Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Dog Grooming Business Sold at 14x EBITDA with 5 Recurring Revenue Streams
Transcript
- Lucas: Luna, I want to talk about a dog grooming business in Austin that sold for 14 times EBITDA. And I know — dog grooming, that sounds like a Main Street business, not a high-multiple sale. Luna: Fourteen times? That's what you'd expect from a SaaS company, not a place that washes poodles. Lucas: Exactly. And the reason — the owner, her name is Sarah, she built five distinct recurring revenue streams. Not one, not two — five. And that transformed the risk profile of the business in buyers' eyes. Luna: Okay, I need the specifics. What were the five streams? Lucas: First, a monthly membership for unlimited baths and nail trims — $79 a month per dog. Second, prepaid bath packages — buy ten, get one free, $300 upfront. Third, a retail subscription for food and treats — auto-ship every month. Fourth, a daycare membership for owners who work from home and need their dog entertained. And fifth, a mobile grooming route with weekly recurring stops. Luna: So she took a transactional business and made it subscription-based across every possible touchpoint. How long did that take? Lucas: Eighteen months to shift from 80 percent one-time customers to 60 percent recurring revenue. And she took a hit upfront — the first three months, revenue dropped about 15 percent as some one-time customers balked at the new pricing. Luna: That's a tough pill for a small business owner. How did she manage cash flow during that transition? Lucas: She used the prepaid packages as a cash buffer. When she launched the membership, she offered existing customers a one-time discount to convert to a prepaid package — $250 instead of $300. She generated about $40,000 in prepaid revenue in the first month, which covered the dip. By month six, recurring revenue was covering all fixed costs. Luna: So the prepaid packages acted like a bridge loan from customers. Clever. But how did buyers verify that the recurring revenue was sticky? I mean, memberships can be cancelled. Lucas: Great question. Sarah provided a churn report: monthly membership churn averaged 3.5 percent. Prepaid package churn was almost zero because customers had already paid. Daycare churn was 5 percent — mostly seasonal. The buyer's diligence team actually interviewed 20 random members on the phone. Every single one said they'd keep the membership if the business changed hands. Luna: That kind of customer loyalty is gold in a deal. So the multiple — 14 times — was that based on trailing EBITDA or forward? Lucas: Trailing twelve months EBITDA. The business did $1.2 million in revenue, $420,000 in EBITDA. So the purchase price was about $5.88 million. The buyer was a regional pet care chain that already had grooming locations but no recurring revenue model. Luna: So they paid a premium for the playbook, not just the cash flow. What was the most surprising part of the negotiation? Lucas: The mobile grooming route. That stream alone had $90,000 in annual recurring revenue from weekly visits. The buyer originally wanted to value it at a lower multiple because it required a driver. Sarah pushed back and said, 'The customers follow the van, not the driver. I can train any driver in two weeks.' She offered a two-year earn-out on that stream — if revenue dropped below $80,000, she'd take a haircut. The buyer agreed. Luna: That's a smart earn-out structure — it gave the buyer confidence and let Sarah lock in a higher base price. So what's the takeaway for other service business owners? Lucas: The biggest lesson is that recurring revenue isn't just for software. It's about designing behaviors — making it easier for customers to pay you automatically than to book a la carte. Sarah said the turning point was when she realized that her best customers were already coming every two weeks. She just needed to formalize that into a subscription. Luna: It's the same principle as a gym membership. You're selling convenience and habit, not just a service. Lucas: Exactly. And the data backs it up. The average customer who converted to a membership spent $1,200 per year versus $400 for the one-time customer. Higher lifetime value, lower acquisition cost, and predictable cash flow. Luna: I also love that she didn't try to build software. She used a simple CRM with automated billing and a mobile app for bookings. Total tech cost was under $200 a month. Lucas: Right. Low-tech, high-behavior design. That's the model for Main Street businesses that want to command SaaS multiples. And look, conversations like this — they move your work forward in a real way. Which is exactly why we keep this show ad-free. Luna: Yeah. We deliberately don't run ads. If that approach resonates with you, the link is buy me a coffee dot com slash fexingo. No pressure, just a way to keep the conversations going. Lucas: And it really does help. Now, back to Sarah's deal — there's one more detail I want to highlight. The buyer initially offered 10 times EBITDA. Sarah came back with a counter: 14 times, plus the earn-out. She had a data room with churn reports, customer interviews, and a three-year revenue projection showing 15 percent annual growth. Luna: So she let the data do the talking. What was the buyer's reaction? Lucas: They came back at 13.5 times with a slightly tighter earn-out. She accepted. The whole process took four months. And six months post-close, the buyer has actually expanded the model to two other locations. Luna: That's the real proof — the model works outside the original business. So for any owner listening: the first step is to map your customer touchpoints and ask, 'Where can I turn a transaction into a subscription?' Lucas: Start with one stream. Prepaid packages are the easiest — they don't require a new behavior, just a price incentive. Then layer on memberships. Test it for six months. If the churn stays under 5 percent, you have a buyer asset. Luna: And if you ever want to sell, that recurring revenue is what gets you the multiple. Sarah's story proves it. Lucas: Absolutely. Next episode, we're going to look at a pest control company that used a similar playbook — but with a twist. They added a smart home device to lock in contracts. Luna: I can't wait to hear that one. Until then.