What is the value of my services business? Take This quiz and find out!

A few years back I met Nick, the founder of a 30 person, $7MM, tech enabled services business. After a decade as a Founder who was “grinding it out” it was apparent to him that growth and continued success was going to become more difficult. But what he didn’t know was that his service business had reached a level of size and profitability where it would be valuable and sought after by a certain set of strategic and financial buyers. Once he realized that he could unlock the value in the business and take some chips off the table, he proceeded to open himself up to the market. Six months later, we completed a transaction which provided the liquidity, partnership and the peace of mind he hoped for.

His big insight: Once he realized how his business would be valued and what that could mean for him financially, he was ready to move forward.

How is a business services company valued? While there is no exact formula, below are 8 key drivers, assuming a strategic fit with the buyer.

Take the quiz, total and score yourself with the model below (20 points maximum).

Revenue Growth CAGR:

Okay: 5%-10% annual growth over the previous 3 years
Good: 10%+ annual growth over the previous 3 years.
Great: 15%+ annual growth over the previous 3-5 years
Exceptional: 20%+ annual growth over previous 3-5 years

Strong Profit (EBITDA) Margins:

Good: Overall bottom line is 15%+
Great: Overall bottom line is 20%+
Exceptional: Overall bottom line is 25%+

Strong Revenue Retention/ Recurring Revenue:

Good: Net Revenue Retention of 90%+
Great: Net Revenue Retention of 105%+

Size

Minimum: $1MM-$5MM in EBITDA
Great: $5MM-$10MM in EBITDA
Exceptional: >$10MM+ in EBITDA

Leadership:

Good: The founder has a strong leadership team, likely capable of running the company.
Great: The founder has transitioned significant responsibilities in running the company to the next gen leaders

Limited Client Concentration

Good: No client more than 20% of revenue
Great: No client more than 10% of revenue

Exceptional Client Feedback and/or NPS

Good: Few “detractors” and most are strong “promoters”
Great: No detractors and an NPS score >70%

Employee Retention

Good: 80%+
Great: 85%+ overall and 95% at Director level+

Value Model:

Market Leader: 16+ points. Will command +2x multiple over industry average (e.g. if the average industry multiple is an 8x, a market leader could look for a 10x)
Strong Performer: 13-15 points. Will command a +1x multiple over industry average
At Market: 9-12 points. Will be at the market average
Below Market: 5-8 points. Will be 1x-2x below market average