If you’re planning to sell your business in the next 1–3 years—or even if you’re just beginning to think about the future—how you structure your revenue could be the single most important factor in how buyers perceive your company.
Revenue isn’t just revenue. In the eyes of a buyer, it’s either:
- Predictable or unpredictable
- Transferable or founder-dependent
- Durable or at-risk
And that means it’s either high-value… or heavily discounted.
At Legacy Advisors, we’ve worked with founders across industries who’ve taken solid businesses and increased exit valuations significantly—not by tripling top-line revenue, but by structuring revenue in a smarter, more predictable, more buyer-friendly way.
As someone who’s been through my own exit journey, I can tell you this: how your revenue is built matters more than you think. And it starts with contracts and recurring income models.
Let’s walk through what that means—and how to structure your revenue for maximum enterprise value.
Understanding the Buyer’s Perspective
When a buyer looks at your company, they’re not just evaluating your growth or your current numbers—they’re projecting risk.
They want to know:
- Will the revenue be there tomorrow, next quarter, next year?
- What percentage of customers are locked in vs. month-to-month?
- Can this revenue stream be counted on—or does it have to be chased every month?
- What happens to cash flow if a few clients leave?
In other words: they’re asking whether what you’ve built will continue without you.
That’s where contract structure and recurring revenue become game-changers.
What Is Recurring Revenue (and Why It Matters)?
Recurring revenue is revenue that is ongoing, predictable, and contractually or behaviorally committed.
There are two main types:
- Contractual recurring revenue: Customers are legally bound to pay for your service or product for a defined period (e.g., monthly or annual contracts).
- Behavioral recurring revenue: Even if not bound by contract, customers consistently repurchase due to habit, necessity, or value (e.g., replenishment models, strong SaaS usage).
Why do buyers love recurring revenue?
Because it’s:
- Predictable: Makes it easier to forecast future performance.
- Sticky: Indicates strong product-market fit and customer loyalty.
- Less reliant on founder hustle: You’re not starting from zero each month.
- Valuation-friendly: It drives higher multiples, especially in SaaS and services.
Buyers will often apply a higher multiple to recurring revenue and a much lower one to variable or non-repeatable revenue.
Why Contracts Matter
Not all contracts are created equal.
Some founders think having a signed piece of paper is enough. But if that contract is month-to-month, easy to cancel, or unenforceable—it won’t hold much weight during diligence.
Buyers are looking for:
- Term length: Multi-year contracts are golden. Annual contracts are good. Month-to-month? Less valuable.
- Auto-renew clauses: These extend value and reduce churn without adding friction.
- Termination conditions: Can clients walk away with 30 days’ notice? Or are there fees, lock-ins, or renewal windows?
- Assignability: Can your contracts legally transfer to a new owner in the event of a sale?
You need to think of your contracts not just as sales tools—but as value containers.
The more secure and transferable they are, the more value they carry.
Structuring Contracts to Increase Buyer Confidence
If you’re serious about maximizing your valuation, here are the elements you want to build into your customer agreements:
Multi-Year Terms
Longer contracts signal long-term value. If you can shift from 12-month to 24–36-month terms, even for a portion of your customers, you’re demonstrating revenue durability.
Built-in Price Increases
An annual 3–5% escalation clause helps future-proof your margins. Buyers love seeing built-in growth without additional sales effort.
Renewal Clarity
Set contracts to auto-renew unless canceled within a specific window. This creates predictability and removes the annual “resell” cycle.
Early Termination Penalties
These don’t have to be aggressive, but they should be enough to discourage casual cancellations and signal commitment.
Assignability Provisions
Make sure contracts include a clause that allows you to assign the agreement in the event of a change in ownership. Without this, buyers will flag risk.
Real-World Example: How Structure Shifted the Deal
One client we worked with ran a successful B2B services firm. Great retention, high-quality work, and solid top-line growth.
But every engagement was project-based. No contracts. No recurring revenue.
Buyers loved the company… until they looked under the hood.
The question became: “What happens when this founder steps away?”
We worked with the owner to redesign the offering into a monthly service model, with 12-month contracts and standard onboarding fees.
Within 18 months, 60% of the company’s revenue came from recurring agreements. The result?
- A cleaner revenue profile
- More efficient ops and forecasting
- A 2x increase in EBITDA multiple at exit
Same team. Same clients. Same service. But structured differently—and valued far higher.
Recurring Revenue Models That Work
Let’s look at a few models that you can adapt—regardless of your industry.
SaaS or Subscription
- Monthly or annual payments
- Automatic renewals
- Tiered pricing (good/better/best)
- Usage-based expansion opportunities
Retainer Services
- Fixed monthly fees
- Scope defined clearly (hours, deliverables, outcomes)
- Annual contracts with renewal windows
Maintenance and Support
- Add-on revenue to core products
- Long-term reliability assurance
- High margin, low churn
Membership or Access
- Content, community, or tool access for a recurring fee
- Great for education, niche B2B, or coaching models
Consumables and Replenishment
- Auto-ship programs
- Preferred pricing for subscribers
- Strong for product businesses with repeat purchase behavior
Avoiding Common Mistakes
While recurring revenue and contracts are powerful, they need to be set up the right way. Here are a few things to avoid:
Overcomplicating the Terms
Keep contracts simple, understandable, and easy to manage. Overly complex terms create buyer concern and operational confusion.
