.
I am not suggesting you rebuild your business or renegotiate every client relationship. I am suggesting that in most B2B service businesses, the clients are already there; they just haven’t been asked to formalize things.
This owner had clients who’d worked with him for eight, ten, or twelve years. They weren’t going anywhere. But none of them had a service agreement. No defined scope, no renewal terms, no contracted commitment. Loyal, yes. Verifiable to a buyer, no.
Converting even a portion of those relationships to annual agreements changes what a buyer sees in due diligence. Not because the underlying relationships changed, but because now there’s documentation behind them.
Not glamorous work. But it’s one of the most direct ways to increase what a service business is worth, and it costs almost nothing to do.
The question worth asking:
How much of your revenue could be recurring if you designed it that way? Not all of it, probably not even most of it. But the difference between 10 percent contracted and 40 percent contracted can be significant when someone is deciding what to pay for your business.
That’s the kind of question we help owners think through, alongside the personal side: what does the business need to be worth to fund the life you actually want after it? The two questions are connected, and until you’ve answered both, the planning is incomplete.
If you’d like to talk through what your business looks like from a buyer’s perspective, what's working in your favor, and what might be holding the number down, I am happy to do that. Give me a call.