Service Business Valuation Benchmarks

Business owners, prospective buyers, and industry investors rely on a diverse set of financial benchmarks to assess the value of a business. We have compiled data from current BizBuySell listings and sold businesses to provide insight into the business for sale market and important benchmarks for pricing and evaluating service businesses relative to industry standards.

Jump To:

Highlights of Service Businesses Sold on BizBuySell

Service businesses listed and sold on BizBuySell cover the gamut of operations one would expect to find in every city in the United States. Ranging from laundromats and dry cleaners, locksmiths, law firms, pest control companies, cleaning businesses, and so on. All these businesses share some common traits in that they rely on labor to fill a specialized need common in nearly every major metro and reasonably populated city. Capital expenditures and real estate needs tend to be small, and most of these businesses are sold by owner-operators, though some larger companies may be fully managed by staff. Service businesses are popular because they tend to have consistent financial performance, generate strong profits, and are generally recession resistant.

Service Business Transaction Trends

The median value of service businesses has been increasing consistently for the past five years - levelling off in 2024 - at an average of about 5% annually. The Covid-19 pandemic and subsequent interruptions to local services saw the demand for these businesses increase. In the five-year period from 2020 through 2024, the median sale price of service businesses increased by 19%.

Service Business Valuation Multiples

Valuation, or pricing, multiples are financial tools that allow for comparisons between businesses that have different levels of sales and financial performance. They represent the sales price of a business relative to its revenue or earnings, and given enough individual business sales data, they represent what the market is willing to pay for a business given its revenue and earnings.

Valuation Trends

Business values and associated multiples fluctuate over time, influenced by a variety of macroeconomic factors such as interest rates, inflation, consumer spending, and overall economic growth. Business valuations of service businesses increased with demand following the Covid-19 pandemic related social distancing measures. Valuations fell in 2023 as increasing interest rates made business acquisition loans more expensive but rose back to the high-water mark in 2024.

Earnings Multiples

Earnings multiples represent the value of a business relative to its owner’s discretionary earnings or "cash flow". Arguably the most important valuation metric - as seller's discretionary earnings will often dictate how much a buyer is able to borrow to finance the business acquisition - business valuations tend to hinge on the earnings multiple.

Revenue Multiples

Revenue multiples represent the value of a business relative to its overall sales or revenue. In conjunction with an earnings analysis, revenue multiples are commonly used to value a business based on its overall sales.

How to Interpret These Multiples

Recent Listings vs. Sold Businesses

We calculate and provide valuation multiples from two sources: Current and recent listings of service businesses for sale, and our database of "comparable" businesses sold on BizBuySell. Multiples based on listing data are always higher due to owners setting asking prices above what their businesses might typically sell for. This occurs either intentionally as a negotiation strategy, or incidentally due to business owners’ common tendency to overvalue their own businesses.

Multiples based on comparable businesses - "comps" in business broker parlance - are much more useful as they represent the prices at which businesses ultimately get sold. Business brokers and valuation professionals will always turn to local comps when pricing businesses for sale or evaluating businesses for acquisition. We provide both sets of data at the national level to offer general context.

Quartiles, Median, and Average

No two businesses are identical, and as such, valuation multiples exist in a range. We have carved out four common values within this range: Lower quartile represents the value under which the lowest 25% of valuation multiples fell. Upper quartile represents the value above which the highest 25% of multiples fell. Median is the middle of the range, and average is the mean of the set. Mean is almost always higher than the median, driven by a minority of high volume, high value businesses sold at multiples above the upper quartile.

Businesses with consistent financial performance, above average revenue and earnings, demonstrable growth potential, low owner involvement, unique competitive advantages, and a seller willing to finance will command a multiple at or above the upper quartile. Lower volume businesses with thin profit margins, full-time owner involvement, and many direct competitors will trade at or below the lower quartile. Most businesses will fall somewhere in the middle.

Based on this data, half of service businesses are valued and sold between 1.69 and 3.04 times their annual seller discretionary earnings, with 25% of exceptional, higher volume businesses trading above this range, and 25% of the smaller, less desirable ones trading below.

Financial Benchmarks

To determine how a business compares in terms of sales volume and financial performance relative to industry peers, it’s necessary to have some insight into industry standards. "Benchmarking" describes the practice of comparing a business’s financial performance to typical industry standards to determine where a business falls relative to other businesses in the same industry. These benchmarks can help guide business owners and investors towards appropriate valuation multiples from the range above.

To that end, we have aggregated service business financial ranges useful for comparing a given service business to the broader market.

Service Business Revenue and Earnings Trends

Median reported service business financial performance has been remarkably consistent for the past five years. Across the range of service businesses, median revenue has never deviated more than 5% from the five-year median of $500,000. The same is true for seller's discretionary earnings, with owners of service businesses enjoying healthy profit margins compared to other types of local businesses at an average climbing over 30%.

Earnings Ranges

Discretionary earnings (used interchangeably with the terms "cash flow" and seller's discretionary earnings or SDE) is often the crux of business valuations, so it is important to benchmark it relative to other similar businesses traded on the business for sale market. Below you will find discretionary earnings ranges of service businesses sold over the past five years, as well as recent business for sale listings.

Revenue Ranges

Revenue volume plays a large role in business valuation, as it measures the size of the potential income opportunity for new ownership. It's not uncommon for buyers to select an earnings multiple range based on overall revenue volume. The table below includes revenue ranges of service businesses sold over the past five years and recent service businesses listed for sale.

How Revenue and Earnings Level Affects Business Values

Obviously, higher levels of earnings lead to higher valuations, even given the same multiple. However, valuation multiples also tend to rise with business sales volume. Service businesses that generate higher sales (and maintain benchmark profit margins) tend to sell for earnings multiples on the higher end. So, a service business generating over $1MM in revenue may command an earnings multiple above 3, while a smaller business with sales below $250k may trade below 1.7 times its discretionary earnings.

This tendency for higher sales volumes to fetch higher valuation multiples is largely driven by the economics of business acquisition financing. Businesses with greater revenue and earnings give buyers more cushion to cover debt service obligations and still have enough left over to pay the new owner a reasonable income.

Service Sector Comparisons

For a more complete understanding of the market and valuation standards, consider comparisons within the broader service sector when benchmarking local businesses for sale. The chart and table below include key metrics from sales of common service businesses sold on BizBuySell.

While the correlation between revenue and earnings multiple loosely ties sales volume to valuations, there is a spread amongst different types of service business. The quality that stands out most is the level of personal service and/or labor required for each customer. Outliers on the above bubble chart tend to be businesses with very little customer service required, and those that require more labor and service than average.

On the higher valuation end, laundromats tend to be valued at high multiples despite relatively low sales volume thanks to a self-service operating model that requires very little labor and payroll expense.

On the lower end are catering businesses, which require nearly all of the staff of a restaurant, and a high level of employee service relative to sales volume and profitability.

More Resources and Tools from BizBuySell

Thinking of buying or selling a business? BizBuySell has the tools, resources, and professionals you need to get down to business.