Recurring Revenue Stability Score
Quantify recurring vs. reoccurring revenue split before any acquisition decision
Before committing to a purchase price, decompose revenue into three buckets: true RMR (subscriptions that auto-bill regardless of activity), reoccurring revenue (triggered by members who call in but do so predictably), and pure transactional revenue. The split matters more than the topline. In HVAC, membership fees represent roughly 1% of gross revenue, yet member-sourced revenue can be 60% of total, making the business feel recurring when it is actually event-dependent and weather-exposed. In commercial security, 35% can be hard-contract RMR and 60% or more reoccurring, providing a defensible floor that covers fixed overhead month-to-month. The framework forces the buyer to ask: what percentage of my overhead is funded on day one of every month, regardless of leads or weather?
- True RMR is auto-billed and requires no customer action to arrive.
- Reoccurring revenue is sticky but still event-triggered, so it is not the same as RMR.
- The ratio of overhead covered by day-one revenue is the real sleep-at-night metric.
- A business where 90% of revenue comes from existing subscribers has a structurally different risk profile than one where members merely call more often.
- Weather-driven or demand-driven spikes are not a substitute for predictable monthly cash.
- Pull a revenue waterfall by typeRequest a segmented P&L or revenue schedule that separates subscription/monitoring fees, maintenance contracts, member-driven call revenue, and pure new-job revenue. Do not accept a single 'recurring' line.Pro tipAsk for monthly actuals for 24 months. Seasonality spikes expose whether 'recurring' is really demand-driven.WarningSellers often report the revenue driven FROM members as 'recurring.' It is not. It is reoccurring. The distinction matters during a slow season or economic downturn.
- Calculate RMR as a percentage of gross revenueDivide true auto-billed subscription revenue by trailing 12-month gross revenue. Target a minimum of 25-30% for a service business to claim meaningful recurring stability.
- Stress-test the overhead coverage ratioMap monthly RMR against monthly fixed overhead (rent, base payroll, insurance, fleet, software). If RMR alone covers less than 70% of fixed overhead, the business is still fundamentally weather or demand dependent.Pro tipIn commercial security at a $5M purchase price, RMR of roughly $100-125K per month should be achievable. In HVAC at the same price point, true auto-billed membership fees are rarely more than 1-2% of gross, meaning RMR covers almost nothing.
- Model a no-new-logo scenarioBuild a 6-month P&L assuming zero new project or replacement revenue. This simulates a downturn (such as the 40% equipment-shipment drop HVAC saw in 2025) and shows whether the business survives on its existing book.WarningHVAC businesses can look healthy at 20x multiples until equipment demand collapses. Security businesses with high RMR weather those same periods because the monitoring contract does not care about weather or consumer sentiment.
- Price the acquisition off RMR-adjusted EBITDAWeight your multiple by the percentage of true RMR. A business with 35% hard RMR warrants a higher multiple than one with 1% RMR and 60% member-triggered call revenue, even if EBITDA looks identical on a trailing basis.Pro tipIn commercial security, a $5M acquisition at roughly $800K-$1M EBITDA and 30-35% RMR commands a premium over HVAC at the same EBITDA because the revenue floor is structurally higher.
John Wilson walked through the comparison directly. At a $5M HVAC acquisition, true RMR (membership fees) is roughly 1% of gross, meaning nearly all revenue is event-triggered. At a $5M commercial security acquisition, 35% of revenue is hard-contract RMR and over 50% is reoccurring, with 90% of total revenue coming from existing subscribers. The security business funds its fixed overhead before a single new job is quoted. Wilson's conclusion: he would sleep better owning the security book at the same purchase price.
Wilson clarified that HVAC membership fees represent approximately 1% of gross revenue, but revenue from members represents about 60% of total gross. This makes HVAC look recurring when modeled incorrectly. In 2025, when equipment shipments dropped 40% industry-wide, the member-driven call volume also compressed, exposing that the 'recurring' revenue was demand-dependent, not contract-guaranteed.
Extracted from Owned and Operated (HVAC vs Security episode). John Wilson and the Entry and Exit podcast hosts unpacked this distinction when comparing their two industries head-to-head around a hypothetical $5M acquisition.