There are several reasons a plumbing business owner may want to know the value of their business, including preparing for a merger or acquisition, seeking investment, planning for future growth, or developing an exit strategy.
Valuation methods can be complex, as there are many different factors to consider, but there are two key considerations:
How do you calculate the worth of your business so you know the right asking price to request from investors?
What can you do to increase your business’s value so you can justify asking for the maximum purchase price?
We've had discussions with plumbing business owners who have successfully exited their businesses, and hosted webinars with financial professionals who have managed hundreds of service business sales.
In this post, we’ll provide a guide on three valuation methods and share 10 tips on how to increase the value of your plumbing business. Then, we’ll explain how using our software, ServiceTitan, can significantly boost your business's value.
ServiceTitan’s Free Service Business Valuation Calculator
Before we dive into how to value your plumbing business, you can use our free Service Business Valuation Calculator for a quick estimate of the value of your company.
Disclaimer: The ServiceTitan Business Valuation Calculator is solely meant to provide an estimated valuation of your business. This calculator does not guarantee any price or value for your company. Please note that external factors may influence the valuation of your business.
If you are looking for a more definitive valuation, please consult a professional.
What Is a Plumbing Business Valuation?
A plumbing business valuation is the process of estimating the economic value of a business.
The number derived represents the amount investors--for example, strategic buyers and private equity groups--may be willing to pay for the business.
When valuing a plumbing business, financial professionals such as business brokers and appraisers consider important factors such as the assets the business owns, the liabilities it owes, recent earnings, and the current market conditions.
Knowing the value of your business ensures you get a fair price for your plumbing business.
Quoting Brian Cohen, business strategist at SF&P advisors, “If you don’t know what your business is worth, how do you know if the deal is any good or not?”
Learn more about why private equity companies want to invest in plumbing businesses here.
How to Value a Plumbing Business
There are different ways to approach the valuation of a business. The three major ones are:
Earnings multiplier (SDE and EBITDA)
Book value
Market value
1. Earnings Multiplier
The earnings multiplier (also known as the price-to-earnings (P/E) ratio method) is a common approach used in business valuation based on applying valuation multiples to a company's earnings to determine its overall worth.
There are two earnings multiplier methods, depending on the size of your plumbing business.
Best for Small Owner-Operated Businesses: SDE
SDE (Seller’s Discretionary Earnings) represents the total financial benefit available to a single owner-operator and is typically used for small businesses bringing in less than $1 million annually.
Specifically, SDE is the net profit plus a series of add-backs, including:
The owner’s official salary
Personal expenses
Interest
Taxes
Depreciation and amortization
SDE = Net Profit + Owner Salary + Discretionary Expenses + One-time Costs + Interest + Taxes + Depreciation + Amortization
Why SDE is Used
Small trades businesses (plumbing, HVAC, electrical, etc.) often have heavy owner involvement and lots of discretionary expenses like health insurance and meals and entertainment. Buyers of these businesses are usually individuals replacing the owner, so they want to know how much money the new owner will make if they step into the business owner’s role.
Note: If you’re running your plumbing business alongside a partner, SDE only allows you to add back the salary of one owner. It’s also better to limit the add-backs to make it easier for the buyer to justify any amount they’re seeking from a lender to fund the acquisition.
After calculating the SDE, an advisor or broker will calculate a multiplier by looking at sales reports of comparable plumbing companies with identical financials.
Multiples for SDE
Small plumbing businesses typically sell for 2x-4x SDE, depending on factors like:
Quality of team and operational systems
Customer mix (maintenance vs. new construction)
Recurring revenue from service contracts
Local competition
Cash flow stability
Best for Larger Businesses with Management: EBITDA
EBITDA (earnings before interest, taxes, depreciation, and amortization) is used to determine the financial performance of the business itself, not the owner. This method is typically used for plumbing companies with more than $1 million in revenue that have a team in place so they can run smoothly without the owner.
When starting from net profit, EBITDA is calculated as:
EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization
Unlike SDE, EBITDA excludes the owner’s salary and expenses in its calculation.
Why EBITDA is Used
Larger trade businesses are valued based on how much cash flow the business produces for an investor, not how much the owner takes home. Potential buyers include private equity groups, strategic buyers, and larger plumbing businesses in the same location. Buyers assume that the management team will stay.
Multiples for EBITDA
The EBITDA method usually produces higher multiples than SDE because the business is less dependent on a single business owner.
