Recurring revenue when you do not sell subscriptions

Recurring revenue has become a software word, which is unhelpful, because the thing buyers are actually paying for exists in plumbing companies and machine shops and equipment distributors.

The question is not whether you sell subscriptions. It is narrower: how much of next year’s revenue is already committed, and does it stay committed when you leave?

Why it moves price so much

Two businesses, both doing three million, both making the same profit.

The first re-wins every dollar annually. Good reputation, repeat customers, no obligations in either direction. A buyer looking at it is buying the reputation and hoping.

The second has 55% of next year contracted before the year starts. Same revenue, but a buyer can see the floor. So can a lender, which matters more than it sounds, because the lender’s view of debt service determines what a buyer can afford to pay.

The gap between what those two businesses sell for is usually larger than owners expect, and it is not because the second is better run. It is because the risk sits in a different place.

What counts, in businesses that sell nothing on subscription

Service and maintenance agreements. The most available and most overlooked. If you install equipment, you can service it on an annual agreement. Many owners already do the servicing and simply never put terms around it, which means they do the work without getting the valuation credit.

Standing orders and scheduled deliveries. Distribution and supply businesses often have customers who order on a predictable rhythm. A rhythm is not a commitment. Converting even half of them to a standing arrangement changes the picture.

Preferred supplier and framework agreements. Common in commercial and public sector work. No guaranteed volume, but a named position on an approved list, which is genuinely transferable and genuinely valuable.

Multi-year contracts with renewal terms. Standard in facilities, landscaping, cleaning, IT support, waste. If you are in one of those and working without contracts, that is a decision rather than an industry norm.

Retainers. Any professional or advisory work billed hourly can often be structured as a monthly retainer instead, and clients frequently prefer the predictability.

Consumables and parts tied to installed equipment. If you sold the machine, you have a defensible claim on what it consumes. Formalising that is worth more than the margin on the parts.

What does not count

“They always come back.” Historical repeat rate is evidence, and buyers will look at it, but it is not the same thing and does not get valued the same way.

A verbal understanding. Even a genuinely reliable one. If it is not written and not transferable, a buyer treats it as goodwill attached to you.

A long relationship with no terms. Eleven years of loyalty with nothing on paper is a relationship, not a contract, and it goes wherever the relationship goes.

Contracts that die on a change of ownership. Worth checking. A contract with an assignment clause requiring consent hands the customer a decision at the worst moment. This is the same problem as the transferability question generally.

What twelve months of work looks like

Start with the customers who already behave as if they were contracted. They order regularly, they do not shop around, they would probably say yes. The conversion rate on this group is high and the risk is low.

Offer something for the commitment. Priority scheduling, a small discount, guaranteed response times, price certainty. Owners often assume customers will resist terms. Many customers want the predictability as much as you do.

Write the assignment clause the way you want it. While you are creating new agreements anyway, make them assignable without consent. This is free at the point of drafting and expensive to fix later.

Count it and track it. A simple figure: committed revenue for the next twelve months as a percentage of last year’s revenue. Watching that number move is the point.

The reason this one is worth doing early

Contracts get signed on the customer’s timetable, not yours. A renewal cycle is a year. Converting a meaningful share of a customer base takes a year or more of ordinary sales conversations, and it cannot be compressed by wanting it more.

Question B5 on the Exit Readiness Score asks for this figure directly. It is one of the questions where owners most often discover they have never measured something a buyer will ask about first.