Why Two Roofing Companies with the Same Revenue Can Have Vastly Different Valuations
As a business owner, it’s easy to get caught up in the numbers—especially revenue. But when it comes time to value your business, not all $15M companies are created equal. The truth is that how you generate that revenue and how smoothly your business runs can mean the difference between a 4x multiple and a 7x multiple, leaving some owners scratching their heads over why their neighbor’s company is worth significantly more.
Let’s dig into what drives this gap, what “multiple” means, and what you can do to position your business for a higher valuation.
What’s a Multiple, and Why Does It Matter?
When valuing a business, a multiple is a way of calculating its worth based on profitability. The most common method uses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measure of the company’s cash flow. Essentially, EBITDA tells you how much profit the business generates before accounting for some non-operational expenses.
The formula to value a business is straightforward:
Business Value = EBITDA x Multiple
For example, if a company has an EBITDA of $2M and it’s valued at a 5x multiple, its value would be $10M. But if that same company commands a 7x multiple, it would be worth $14M—just because the multiple changed.
A Tale of Two Companies
Imagine two companies, both generating $15M in annual revenue. On the surface, they look identical, but a deeper dive reveals stark differences:
Company A:
17% EBITDA Margin ($2.55M profit)
Steady historical growth year over year
A strong management team that handles day-to-day operations
High customer retention and word-of-mouth referrals (minimal marketing spend)
Retail-focused (revenue comes from individual homeowners, which is often more predictable)
Company B:
8% EBITDA Margin ($1.2M profit)
Inconsistent growth—some good years, some tough ones
Owner wears multiple hats, making decisions and handling most key relationships
High marketing spend to keep leads coming in (and not enough loyalty)
Insurance restoration focus (highly reactive, fluctuating revenue)
Why Does Company A Command a Higher Multiple?
The value gap comes down to two key factors: Risk and Scalability.
Company A runs like a well-oiled machine. Its higher EBITDA margin means stronger profitability, and consistent growth tells buyers that the business can weather market changes. Because the owner has a strong team in place, the business is less reliant on any one person—making it easier to transfer ownership and grow.
Meanwhile, Company B has a lower margin, a more volatile business model, and too much dependency on the owner. If you’re an investor, you see more risk, higher costs, and a lot more work needed to stabilize the business.
The Result?
Despite having the same revenue, Company A could be valued at a 7x multiple, while Company B might only see a 4x multiple. To put that in perspective:
Company A’s Value: $17.85M
Company B’s Value: $4.8M
That’s a staggering $13M difference for businesses that—at first glance—seem identical.
What Can You Do to Boost Your Multiple?
If you’re aiming to build a more valuable business, here’s where to start:
Increase Your EBITDA Margin: Focus on improving profitability by controlling costs, optimizing pricing, and eliminating low-margin projects or services.
Build a Strong Management Team: Take yourself out of the day-to-day operations. The less you’re needed, the more attractive your business becomes.
Prioritize Consistent Growth: Steady growth is more important than hitting occasional home runs. Aim for year-over-year improvement, even if it’s incremental.
Reduce Reliance on One Revenue Stream: Companies overly focused on one area (like insurance restoration) may see sharp declines in certain market conditions. Diversify to create more stability.
Create a Strong Customer Base: Loyal customers, high referrals, and repeat business show that you have a healthy foundation, which lowers risk.
The Bottom Line
When it comes to selling your business or bringing on investors, multiples are driven by more than just revenue. Profitability, management structure, growth potential, and how easily the business can run without you are all crucial components that influence your valuation.
At the end of the day, investors aren’t just looking at the company you built—they’re evaluating whether it’s positioned to grow without you. If you can create a business that thrives independently, you’ll be able to command a higher multiple and maximize your return.
Ready to Find Out What Your Business Is Worth?
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