Plumbing companies sell for 4x–7x EBITDA or higher if the business is large and has optimized operational systems.
SDE or EBITDA?
The right multiplier method depends on the size, structure, and level of owner involvement:
A $750K-revenue, owner-operator plumbing business → Use SDE multiple
A $4M-revenue plumbing business with a management team and truck fleet → Use EBITDA multiple
Using EBITDA for a small owner-operated business will undervalue it, because EBITDA ignores the discretionary add-backs.
Using SDE for a larger business will overvalue owner add-backs that won’t exist under new ownership.
Disclaimer: These multiples are for educational purposes only and should not serve as financial advice. You must consult a qualified professional for an accurate valuation.
Factors That Increase Multipliers
Whether you’re using SDE or EBITDA, two factors reduce the perceived risk to investors and help increase the earnings multiplier, resulting in higher valuations:
Revenue: The higher your revenue, the greater your company’s ability to pay its debt comfortably and still make a profit.
Recurring Revenue: Long-term contracts and recurring services provide a steady, predictable cash flow.
We’ll explain how you can optimize both types of revenue with ServiceTitan below.
2. Book Value
The book-value-based valuation method determines the worth of a business based on its net book value — the company’s asset value minus its liabilities. It provides an overview of the financial position of a business at a specific point in time.
However, the book value approach rarely gives the true value of a business for three main reasons:
It covers only historical value, which isn’t reflective of the business’s current and future value.
Intangible assets are discounted from the calculation since they're not represented in the balance sheet.
There's rarely a correlation between the book value and market value of a plumbing business.
Hence, the book value method is mostly used as a baseline of the valuation process, not as a standalone measure of value.
3. Market Value
The market value method is also known as the market approach or comparative approach.
It involves determining the worth of a company by comparing it with publicly available data from plumbing businesses with identical characteristics and financials.
It's based on the theory that the value of a plumbing business is equivalent to or almost equivalent to another of similar characteristics that's been recently involved in a transaction.
One significant benefit of this approach is its dependence on hard data. This eliminates assumptions.
However, there are three major challenges:
Finding financial data of plumbing businesses with similar characteristics can be difficult.
The value may be affected by current market conditions.
It doesn't consider internal factors like the quality of the employees and the managerial team.
So, it’s vital to consider its limitations before using it.
Note: Investors typically use more than one method to perform due diligence, given their individual limitations. So, it’s advisable to use them all when valuing your plumbing business.
10 Tips to Increase the Value of Your Plumbing Business
Whether one or all of the above valuation methods are used, the following tips will help:
Increase your plumbing business’s value prior to acquisition.
Increase the likelihood of investors choosing your company over others.
Ensure that you and your business are as prepared as possible for selling.
Tip #1: Identify The Professional Support You’ll Need
Before selling your plumbing business, it’s essential to research the professionals you’ll need to help with the sale. You'll require tax, legal, and business support to complete the transaction successfully. The professionals you need might include an attorney specializing in business transfers, a CPA or tax attorney to provide financial advice, a business appraiser to determine the value of the business, and potentially a broker or investment banker to handle the sale.
Tip #2: Ensure Your Financial & Legal Affairs Are in Order
Your company must be up-to-date on all tax returns, fees, regulations, financial statements, permits, contracts, and other legal requirements. It is important to have this information in order before beginning the process of selling the business, as potential buyers will likely ask for this information.
Look for an accountant specialized in the plumbing industry to help you review your financials, clean up your books, pay off any liabilities, and advise you on any potential issues. Also, you might need a lawyer to check that your licenses are up-to-date and that you are compliant with local laws.
Tip #3: Understand Your Potential Buyers
The more you know about who is interested in buying your business, the better able you will be to create a successful sales pitch.
For example, independent buyers may be looking to purchase a business as an additional income stream. Corporate buyers are typically larger companies looking to expand their operations by acquiring businesses in similar industries.
Regardless, using a business broker with experience in the plumbing industry is helpful. They can handle the sale for you to ensure you get the fairest price possible and that it’s in line with your exit plan.
Tip #4: Minimize Owner Involvement
A plumbing company over-reliant on the owner commands a low valuation.
First, there’s a limit to what one person can do, which reduces the company's scalability and growth potential.
Second, potential buyers or investors may be concerned about the business's ability to sustain sales and growth in the owner's absence.
Therefore, to grow your business and valuation, limit your involvement. Hire qualified employees capable of handling the business even if you're not around.
