What ratio of service to installation work do buyers want to see?

There is no single threshold, and anybody quoting one is guessing. What acquirers read is the contracted proportion as a measure of how much income survives the transition without them doing anything at all. The higher it sits, the more of the price tends to be paid at completion rather than deferred, and the direction of travel over three years counts for as much as the figure itself.

Does an informal service arrangement count as recurring revenue?

Partly. A customer you have serviced every year for a decade is genuine repeat income and a buyer will recognise it, but it is discounted against a signed agreement with a term, a scope and a value, because there is nothing to assign and nothing to evidence.

How do change of control clauses affect a sale?

A clause requiring the customer's consent on a change of ownership gives that customer a say in your sale. Knowing about it early makes it manageable. Finding out when the buyer's solicitor does makes it a conversation with your largest account on somebody else's timetable.

Can I improve the ratio quickly?

In about a year, which is quick by the standards of things that move a valuation. Identify every customer attended more than once in two years and offer each a written maintenance agreement at a sensible annual figure. What you cannot do is improve it in the weeks between a first approach and heads of terms, which is unfortunately when most owners first hear that it matters at all.

Service Contracts Versus Installations: The Ratio That Sets Your Multiple

The SplitThe first thing an acquirer does is take your turnover apart

Before anyone looks at your profit, they separate the income. Planned maintenance and service contracts, the work that renews on a schedule, goes in one column. Installation, replacement and project work, which has to be won again every year, goes in the other. The percentages are then the headline of the whole conversation, because they answer the only question that matters to a buyer: how much of this business will still be here in twelve months without anybody selling anything.

That is not a preference for one kind of work over another. Installation is often the more profitable line and everybody in the trade knows it. It is a statement about risk. A contracted maintenance book has a knowable renewal rate, a known value per site and a customer who has already decided to keep paying. A project pipeline is a forecast, and a forecast made by the person selling the business is worth what any such forecast is worth.

Owner-managed businesses in this trade have long changed hands on a multiple of adjusted EBITDA, and where a business sits in the range is mostly a question of this ratio. Two firms turning over the same amount, earning the same profit, with the split reversed, will not receive the same offers.

A contracted maintenance book has a knowable renewal rate. A project pipeline is a forecast made by the person selling the business.

The DetailNot all contracted income is read the same way

A buyer discounts inside the service column as well. A signed agreement with a stated term, a defined scope and an annual value counts fully. A customer you have serviced every October for eleven years with no paperwork counts for something, but not for that, because there is nothing to assign and nothing to evidence. The gap between those two positions is entirely administrative and it is worth real money.

Length and notice matter next. A rolling annual agreement with one month's notice is worth less than a three-year agreement with an annual uplift, and a contract with a change of control clause requiring the customer's consent to an assignment is a live issue rather than a detail. It is worth knowing which of yours carry one before a buyer's solicitor finds them, because that clause is how a confidential process becomes an unplanned conversation with your largest customer.

Concentration is read across the whole book. A maintenance schedule where one site or one managing agent represents a third of contracted income is not the same asset as the same income spread across forty customers, however good that one relationship is. The fix is slow and obvious, which is to win more of the smaller work, and it is the sort of thing that takes the eighteen months before a sale rather than the eight weeks after an approach.

The MoveMoving work from one column to the other

Most heating and air conditioning businesses have more contractable work than they have contracts. The boiler you replaced last spring, the air conditioning system you installed and now call back to twice a year, the landlord who rings every autumn: all of that is service income already, being recorded as reactive call-out work because nobody wrote it down as anything else. Converting it is a pricing and paperwork exercise, not a sales campaign.

The practical step is to take the last two years of job records, identify every customer you have attended more than once, and offer each of them a written agreement at a sensible annual figure. Some will decline. The ones who accept move from a forecast into a contracted book, which is the column that gets paid for. Doing it a year before you speak to anyone means the renewal evidence exists by the time anybody asks for it.

It is worth being honest that this changes the business as well as the price. A contract book has to be serviced on time, which means planning labour rather than reacting to it. Owners who make that change usually find it is the thing that lets them step back, which is the other half of what a buyer is paying for.

Put a Range Around It

The valuation tool on this site asks for the split between contracted and project income and shows what it does to the range. It takes a few minutes and you are under no obligation at the end of it.

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