Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Landscaping Business Sold at 20x EBITDA with Recurring Revenue
Transcript
- Lucas: Luna, I want to talk about a landscaping company in Ohio that just sold for a multiple that most software companies would envy. We're talking twenty times EBITDA. Luna: Twenty times? For landscaping? That's double what we usually see in the service space. What made this one special? Lucas: It comes down to three recurring revenue streams that the owner built over about five years. And I think the key lesson here is that recurring revenue isn't exclusive to tech. Any business can build it if you're willing to change how you price and package. Luna: Okay, so walk me through these three streams. What were they? Lucas: First, annual lawn-care contracts. The usual mowing, fertilizing, weed control. But instead of billing per visit, they charged a flat monthly fee for the growing season. That gave them predictable cash flow and locked customers in for the whole year. Luna: Right, so the customer pays once and doesn't have to think about it. That's classic subscription thinking. Lucas: Exactly. The second stream was snow removal subscriptions. In Ohio, winter is unpredictable. Some years you get six storms, some years you get twenty. The old model was per-push — you only get paid when it snows. But this owner offered a seasonal flat fee. Customers paid upfront, and the company handled every storm. That completely smoothed out the revenue. Luna: But did customers actually go for that? I mean, what if it's a mild winter? They'd be paying for nothing. Lucas: That's the beauty of risk transfer. Some years customers win, some years the company wins. But over a five-year period, the company priced it so that they came out ahead. And the predictability was worth more to the buyer than the occasional profit spike from a heavy winter. Luna: Okay, so what was the third stream? Lucas: A monthly mulch replacement program. This was genius. Most homeowners hate buying and spreading mulch. So the company offered a subscription where they'd come out twice a year, refresh the mulch beds, and bill a flat monthly fee. It was low effort, high margin, and incredibly sticky. Luna: Sticky because if you cancel, you've got to find someone else to do your mulch. That's a headache. Lucas: Exactly. By the time the business went to market, these three streams accounted for seventy-eight percent of total revenue. And the churn rate was under eight percent annually. That's the kind of visibility that private equity loves. Luna: So that explains the multiple. But I'm curious about the operational side. Landscaping is still labor-intensive. How did they manage margins? Lucas: They invested heavily in routing software. Every crew had an optimized route each day, minimizing drive time and fuel costs. They also used GPS tracking to ensure crews were actually on site. That drove labor efficiency up by about thirty percent. Luna: So the recurring revenue gave them the confidence to invest in tech. And the tech improved margins. It's a virtuous cycle. Lucas: Exactly. And this is the part that really matters for owners listening. The recurring revenue wasn't an accident. The owner spent years converting one-time customers to subscriptions. He started with just the lawn contracts, then added snow, then mulch. Each new stream built on the last. Luna: Was there any resistance from customers? I imagine some people prefer the flexibility of paying per visit. Lucas: Sure, some customers didn't convert. But the owner found that about sixty percent of his existing customers were willing to switch when he offered a ten percent discount for committing to the annual plan. Once they were on subscription, retention went way up. Luna: So the trade-off was a small discount for guaranteed recurring revenue. That's a smart trade. Lucas: And it proved out in the valuation. A multiple of twenty times EBITDA means a buyer is paying twenty years' worth of earnings for the business. They'll only do that if they believe the earnings are sustainable. Recurring revenue is the strongest signal of sustainability. Luna: I want to ask about the buyer. Who actually bought a landscaping company at twenty times? Lucas: It was a regional private equity firm that specializes in home services. They already owned a pest control company and a pool service firm. The idea was to bundle services to the same homeowner — pest, pool, lawn, snow. Cross-selling. Luna: Ah, so the landscaping company was a platform add-on. That explains the premium. They weren't just buying cash flows, they were buying a customer base they could sell other services to. Lucas: Exactly right. And that's another lesson. To command a top multiple, you need to think about who your natural buyers are. The owner had a list of potential acquirers and tailored his growth strategy to what they'd value. Luna: I know we talk about this on the show a lot, but it's worth repeating: you can't just build a good business and hope someone pays top dollar. You need to build for the exit. Lucas: And that's exactly what this owner did. Every decision he made in the last three years was with one eye on the eventual sale. The recurring revenue, the routing software, even the brand — it all pointed toward a specific buyer profile. Luna: You know, conversations like this are exactly why listeners tell us the show is valuable. If these have helped you think differently about your own business, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Absolutely. We keep it ad-free because of listeners who chip in. It makes a real difference. Luna: Alright, back to the landscaping company. What advice would you give a service business owner who wants to start building recurring revenue today? Lucas: Start with your most loyal customers. Identify the top twenty percent — the ones who already buy from you regularly. Offer them a subscription at a slight discount. Prove the model works with them before you try to roll it out broadly. Luna: And what about pricing? How do you avoid undercharging? Lucas: Look at your historical data. For the lawn care contracts, the owner looked at how many visits the average customer needed per season, multiplied by the per-visit price, and then offered a subscription at about ninety percent of that. The customer saves ten percent, you get guaranteed revenue. It's a win-win. Luna: And the snow removal pricing must have been trickier. How do you set a flat fee for something that might not happen? Lucas: You use weather data. The owner pulled ten years of snowfall data for his region, calculated the average number of plowable events per season, and priced the subscription slightly above the average cost of those events. Over a decade, the company would come out ahead. And customers got peace of mind. Luna: So it's really about data. Small businesses don't always have that data handy. Lucas: They don't, but they can get it. Local weather data is public. And for the lawn contracts, they probably have the visit logs from the past few years. It's a matter of pulling the numbers and doing the math. Luna: One thing I find interesting is that this owner didn't try to do everything at once. He rolled out one subscription at a time, learned from it, then added the next. Lucas: That's the patient approach. And it's probably why he succeeded. A lot of owners try to launch three subscription products at once and get overwhelmed. This guy spent a year just on lawn contracts before he even mentioned snow. Luna: And the mulch program — that came last, right? Lucas: Yes, after two years of running the lawn and snow subscriptions. By then, he had a system for billing, customer service, and routing. Adding mulch was just another line item. Luna: So the takeaway for anyone listening: pick one recurring offer, test it with your best customers, refine it, and then expand. Lucas: Exactly. And don't underestimate the value of customer inertia. Once someone is on a subscription, they're very unlikely to cancel. The hassle of switching is too high. That's the moat. Luna: The moat. I love that. It's not tech, it's not patents. It's just a well-designed subscription that makes the customer's life easier. Lucas: And that's a moat that can command a twenty-times multiple. This Ohio landscaping company proved it. I think we'll see more service businesses copying this playbook. Luna: I hope so. It's a great example of how any business can think like a SaaS company, even if they're just mowing lawns. Lucas: Exactly. Thanks for listening, and we'll catch you on the next episode.