"If you have a team that has a good operations person, a good salesperson, a good marketing person, really all the key players, as the company grows, you can be focused on strategy rather than having to worry about every little detail of the day-to-day operations,” says Jeremiah Mann of Intrepid Investment Bankers.
Tip #5: Ensure All Your Plumbers Are Licensed
Investors avoid high-risk plumbing businesses. Since unlicensed employees are not insured, they bring financial and reputational risk to the business if mistakes are made or injuries occur on the job.
So, to increase the valuation of your business, it’s important to treat plumbing licenses as must-haves for every plumber.
Employing licensed plumbers ensures compliance with local regulations and building codes. This protects the business from the risk of legal issues, fines, and penalties, increasing its attractiveness and positively influencing its value.
Having licensed plumbers also denotes professionalism, expertise, and quality workmanship, which means satisfied customers. So, you’re more likely to get repeat customers, boosting annual revenue and valuation.
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Tip #6: Meet Customer Demand for Environmentally Friendly Products
There’s a growing concern for the environment, leading to an increased preference for environmentally conscious products and service companies.
So, offering eco-friendly services and plumbing products (like water-efficient fixtures, energy-efficient water heaters, or eco-friendly pipe materials) attracts the increasing number of environmentally conscious customers willing to pay a premium for sustainable solutions.
It also presents your plumbing company as one that’s forward-looking, positioned to compete favorably in the future.
This pulls in more revenue, increasing your business’s attraction to investors.
Tip #7: Optimize Your Customer Base with Recurring Contracts & Strategic Marketing
A plumbing company with consistent cash inflow from recurring contracts and a diverse customer base guarantees regular revenue. This significantly reduces the risk associated with investing in the business. Hence, the valuation will be high.
In contrast, a plumbing business whose revenue stream consists mainly of one-off repairs, 24/7 clients, and a few long-term contracts commands higher risk and a low valuation because its profits will take a hit if, for instance, they lose a significant client.
Additionally, a loyal customer base increases a business’s revenue and brings in more business through referrals.
To increase your valuation, invest in providing excellent customer service to build a loyal client base. And, ensure you deploy a solid marketing strategy to build a steady pipeline of new customers instead of relying on the ones you already have.
Tip #8: Boost Your Plumbing Company’s Reputation
A strong reputation and brand recognition within the local market enhance the value of a plumbing business. In fact, reputation is considered an intangible asset.
People lean on positive customer reviews when choosing a plumbing company, so a well-established brand with a positive online presence grows a plumbing company’s market share and attracts more customers.
To boost your plumbing company’s reputation, verify and promote your Google Business Profile page and ask all your customers for reviews.
Also, take time out to respond to reviews. If it's a complaint, go above and beyond to fix it. Investors use reviews and social media comments to gauge a plumbing business's reputation.
Tip #9: Use Technology to Optimize Operations
Technology helps plumbing companies streamline and automate their business operations, reducing costs and increasing profitability.
Modern customers are conscious of their impact on the environment (tip #6), so they prefer to patronize plumbers with smart devices that help reduce water consumption.
Furthermore, technology helps plumbing companies operate more efficiently and deliver better service to customers. That's why many plumbing companies report an increase in revenue—and valuation in effect—once they incorporate technology.
Invest in software that increases the efficiency of your plumbers and your business operations. This will directly increase the value of your plumbing business.
Tip #10: Maximize Growth Potential
Grow your plumbing business to maximize its purchase price. Growth potential is a key factor that determines a plumbing company’s valuation.
No investor will be attracted to a business that's likely to go bust in a couple of years. Potential buyers prefer to see a plumbing business that's been growing year after year, with constant improvements, for example, consistent training and retraining of employees, addition of new plumbing services, and better service delivery.
Increase the growth potential of your plumbing company by having a documented growth plan. Then, have a record of your progress toward the goals to show investors.
Learn more about preparing your home services company to sell here.
In the next section, we’ll explain how ServiceTitan’s plumbing contractor software helps you optimize and grow your plumbing business so that it’s in peak shape for selling.
How ServiceTitan Helps Optimize & Grow Your Plumbing Business for a Successful Sale
ServiceTitan has helped plumbing companies of all sizes (offering commercial and residential plumbing services) to optimize their operations and scale.
A great example is Rainforest Plumbing & Air. According to operations director, Darlin Tippets, “When we joined up with ServiceTitan, we were just cracking $12 million.
