A practical guide from an active buyer of service businesses. Realistic SDE multiples by category, what pulls them up and down, and how we think about valuation at Stockton Ventures.
Two metrics anchor most service-business valuations: SDE and EBITDA. The right one depends on the size of your business.
SDE (Seller's Discretionary Earnings) is the standard for owner-operated businesses up to roughly $4M in revenue. SDE adds back the owner's full compensation and benefits to the bottom line, so it represents what the business produces for a working owner. Most service businesses we acquire are valued on SDE.
EBITDA is the standard for larger businesses where the owner is no longer essential to operations. As a rough rule of thumb, the SDE-to-EBITDA crossover happens when a hired CEO or GM is fully running the business and the owner's role is genuinely capital-allocation only. For most $500K–$4M service businesses, SDE is the right number to use.
For most service businesses we look at: Enterprise Value = SDE × Multiple. The multiple is the lever that moves with quality. Two businesses can both have $500K of SDE but one might be worth $1.2M and another $2.5M. The difference is the factors below.
Most deals are structured "cash-free, debt-free" — meaning the seller keeps cash, pays off debt, and the buyer gets the operating business. Working capital is typically delivered at a "normalized" level, not stripped or stacked. Real estate is almost always handled separately, either with a market-rate lease to the seller or as a side asset purchase.
These ranges reflect what profitable, well-run businesses in the $500K–$4M revenue band actually transact at. The lower end is for businesses with concentration, owner dependence, or thin margins. The higher end is for businesses with diverse contracts, deep teams, and margin discipline.
The lower end reflects single-account concentration or owner-as-only-supervisor businesses. The higher end requires diversified accounts (no single customer over 25%), a strong GM running operations, and at least three years of clean financials with stable margins.
Pure recurring service routes with high retention land at the higher end. Businesses with heavy install / one-off work mixed in land lower. Geographic density and supervisor depth are the biggest swing factors.
The highest multiples in service businesses. Insurance-driven, non-discretionary demand, and excellent margins justify it. Carrier diversification and certification depth (multiple IICRC-certified team members) determine where in the range you land.
Realtor referral diversification and team size (multiple licensed inspectors vs. just the owner) are the biggest swing factors. Ancillary revenue (radon, termite, sewer scope) lifts the multiple.
Recurring pumping schedules push toward the high end. Emergency-only businesses land lower. Fleet age and route density also factor.
Among the highest service-business multiples. High recurring revenue percentage (quarterly residential, monthly commercial), strong retention, and excellent margins. License depth and customer database quality drive the range.
Sticky contract revenue but thinner margins. Contract diversification and multi-year terms push toward the high end. Single-contract concentration pulls it down materially.
Subscription / annual plan attach rate is the biggest swing factor. Pure one-off pressure-wash businesses land lower; operators with annual recurring service plans land higher.
Seasonal but highly retained. We value on full-year SDE and adjust for storage, seasonal labor, and working-capital structure.
Two businesses with identical revenue and SDE can sell at very different multiples. These are the factors that explain the gap.
High percentage of recurring contract revenue. Diversified customer base (no single account over 20–25%). A strong GM or operations manager who runs daily ops without you. Multi-year clean financials with consistent margins. Multiple licensed / certified employees beyond the owner. Documented systems, software, and SOPs. Good employee retention with retention bonuses already structured.
Customer concentration above 25–30% in one account. Owner is the primary salesperson, estimator, and customer relationship. Margins that have compressed or are below category norms. Contract expiration timing within 6 months of close. Aging fleet or equipment requiring near-term replacement. Single-license operations (especially in pest, security, restoration). Inconsistent or messy financial records.
No black box. Here's the framework we actually use.
We start with reported earnings and add back: owner compensation and benefits, owner-personal expenses run through the business (typically a single auto, phone, travel), one-time non-recurring expenses, and excess family-member compensation. We don't add back capex or working capital normalization — those affect the structure of the deal, not the SDE.
Based on the category (the ranges above), we identify the band the business sits in. We rarely use the floor or ceiling — most businesses land somewhere in the middle once we score the multiple drivers honestly.
Recurring revenue %, customer concentration, owner dependence, team depth, margin trajectory, three-year financial cleanliness, contract diversification. Each one moves the multiple up or down by 0.1–0.5×. We share our scoring with you so the math is transparent.
Cash at close vs. seller note vs. rollover equity vs. earnout. We almost never use earnouts because they create misalignment post-close. Most deals are 80–100% cash at close with a small seller note for working capital alignment.
We don't lowball with a "starting offer" intended to be negotiated up. The number we put on paper is the number we believe the business is worth, defended by the math above. If your number is materially higher and we can't bridge the gap, we tell you and walk away — your time is too valuable for theatrical negotiation.
30 minutes on a call. We'll walk through the math, talk through what could move it up or down, and give you a defensible range — whether you're 30 days from selling or three years away.
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