Security monitoring valuation: how recurring monthly revenue sets your multiple
Buyers value a security monitoring business on its recurring monthly revenue, or RMR, and cross-check the result against EBITDA. Attrition, contract terms and who owns the monitoring centre decide how high the multiple goes. Improve those three before you go to market.
How do buyers value a security monitoring business?
Buyers use two lenses. The first is recurring monthly revenue, usually shortened to RMR. The second is EBITDA, which means earnings before interest, taxes, depreciation and amortization. They compare the two and ask whether the price makes sense on both.
RMR answers one question: how much predictable revenue comes with this company? EBITDA answers a second: how much of that revenue turns into profit? A business that scores well on both gets a better offer.
There is no single multiple that applies to every security monitoring company. Buyers assess the quality of your RMR and cross-check the valuation against normalized EBITDA. Size, customer mix, attrition and contract terms shape the result. The Exit Audit shows where your company sits.
When does RMR matter more than EBITDA?
RMR matters most when your earnings understate your monitoring base. This happens when you have spent heavily to add accounts, or when your costs include growth spending a buyer would not need to repeat. In that case, EBITDA looks low, and RMR shows the underlying value.
EBITDA matters most when your RMR looks large but your costs are heavy. A buyer will not pay a premium for revenue that does not turn into profit.
| Measure | What it tells a buyer | Where it can mislead |
|---|---|---|
| RMR multiple | How much predictable revenue the buyer acquires | Ignores cost to serve and customer quality |
| EBITDA multiple | How much profit the business produces today | Can hide growth spending or one-off costs |
| Attrition | How fast the base shrinks | Looks different by customer type, so buyers want it split |
Our advice is to prepare both. Know your RMR cold, and normalize your EBITDA so that a buyer sees a clean number.
How do you calculate attrition?
Attrition is the share of your recurring revenue that leaves in a year. Buyers want it measured on revenue, not only on account counts, because a few large accounts can matter more than many small ones.
Start with the RMR you had at the beginning of the year.
Add up the monthly revenue from accounts that cancelled or were lost during the year.
Divide the lost amount by your starting RMR.
Repeat for each of the last several years, and split the result by customer type.
Then explain it. Buyers separate attrition you cannot control, such as customers who move or close, from attrition you can control, such as poor service or price disputes. A clear story lowers the risk a buyer will price in.
How do contract terms affect your multiple?
Contracts give buyers confidence that revenue will continue. They look for four things.
Written agreements: accounts without a signed agreement are harder to value and harder to transfer.
Term length: longer terms give more visibility.
Renewal method: automatic renewals tend to hold better than renewals that need a new signature.
Assignment clauses: whether the contract can move to a new owner without the customer's consent.
Have your lawyer review a sample of agreements before you go to market. If your forms are outdated, update them for new customers now. It will not fix the past, but it improves the base you are building.
Does owning your monitoring center change the price?
It can. A company with its own center controls its costs and its service quality. A company that pays a third party depends on that party's pricing and contract terms.
| Setup | What buyers like | What buyers question |
|---|---|---|
| You own the monitoring centre | Control over cost and service, and an asset that can serve other accounts | Staffing, equipment age, certifications and the spending needed to maintain it |
| You use a third-party centre | Lower fixed costs and simpler operations | Contract term, pricing, and whether the contract transfers on a sale |
Neither setup is better in every case. Some buyers want a center to add accounts to. Others plan to move your accounts onto their own platform and will pay for the accounts, not the center. Know which buyers you are talking to, and show the setup in its best light.
What does a buyer ask for in diligence?
Diligence on a monitoring book is document-heavy. Buyers want to match the numbers you gave them to the records behind them. Expect these requests early.
A customer-level list with monthly fee, start date, term, payment method and customer type.
Monthly RMR for the last several years, with additions and losses shown separately.
Copies of a sample of customer agreements, and your standard forms.
The contract with any third-party monitoring center, including pricing and transfer terms.
Licenses, certifications and any regulatory notices.
A list of accounts that are overdue, disputed or on special pricing.
If the list and the general ledger do not agree, a buyer stops trusting both. Reconcile them before anyone else sees them. Reconciling is dull work, and it protects your price.
How does customer mix affect the multiple?
Buyers read residential, commercial and institutional accounts differently. Commercial and institutional accounts often carry larger monthly fees and longer terms, and they can also bring concentration risk if a few of them carry much of the base. Residential accounts spread the risk across many customers, and they can turn over more when people move.
Neither mix is wrong. What matters is that you know yours, show it clearly and explain why it holds. Break the base out by type and show the trend for each.
How can you improve your RMR quality before a sale?
Improvements take time to show in the numbers. Start at least a year before you plan to sell, if you can.
Move customers to automatic payment where they are willing.
Put accounts without written agreements onto current forms at renewal.
Review pricing, and apply increases where your contracts allow.
Track cancellations by reason, and fix the causes you control.
Build a customer list that shows each account's fee, start date, term and payment method.
Separate monitoring revenue from install and service revenue in your reporting.
70% of businesses that go to market never sell. Buyers walk when the numbers do not hold up under review, so make them hold up.
Who pays the most for a strong monitoring base?
Strategic buyers and fund-backed platforms often compete for well-run monitoring books, because accounts are hard to build and easy to price. A competitive process lets them bid against each other. We compare offers on net proceeds, and we watch for terms that punish you after signing, such as holdbacks tied to attrition.
Questions founders ask us
What is RMR in the security industry?
RMR means recurring monthly revenue. It is the monthly fee customers pay for monitoring and related services.
What is a good attrition rate?
It depends on your customer mix and your market. We will not quote a single figure. What matters is the trend over several years, and a clear explanation of why customers leave.
Do buyers pay a multiple of RMR or of EBITDA?
Many look at both. RMR shows the size of the base, and EBITDA shows what it earns. We prepare both so that you control the story.
Do I have to own a monitoring center?
No. Some buyers prefer one, and others plan to move accounts onto their own platform. The contract and transfer terms matter either way.
How long does a sale take, and what does it cost?
We take the time a proper process needs and will not promise a date. We do promise a method. Our fee is stated on the first call, and the small upfront fee is credited when the deal closes.
Related reading
Security and alarm company valuation multiples: another sector where repeat revenue sets the price.
Our fire protection and life safety market report: how buyers think about code-driven, recurring work.
Our EBITDA multiples by industry guide: the cross-sector view of what businesses sell for.
How to sell a fire protection company: another recurring-revenue sector, with a similar process.
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