“In four years, we’ve hit the $22 million revenue mark for the 2022 calendar year. We've also gone from about 45 technicians or trucks on the road to 65, and moved from a one-acre complex to a three-acre complex," he adds.
This is possible because of ServiceTitan’s robust set of features, which let plumbing businesses:
Here’s how it works.
Automate Scheduling and Dispatch for Profit
ServiceTitan simplifies scheduling and dispatching so that plumbing businesses can effortlessly organize when techs need to arrive for all types of service calls in the most efficient way.
With ServiceTitan’s scheduling and dispatching tool, you can:
Book service calls days, weeks, or even months in advance → especially useful for recurring maintenance services.
Use custom tags to flag technical specs or even languages spoken → ensures the right tech with the right skill set attends (e.g. a master plumber for a specialist job).
Track techs and traffic delays in real-time → your dispatch team can contact techs and customers via SMS to make sure everyone is aware of any last-minute changes such as lengthening a job, or rescheduling it altogether.
This way, CSRs can optimize tech schedules to finish as many jobs per day and deliver the best customer experience possible.
ServiceTitan also offers an add-on product, Dispatch Pro, with more advanced dispatching features. Using machine learning, Dispatch Pro’s algorithm runs thousands of scenarios to find the best technician for every job. This, plus its intuitive dispatch board automations, saves your dispatchers' time, improves customer satisfaction, and maximizes profit.
Supercharge Customer Relationship Management
To maintain an excellent reputation and boost customer loyalty, plumbing businesses must manage relationships with customers effectively.
ServiceTitan’s Customer Experience software offers the following features:
Full service history for clients' addresses, so CSRs and techs are informed about the customer, the property, previous repairs, and more.
Technician bios delivered via text (including a photo and fun facts about them) to make customers more comfortable with people coming into their homes.
Automated appointment reminders via SMS to let customers know when their tech will arrive. This reduces no-shows without your customer service team spending hours on confirmation calls.
GPS tracking tool so customers can track their technician’s location in real-time to check that they are on schedule for the appointment.
Customer self-service portal that allows customers to take self-service actions based on the data already in ServiceTitan, such as paying invoices, accepting estimates, self-scheduling, and getting information on upcoming appointments, work history, and service agreements or memberships.
All of these features help improve customer relationships, leading to an increase in positive customer reviews that you can leverage to increase your valuation.
Increase Customer Retention with Recurring Memberships
Selling and optimizing membership agreements can significantly increase revenue.
To help manage new and existing contracts with customers, ServiceTitan’s Service Agreement Software provides key features that simplify contract management and add value to your customers.
Regular maintenance becomes clear, trackable, and efficient with features such as:
Recurring services: Manage prepaid maintenance services, add them to your existing schedule, and provide outstanding customer service for all customers.
Renewable contracts: Renew contracts wherever it’s most convenient for you and your customers: out in the field, in the office, or via membership renewal estimates generated in ServiceTitan.
Discount management: With ServiceTitan, creating and managing membership discounts becomes easier. Techs don’t need to calculate anything on the spot, and customers gain visibility over their invoice savings.
With ServiceTitan, you can stay on top of how your memberships and service contracts are performing. Our deep reporting insights provide insight into:
Membership Reports: Create custom reports to track membership statuses and values across the business, including canceled, suspended, renewed, and active, as well as amount billed or total revenue.
Service Agreement Reports: Run custom reports to view agreements by status, business unit, total agreement price, gross margin, and more.
These features allow you to instantly answer any questions from potential investors about the financials and profit margins of your recurring contracts.
Boost Value with Reputation Management Tools
ServiceTitan helps plumbing companies further cultivate relationships with customers by collecting customer reviews.
Our customer experience software automatically sends survey requests to customers after every job has been completed. This makes it easy for customers to share their experience on an online review site (Google, Yelp, etc) while it’s still fresh in their mind.
We also offer a reputation management tool that automates sending review requests to customers, lets you reply to reviews, and gain insights into which techs they relate to.
Mike Losoya III, integration manager of Mike’s Plumbing and Electric in McAllen, Texas, says ServiceTitan helped him boost the company's reputation, SEO, and online authority.
“We went from under 100 reviews across all social media pages, and now we're up to nearly 400, just by integrating our social media accounts with ServiceTitan,” Losoya says.
Building a bank of positive customer reviews (and ensuring swift and appropriate responses to any unfavorable reviews) showcases solid evidence that helps persuade potential buyers that your plumbing business is a valuable proposition.
