The Recurring Revenue You Claim and the Kind You Actually Own
A firm books $8 million a year and calls itself a managed services provider. Pull the invoices and half that money came from projects, hardware resale, and break-fix calls, the kind of work that appears when something breaks and vanishes once it's fixed. The monthly contracts, the part that actually recurs, made up the rest. The owner believes he runs a managed services business. A buyer sees a project shop with a subscription bolted on, and prices it accordingly.
The gap between what a firm calls itself and what its revenue actually does is the most expensive line item nobody records.
Recurring revenue earns a premium because it's predictable, and predictability is what a buyer is really paying for. Advisers who track MSP sales put the median for a mature, high-recurring provider around 11 times EBITDA in the back half of 2025, while a low-recurring shop doing similar numbers trades closer to 4 to 6. Match two shops on revenue and headcount and the multiple can still swing by a factor of 2 or 3 depending on where the money comes from. M&A advisers who benchmark these deals say project and break-fix revenue routinely knocks 1 to 3 turns off the multiple, and that recurring has to clear roughly 70 percent of total revenue before a buyer will discuss double digits at all.
The number you report and the number that's real
Most owners overstate their recurring revenue without meaning to lie. They count the managed contract, then quietly fold in the work that isn't. The co-managed project that renews most years. The hardware refresh that runs on a cycle. The client who calls every month, so it feels like a subscription even though nothing is contracted. Add all of that to the recurring line and the number looks healthy. Strip it back to revenue that is contracted, monthly, and would keep arriving if the phone never rang, and the real figure is often 10 to 20 points below the one in the deck.
One benchmarking group puts the healthy band at roughly 65 to 78 percent of total revenue as true contracted monthly recurring, with the best-run firms above that. Under 60 percent, they treat the managed model as diluted by project work, whatever the sign says. The test is simple and unsentimental. If every technician stopped taking new project work tomorrow, how much revenue still shows up next month? That number is what you actually own. The rest you have to go win again.
Why the mix, not the size, sets the price
There's a reflex among owners to chase the top line. Land the big cabling job, resell the hardware, take the one-time migration, because it all adds to revenue and revenue feels like progress. It is progress of a kind. It just doesn't compound, and it doesn't hold its value when someone appraises the business.
A dollar of project revenue and a dollar of managed revenue are not worth the same, in margin or in multiple. Managed contracts get delivered month after month at gross margins north of 55 percent once the stack and the process are set, according to firms that benchmark MSP economics. Project work carries delivery risk, lumpy utilization, and a margin that moves with every quote. One MSP advisory group ran the arithmetic and found that shifting $100,000 of project revenue into managed contracts can drop $30,000 to $50,000 to the bottom line, because you're trading one-time effort for a margin that repeats. That's before the multiple, where the same shift quietly re-rates the whole company.
Close the gap before a buyer measures it for you
You don't fix this with a rebrand. You fix it by converting, deliberately, and by being honest about the starting point.
Take your last 12 months and split every dollar into 2 columns. Contracted and recurring in one, everything else in the other. Don't let the recurring-ish work sneak across the line. That ratio is your real story, and if it sits under 70 percent, you own a project business that sells some subscriptions. Then take the project work that repeats often enough to be productized, the security stack, the backup, the monitoring, and move it under contract at a monthly rate. Every dollar you convert is worth more the day it recurs, and worth more again the day someone offers to buy the firm. The owner who does this for 3 years running doesn't just earn steadier money. He changes the kind of company he owns, and the number a buyer is willing to write.