How to get a higher multiple
without growing revenue.
Delivery is treated as a cost line. It is not. It is a valuation input — and in a company that has taken on custom work to grow, usually the largest one nobody is managing.
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The growth reflex
When a software company is worth less than its board expected, the reflex is to sell more. Push revenue, buy the growth rate back, and the rating follows.
Sometimes it does. Often it makes things worse, and the mechanism is not visible from the top line.
How growth destroys the rating
Product revenue and services revenue are priced differently, and the gap is wide. Professional services typically carry 20 to 35 per cent gross margin against 75 to 80 per cent for subscription, and trade at one to two times revenue. Above roughly 15 to 20 per cent of mix, services begin to dilute the blended multiple.
Now look at what growth actually involves in these companies. A material customer wants something specific in order to sign. The commercial case is complete and quantified by the time it reaches the room. The engineering consequence is not, because quantifying it would require work nobody has been asked to do. The commitment is made. The build follows.
Every individual request is reasonable. Nobody is counting.
Repeat that four times a year for a decade and three things are true at once. The services share of revenue has risen. Gross margin has fallen, because custom work is carried at services margins while being sold as product. And the cost of the next feature has risen for reasons that never appear as a line item, because every change now works around a hundred and fifty obligations nobody separately approved.
Each of those moves the multiple in its own right, and the published effects are measured on revenue. Public software with gross margin above 80 per cent traded at 7.2x revenue, against 3.5x below 60 per cent (SEG, Q2 2025). Net revenue retention above 120 per cent: 11.7x, against 4.1x below 100 per cent (SEG, Q4 2024).
So the company grew, and the rating fell. Not despite the growth. Through it.
What a buyer does with this
None of it stays hidden. In exit preparation a quality-of-earnings analyst separates product revenue from services revenue and prices each on its own terms. Recurring revenue that requires bespoke delivery to renew is reclassified. Margin is restated. The number comes back and the seller argues with it from a weaker position, under time pressure, having found the problem at the worst possible moment to fix it.
The same analysis is available to the company two years earlier, when the delivery shape can still be changed. Almost nobody runs it.
Three moves
1. Split the P&L before anyone makes you.
Product revenue and services revenue, reported separately, at their own margins. Most companies at this stage cannot do this without a month of work, which is itself the finding. You cannot manage a mix you do not measure.
2. Set a ceiling on services mix and hold it.
Not a target — a ceiling. Bespoke work moved outside the core, priced, under a contract naming who supports it and for how long. Nothing refused; everything routed. Refusing custom work costs revenue and fixes nothing.
3. Put delivery in the room before the commitment is made.
This is the lever behind all three, and it is the one that fails under renewal pressure, quarter after quarter, when a large customer asks for an exception and the commercial case is already written.
What happened
Four years inside a PE-backed vertical technology group, three mandates in turn, a mandate with a $5M product became a $20M business of about 300 people with a series of mergers & acquisitions.
A seven figure account was at risk of a substantial contractual penalty, against a date set by someone else that could not move. The penalty was avoided and the account kept. That happened before the operating model changed, which tells you what the constraint was not.
Moving the platform off legacy servers onto event-driven cloud cut monthly hosting cost by about 80 per cent on a comparable load, on a greenfield product, from a base of roughly $50,000 a month (hosting only, not total cost of ownership). That is a gross margin lever, and gross margin is one of the two drivers above.
I co-led an architecture review at a national broadcaster whose people were in open doubt about continuing at all. It secured the contract. The programme later stalled when the broadcaster was acquired.
Across the mandate, about €2.2M of annual savings identified and about €1.1M realised.
What I cannot tell you is the multiple. The asset was not sold on my watch. What moved were the inputs — margin, retention, predictability, cost of change. Anyone who claims the exit number for work of this kind is modelling it and calling it a result.
The uncomfortable part
This is not an efficiency programme and it does not present like one. It produces no new revenue in the period it runs. To a board reading a monthly pack it will look like a quarter spent not growing.
What it produces is a company worth more at the same revenue. That is a different result from growth, and for most assets at this stage it is a better one, because the growth was never what the rating was punishing.
Figures are from an executive mandate at a PE-backed vertical B2B-technology group; the group, its sponsor and its customers are not named. Valuation ranges are published private M&A benchmarks. Bases and classifications are held in a separate evidence note, available on request.
The full mechanism — how absorbed custom work prices as a services business, and how the shape is resolved — is in the report →