Recurring Revenue in Service Businesses: What Actually Counts

Maintenance agreements, monitoring contracts, and inspection cycles — how to tell durable recurring revenue from a marketing story.

"Recurring revenue" is the most-abused phrase in lower middle market service business marketing. Almost every CIM claims it. Very few businesses have as much of it as they say.

What counts as recurring

• Contracted maintenance agreements with defined scope, price, and term. Auto-renewing, cancellation notice required, billed on a fixed cycle.
• Monitoring or subscription revenue with a metered service delivered continuously. Fire alarm monitoring, security monitoring, remote IT support.
• Code-driven inspection cycles where the customer is legally required to have the work done and has historically used this vendor. Not contractual, but structurally sticky.

What doesn't count

• Repeat customers without a contract. Loyal, valuable, and not recurring. It's repeat.
• Warranty callbacks. Not revenue.
• Historical replacement cycles. Real, but lumpy and modelable — not recurring in the multiple-expansion sense.
• "We service them every year." If it's not documented, it's not underwritten.

Why it matters for valuation

A trades business with 40% true recurring revenue trades at a materially higher multiple than a comparable business with 40% repeat revenue. The difference is durability under transition. Recurring revenue survives an ownership change. Repeat revenue often doesn't.

When we underwrite, we pull the contract file. We count what's on paper. Everything else gets a discount.