Improve Cash Flow with Swift Payment Processes
ServiceTitan offers features that will help ensure your financial operations run smoothly and efficiently, with reliable and accurate records instantly at your fingertips.
With ServiceTitan, you can:
Offer customer financing: With our integrated financing, you can increase average ticket size and get paid faster—with financing approvals on the spot.
Generate professional-looking, accurate invoices that you can mail, fax, text, or email to your customers.
Track unpaid invoices and chase payment at the appropriate time via the Accounts Receivable Summary Report. Filter this information and save time by bulk-sending email notifications to customers with outstanding balances, for example, for more than 30 days.
Set up automated billing rules for recurring service contracts on a monthly, yearly, or quarterly basis, according to the needs of your business and customers.
Accept multiple payment options that give customers flexibility and help ensure that you get paid quickly. Options include credit card payments via a Bluetooth Card Reader, check, Google Pay™ and Apple Pay®.
Offer a self-serve payment portal: Our customer portal allows customers to log in any time, view invoices, and pay their bills — without the need to call in, make requests, speak to your team, etc. — all of which reduces the demands on your staff, and frees them up to focus on other important tasks like growing your business.
Automatically reconcile electronic payments with bank deposits so you can easily get an accurate financial statement in minutes.
Integrate with accounting software so all your transactions are easily captured and exported to your QuickBooks account. ServiceTitan also integrates with Sage Intacct and various other accounting software platforms.
These features help keep your finances lean and give you confidence when valuing or selling your plumbing business by providing a strong record of financial statements that investors expect.
Build Customer Pipeline with Hyper-Targeted Marketing
ServiceTitan’s MarketingPro provides powerful add-on features to help you nurture existing customers and attract new ones to build a healthy customer pipeline.
In addition to reputation management for handling reviews, we provide tools to help you manage your marketing campaigns and an analytics dashboard to let you know exactly how each one is performing.
Features include:
Direct Mail: Send automated direct mail campaigns to your existing customers and prospects for one flat rate.
Email Marketing: Build hyper-targeted audiences, automate email campaigns, and track true ROI.
Lead Tracking and reporting: Use Dynamic Call Tracking that ties unique phone numbers to each ad source and attributes campaigns to calls, jobs, and revenue.
Google Local Services Ads: Our integration makes it easy for customers to book directly with you via Google Local Services Ads using a smart form. The tool also lets you track leads and optimize ad spend so you can attract more local plumbing customers.
Just by using our email tool to follow up with specific customers on unsold estimates, we’ve seen contractors improve their bottom line by as much as $1 million in a single year.
Learn more from our comprehensive plumbing marketing guide.
Instantly Respond to Investor Queries with Up-to-Date Metrics
ServiceTitan gives plumbing business owners valuable insights into their CSRs’ and technicians’ performance as well as critical company metrics so they can establish whether their business is meeting key KPIs:
Track staff performance via our scorecards: For example, how many calls your CSRs are booking, what percentage of potential business they’re booking, how long they’re taking to do it, and more. All calls are automatically recorded, so you can zoom in on individual calls to see what might have gone right or wrong, and where improvements can be made.
Optimize technician performance: Track metrics like first-time fix rate, number of memberships sold, average response times, and number of reviews. This data provides business owners with essential information on the quality of service their technicians provide.
Drill down into company data: ServiceTitan offers customizable dashboards and reports to track company metrics like total revenue, total sales, total average sales, total job average, call booking rate, and total conversion rate. You can even look at this over an 18-month trend (or weekly trend) to evaluate how your business is running.
“Potential buyers like to see how you're managing the business, which KPIs you’re using, and how effective you are using those KPIs,” says Fred Silberstein, President of SF&P Advisors.
These tools will enable you to swiftly provide accurate, reliable data-backed responses to potential investors.
Learn more from our comprehensive guide on how to grow your plumbing business.
See These Features in Action: Schedule a Free Demo
Business valuations reveal the true worth of your business, which you can use to plan for growth or justify your asking price to investors.
To increase your valuation, implement our tips with the help of ServiceTitan’s all-in-one plumbing business software.
To learn how ServiceTitan’s features can grow your plumbing business, schedule a call today.
ServiceTitan Plumbing Software
ServiceTitan is a comprehensive plumbing business software solution built specifically to help service companies streamline their operations, boost revenue, and achieve growth. Our award-winning, cloud-based platform is trusted by more than 100,000+ contractors across the country.