Forgetting About Profitability
Recurring revenue is great—but only if it’s profitable. Don’t lock in customers at unsustainable rates. Build in margin, upsells, and price increase opportunities.
One-Size-Fits-All Approach
Not all customers want the same structure. Offer options: monthly, annual, or multi-year—with pricing incentives. Meet your market where it is.
Ignoring Customer Experience
Don’t let the push for predictability ruin the customer journey. Your recurring model should add value, not feel like a trap.
Making Revenue Transferable
Even if your revenue is recurring, it must also be transferable to hold value during a sale.
That means:
- Customers pay the business—not the founder
- Relationships are managed by a team—not just the owner
- Delivery is process-driven and documented
- Communication is tracked and consistent
- Contracts are assignable and legally sound
Buyers want to know that the cash flow continues without you in the picture. Start building those layers now.
Positioning Your Revenue Model for Exit
As you prepare to sell, your job is to tell the story of your revenue quality.
That includes:
- Revenue breakdown by type (recurring vs. project-based)
- Retention rates and renewal history
- Average contract length
- Monthly and annual revenue by cohort
- Churn reduction efforts and outcomes
- Customer lifetime value (CLTV) and CAC trends
Buyers don’t want to hunt for this information. They want to see it, clearly laid out, in your CIM and data room. It builds trust. It drives confidence. And it gets deals closed faster.
The Long-Term Payoff
If you start building this structure now, here’s what changes in 18–24 months:
- Your business becomes less chaotic and easier to forecast
- Your valuation goes up due to reduced risk
- More buyer types become interested (including PE)
- You have leverage in negotiations
- You gain optionality: sell, recap, or scale further
That’s what we’re helping founders do every day at Legacy Advisors. We don’t just help you sell—we help you build the kind of business that buyers want to buy.
And recurring, contract-backed revenue is a huge part of that formula.
Final Word: Don’t Leave Value on the Table
You don’t have to overhaul your business overnight.
But you do need to start making intentional choices:
- Convert project work into predictable agreements
- Build contracts that stick
- Track and package your revenue story clearly
- Shift your mindset from short-term sales to long-term value creation
Buyers are looking for signals of strength and stability. Your revenue model is the clearest signal of all.
So structure it wisely.
Because when the right buyer shows up—and they will—you want them to see not just a great business, but a predictable, durable, high-leverage opportunity.
That’s how you exit well.
And that’s what we’re here to help you build.
Frequently Asked Questions: Structuring Contracts and Recurring Revenue to Maximize Value
Why do contracts and recurring revenue have such a big impact on valuation?
Recurring revenue and well-structured contracts reduce perceived risk, which is a major driver of buyer behavior and valuation. Buyers want to know they’re stepping into a stable, cash-generating asset—not one that needs to be rebuilt every month. When a business has long-term contracts, auto-renewal clauses, or recurring billing tied to usage or subscriptions, buyers feel more confident in future cash flow. That predictability helps justify higher multiples, makes financing easier, and attracts a broader pool of acquirers—including private equity firms that prioritize reliable, recurring EBITDA. In short, better structure = more security = better deal terms.
What should I include in my customer contracts to increase value?
Strong customer contracts should include several key provisions: multi-year terms when possible, automatic renewal clauses, clear early termination penalties, and assignability clauses allowing the contract to transfer in the event of a sale. If applicable, you may also want to add annual price escalators or built-in upsell mechanisms. Contracts should be easy to enforce and written in plain language, with clear expectations around deliverables, payments, and exit terms. A buyer reviewing your business during diligence will look for these signals of durability and structure. The more frictionless and committed the revenue appears on paper, the more confident buyers become.
What if my business isn’t currently built on a recurring model?
If you’re not currently generating recurring revenue, don’t panic—but you should begin exploring how to transition at least part of your revenue base into a more predictable structure. Look at your existing offerings and identify what could be repackaged into a monthly retainer, annual service contract, or subscription-based model. Can you create maintenance or support tiers? Are there consulting or advisory services you provide that could be monetized over time? Even partial recurring revenue—say, 30–40% of your total—can make a meaningful difference in valuation. It’s never too late to start laying that foundation, especially if you’re 1–3 years out from a sale.
What kind of recurring revenue model is best for maximizing M&A value?
The “best” model depends on your business and industry, but generally, contractual recurring revenue—where a customer signs a long-term agreement with auto-renewal and limited cancellation rights—commands the highest valuation. Examples include SaaS subscriptions, retainers, and multi-year licensing deals. Behavioral recurring revenue, where customers habitually reorder (e.g., consumables, refills, re-ups) also holds strong value if retention is high and churn is low. The key is to show buyers that your revenue is not only repeatable, but sticky. That means it’s hard to cancel, hard to switch from, and likely to grow over time. The more control and visibility you have, the better.
How soon before selling should I restructure contracts or revenue models?
Ideally, you should begin restructuring 18 to 36 months before you plan to sell. That timeline allows you to test new pricing models, negotiate longer-term contracts, train your sales team, and build historical data that demonstrates stickiness and predictability. Revenue transformation isn’t instant—buyers want to see retention over time, not just freshly signed agreements a few weeks before going to market. Starting early also gives you time to course-correct if customer response isn’t ideal. The bottom line: the sooner you start aligning your revenue model to what buyers value, the more leverage and optionality you’ll have at exit.