Trades

Why Your HVAC Backlog Doesn't Mean What You Think

May 7, 2026 · 7 min read · BBC Editorial

ABC reports an industry-average GC backlog of 8.4 months. Brokers see “backlog” on a P&L and assume value. Buyers see backlog and ask exactly one question: is this recurring service revenue — the kind that renews automatically and produces cash for years — or is it project revenue that ends the day the job closes? The answer to that question is worth 2.0 full turns of EBITDA in your exit multiple.

Two kinds of backlog, two different businesses

Most HVAC owners use “backlog” as shorthand for future revenue. That's understandable — if you have $600K of signed install contracts in the queue, that feels like value. And in isolation, it is. But buyers aren't just buying today's backlog. They're buying the mechanism that generates backlog next year, and the year after, and the year after that.

Project backlog — replacement installs, new construction HVAC, renovation work — is real revenue. It is not, however, an annuity. When the job closes, the relationship is neutral. The customer might call back in 10–15 years when the next system fails. They might not. The buyer has no visibility into that future revenue because there is no contractual claim on it.

Service backlog is different. A customer on an annual maintenance plan has made a forward commitment. That revenue renews. It generates predictable cash. It creates a service relationship that dramatically increases the probability of capturing the next replacement install too — typically at higher margin than cold acquisition. Buyers and lenders underwrite this differently because it behaves differently. It's not revenue-shaped. It's annuity-shaped.

What the multiple difference looks like

In HVAC specifically, the multiple gap between these two revenue profiles is significant and well-documented in trades transactions:

• Replacement install revenue dominant: 3.5–4.5x SDE. The business is real, the revenue is real, but it resets to zero after every job. Buyers price that uncertainty into the multiple.
• Service-plan recurring revenue dominant:5.5–6.5x SDE. The same revenue dollars, structured as a contractual recurring stream, command a 2.0-turn premium because they're predictable, defensible, and financeable.

On a $400K SDE business, the difference between 3.5x and 5.5x is $800,000. That's not a negotiation margin. That's the difference between a business structured as a recurring-revenue asset and one that isn't — yet.

The plumbing parallel

The same dynamic plays out in residential plumbing. Plumbers with a strong base of one-off calls — drain clearing, water heater replacements, leak repairs — have genuine revenue but no recurring revenue structure. Each customer relationship starts from scratch.

Plumbing businesses that have converted a meaningful share of their customer base onto annual service plans — water heater flushes, drain maintenance programs, annual inspection programs — are underwritten differently. The recurring portion creates a floor of predictable revenue that makes the variable project revenue look better too. Buyers don't have to model a zero-base scenario; they start with a known base and layer upside on top.

In practice, the plumbing multiple gap mirrors HVAC: service-recurring businesses with disciplined plan programs trade at 1.5–2.0x premiums over purely transactional peers with the same top-line revenue.

The pest control comparison makes it concrete

Pest control is the trades vertical with the cleanest data on this because the industry converted to recurring plans decades ago. The numbers are unambiguous: a pest control business with 75% recurring revenue sells at 5.5x SDE. The same business at less than 30% recurring revenue sells at 3.5x SDE. That's a 2.0-turn gap driven entirely by revenue structure. The operations are identical. The customers are similar. The only variable is whether they're on annual plans or paying per-visit.

HVAC and plumbing are earlier in their conversion to this model, which means there's more opportunity. A business that converts now — before the market fully normalizes the expectation — captures the premium while it's still a differentiator.

Why buyers pay the premium (and lenders require it)

The premium isn't irrational sentiment. Recurring service revenue changes the risk profile of the acquisition in three concrete ways:

• Revenue visibility.A buyer can model next year's revenue with meaningful confidence. Project-dependent businesses require a leap of faith that the pipeline refills. Service plans don't require that assumption.
• SBA underwriting. SBA lenders look at revenue quality when sizing a loan. Recurring revenue makes a higher loan amount supportable, which in turn allows a buyer to pay more at close. The multiple difference is partly structural — recurring revenue unlocks financing at higher loan-to-value ratios.
• Customer retention compounding. Service plan customers convert to replacement installs at significantly higher rates than cold-outreach customers. The recurring revenue pays for itself in customer lifetime value before you model the multiple impact at all.

The 90-day pre-listing push

If you're planning to list within 12–18 months, a focused 90-day effort to move customers onto annual maintenance plans before you formally go to market is one of the highest-ROI activities available to you. Here's the basic mechanics:

• Identify the candidate pool.Pull all customers who've had two or more service calls in the last 24 months. These are customers who already have a service relationship with you — they're the easiest conversions.
• Build a simple plan.A $200–350/year maintenance plan with one annual inspection and a priority service commitment is enough. Price it so it's attractive for the customer and builds your recurring base.
• Track it as a separate revenue line. When you go to market, present recurring vs. non-recurring revenue explicitly. Buyers and brokers will apply the correct multiple to each — you want that split to be visible and credible.
• 12 months of data beats 3. Start now. A plan launched 12+ months before listing shows renewal behavior, not just sign-up behavior. Renewals are what buyers are buying.

On a $400K SDE business, converting even 30–40% of your customer base to annual plans can shift the revenue mix enough to move the applicable multiple range materially. The math usually works out to a $300K–$600K increase in enterprise value from a 90-day operational change.

What to do with your backlog number

When you present your business to a broker or buyer, don't lead with total backlog. Lead with the split: how much of it is signed recurring contracts or maintenance agreements, and how much is project backlog. Then explain the trend — is the recurring share growing? That growth trajectory is a valuation input, not just a context note.

The owners who get 5.5–6.5x aren't just luckier than the owners who get 3.5–4.5x. They built a different kind of revenue. The good news is that the conversion is available to almost every HVAC, plumbing, or mechanical business — it just has to be done before listing, not after you're already in diligence.