Owners lead with revenue (“we’re a $3M shop”) because revenue is the number the industry socializes on. Buyers barely glance at it. Size sets which league you’re in; these five numbers set what you’re worth inside it, and every one of them will be computed during diligence whether you’ve ever computed it or not. Here they are, with the benchmark bands buyers carry in their heads and, more usefully, exactly how each gets measured, because half the surprises in a sale process are really measurement-definition surprises.
1. Contracted MRR percentage
The headline metric of the whole revenue-mix conversation: what share of total revenue is contracted, recurring, and assignable. The bands: above 70% reads as a true managed services business, 50-70% is unremarkable, below 50% triggers the project-shop discount.
How diligence measures it: strictly. Revenue is traced by client by month from your PSA and GL, and only agreements with a term and workable assignment language make the numerator. Month-to-month tenure gets partial sympathy, license resale gets thin credit, and “they always renew” gets a polite nod and a denominator seat. Compute yours the strict way this week; the gap between your conference number and your diligence number is your first work item.
2. Net revenue retention
The sophisticated buyer’s favorite, because it compresses churn, expansion, and pricing power into one figure: take last year’s client cohort, and ask what their revenue is this year, including upgrades and price increases, excluding any new logos. Above 100% means the base grows without selling anyone new; the strong-MSP zone runs roughly 100-110%. Below 95% means the business shrinks unless sales outruns the leak, and buyers model that leak forward at your expense.
How diligence measures it: cohort revenue analysis from your billing data, which is why it’s uncheatable and why knowing yours in advance matters. NRR is also the metric most responsive to unglamorous habits: annual price adjustments actually taken, security and backup attach campaigns into the existing base, and the QBRs that surface expansion before the client calls a competitor.
3. Gross margin by service line
Blended gross margin hides more than it shows, so buyers cut it by line: managed services (healthy shops run 50%+ on the contracted stack), projects (variable, 30-45% when scoped honestly), product resale (thin teens at best). Two shops with identical blended margin can carry opposite stories: one earns 55% on a big managed base diluted by pass-through hardware, the other earns 38% on everything, and only the first one gets premium pricing.
How diligence measures it: service-line P&Ls rebuilt from your GL and, crucially, your PSA time data, which is where time-entry hygiene comes home to roost. If techs don’t log time to agreements accurately, your managed-services margin is unknowable, and unknowable gets priced conservatively. The fix costs nothing but management attention, starting now.
4. Client tenure
The trust metric: average and median relationship age across the base, and the shape of the distribution. A base averaging seven-plus years is retention proof no reference call can match; a base full of two-year relationships makes even good churn numbers feel provisional. Tenure also softens other flaws, as noted in the concentration post: an anchor client of fourteen years frightens buyers half as much as a two-year whale.
How diligence measures it: first-invoice dates by client, weighted by revenue. The weighting matters: five ancient tiny clients don’t offset a young top ten. There’s no quick fix for tenure (that’s precisely its evidentiary value), but there’s a presentation fix: shops that track and chart it control the narrative, and shops that don’t let the buyer’s analyst find the shape first.
5. Owner-sourced revenue share
The quietest of the five and the most personal: what percentage of revenue exists because of you, specifically? Clients where you hold the relationship, deals only you close, services only you deliver. Under 20% and the business reads as an institution; over 50% and the buyer is pricing the odds that revenue survives your exit, which is the key-person discount applied to the top line instead of operations.
How diligence measures it: less precisely than the others, which cuts both ways. Interviews, CRM records, who’s on the QBR invites, whose cell number the anchor client actually dials. Because measurement is soft, evidence you build deliberately (a second-in-command running top accounts for a documented year, sales closed by someone else’s name) moves this number more efficiently than any other on the list.
Reading your own dashboard
Score yourself honestly against all five and you’ll notice what buyers notice: the metrics correlate, because they share upstream causes. Pricing discipline lifts NRR and margin together; papering contracts lifts MRR percentage and softens concentration structure; getting yourself out of the delivery path moves owner-share and margin at once. That’s the encouraging secret of the whole list: you don’t need five initiatives, you need the two-year runway run with intent, and the five numbers move as a family.
And when a buyer eventually quotes you a multiple, you’ll know what it’s made of. Revenue got you the meeting. These five wrote the number.