Recurring Revenue: The King of Revenue
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Ups and Downs
Contractors of all kinds tend to struggle with ups and downs in revenue cycles, down revenue cycles have undermined many otherwise great financial years for most contractors I’ve met. Seasonality, broader economic trends, and project start dates sliding out months (even years) are some of the most common drivers of revenue volatility for contractors. So many of these things are out of your control, and it seems like you must get lucky to string together a solid year. Meanwhile, there’s a strategy employed by top performers to alleviate the ups and downs of the building industry. Securing recurring revenue.
For some readers, this strategy will be easier to pursue than others, but rest assured, there’s a recurring revenue model out there to fit your business if you’re committed and creative.
Certainty = Confidence
Imagine having certainty of a known volume of revenue coming into the year or quarter before it starts. With this baseline of revenue, you know you’re simply building on top of it with every deal you sell. Knowing you can’t fall below a certain revenue number creates confidence in your business, which translates into bolder decision making and investing. Conversely, without revenue certainty, every risk you take with your business is compounded by the possibility that, not only might it not pan out, but the cash outlay can kill your year...or worse.
The larger the recurring revenue baseline, the higher your confidence in making investments to improve your business. Rather than investing from a place of fear, contractors with high levels of revenue certainty are free to open that new division, hire top talent, invest in technology, and more. As a result, they’re poised to outperform their competition.
Sold on the idea? Let’s explore how you can get this ball rolling.
Types of Recurring Revenue
Service/Maintenance Contracts
The mother of all recurring revenue is the service or maintenance contract. Often an annual or (ideally) multi-year agreement locking your contracting business into providing regular services for a client, these contracts themselves are valuable, but the greatest value is found in the additional project revenue they pull through. As the contractor of choice on a site, you’re the go-to provider for the various additional projects that come up. Those projects tend to be awarded in a low/no-competition environment, which also equates to higher profit margins. This is a deeply positive cycle with some service contracts known to generate up to 5X in project revenue over the contract value every year.
These opportunities are more obvious for some contractors than others. Landscaping, HVAC, fire protection, and roofing, for example, have immense opportunities for service contracts. That said, I’ve seen incredibly creative applications of service contracts offered by other trade contractors and even GCs. I won’t divulge them here, but you’ll have to trust me when I say, no matter what your expertise, this can be done within your business if you’re committed to the concept.
Master Service Agreements (MSAs)
If your client base is simply not interested in a maintenance agreement, or you can’t find a way to make it fit your business model, the next best thing is an MSA. This is an arrangement that positions your company as one of, or even the only, preferred resource for your client. Typically, there’s a pre-negotiated rate and service level agreement that frees the various decision-makers within your clients to call you for projects and services in a non-competitive or limited competition environment.
MSAs are very common with large buyers such as the federal government in the form of IDIQs, for example. Whether it makes sense for you to pursue MSAs or service contracts is mostly dependent on two factors. (1) Are your clients open to paying for services preemptively and level-loading their costs over a period? (2) Can you confidently sell preventative services or maintenance for your line of service. The turf needs to be cut, carpets need cleaning, and air filters replaced. Does their drywall or wood framing require preventative maintenance? Probably not.
Account Strategy Required
Whatever your recurring revenue strategy, you must be prepared to (1) go and get this business...it will not come to you, and (2) proactively protect your accounts. That means you’ll need to have your staff focused appropriately on these two priorities. You may even require additional staff to focus exclusively on them. You can’t go halfway on launching a recurring revenue model. Be prepared to invest, manage, and be patient.
Recurring Revenue = Value
In addition to the benefits of revenue certainty, recurring revenue dramatically improves business value. For owners eying an exit in the future, getting your recurring revenue plan up and running is a key ingredient for a successful sale. We’re talking about 2, 3, or 4 times the value placed on recurring revenue compared to project-only revenue. It’s a worthwhile investment for the long term!
Please contact me if you’d like to explore recurring revenue models for your business. I'm happy to brainstorm about it with you.
The Spark Notes:
Riding the industry’s wild revenue rollercoaster feels like gambling—seasonality, economic swings, and delayed start dates leave too many contractors praying for luck instead of control.
The “secret weapon” of top performers? Recurring revenue—locking in service or maintenance contracts (or MSAs) turns unpredictable peaks and valleys into a steady baseline you can build on.
With a reliable revenue floor, you gain the confidence to take bold bets—hiring, tech upgrades, and new divisions—without fearing that a single flop will tank your year.
Don’t wait for recurring business to find you: develop a focused account strategy, staff up (if needed), and treat service agreements as your new profit engine and exit-value booster.
