Two owners sit down with the same buyer in the same month. Each runs an alarm company billing $100,000 in recurring monthly revenue (RMR). Their markets are similar, and so are their years in business and their reputations. One leaves with an offer close to $3.8 million. The other is offered about $2.7 million.

Both companies are invented for this article, and the arithmetic is laid out below. The gap in price is the realistic part.

How the price gets built

A company with a monitored account base is usually priced as a multiple of its monthly recurring revenue. The published range is wide. One SDM review of dealer sales described it this way: "Multipliers can be as low as the 20 range or as high as 50 or even more, but in general tend to cluster between the 30s and the 40s."¹

A reading aid, because this often confuses people outside the industry: these are multiples of recurring monthly revenue (RMR). Thirty-five times RMR is a little under three times annual recurring revenue (ARR).

Size moves the multiple more than any other factor with good data behind it. At the Electronic Security Expo in 2025, Michael Barnes reported that dealers with less than $50,000 in RMR averaged about 36 times, and dealers above $500,000 averaged about 46 times.² Our two companies are the same size, so size explains none of the gap between them. Two other things do: which revenue the buyer agrees to count, and what the buyer takes off the multiple for risk.

First, the revenue that counts

Ken Kirschenbaum, the attorney whose contract forms much of the industry uses, has written that buyers do not pay on gross RMR.³ They pay on what is left after a few subtractions. Sales tax comes out. So do third-party charges the dealer collects and passes along, such as interactive service and cellular fees. Accounts far behind on payment come out as well. Michael Epstein told SDM, "Buyers generally don't pay for monthly recurring revenue on accounts that are 90 days past due."⁴ An account with no signed contract on file can be discounted or left out of the count entirely, even while the customer keeps paying every month.

Company A has kept up with this. Of its $100,000, about $1,500 is pass-through charges and $500 sits on accounts more than 90 days behind. Every account has a signed agreement that can be produced on request. The buyer counts $98,000.

Company B has never run the subtraction. When the buyer does, $6,000 turns out to be sales tax and pass-through charges, $4,000 is on accounts more than 90 days past due, and $7,000 belongs to customers whose contracts cannot be found. The buyer counts $83,000.

Nothing has been negotiated yet, and Company B is already $15,000 a month smaller than its owner believed.

Second, the multiple

Kirschenbaum's more recent guidance, written in 2022 with an industry broker, is that a seller should expect a multiple of roughly 35, and that a buyer starts deducting from there for weaknesses in the accounts, toward the mid-20s for a weak base. The weaknesses on that list include accounts with no contract and a company that does not own its central station number.⁵

The clearest worked example in print is older. In a December 2014 column for Security Sales & Integration, Kirschenbaum described two deductions he made in a single valuation. The first: he "deducted 1 times (x) RMR because the alarm company didn't have Standard Form Contracts," and 90 percent of the subscribers were on contracts 10 to 15 years old. He had considered taking as much as five times and held it to one because the customers were long-tenured and likely to stay. The second was larger. The company "did not have its own lines into the central station. I deducted 5x the RMR."⁶ That column is more than a decade old, and I use it for the size of the deductions, since the same two issues still appear in the 2022 guidance.

Give Company B both of those conditions. Its customers signed whatever form was in the truck that year, and the phone lines its panels dial belong to the monitoring provider. Company A re-signed its base on a current standard form years ago and owns its lines.

Suppose the buyer starts both companies at 39 times. Company A keeps all of it. Company B loses one for the paper and five for the lines, and lands at 33.

The difference is $1,083,000. The multiples are my illustration, chosen from inside the published range, and a real transaction lands on its own facts. The direction is what the published record supports: the revenue was equal, and the proof behind it was very different.

What Company B can do about it

Almost everything on Company B's list can be repaired, and none of it can be repaired in the month before a sale.

Customers with no contract can be asked to sign one. Old forms can be replaced with a current standard agreement at renewal. Past-due accounts can be collected or closed. The central station arrangement can be renegotiated or rebuilt, which is slow because it can mean reprogramming equipment at every site. Attrition can be measured by revenue instead of assumed. Each repair takes months of ordinary, unglamorous work, which is the argument for starting while a sale is still a distant idea.

I learned this from the lending side. When I was a VP of Finance in this industry, a bank that lent against our accounts counted them long before any buyer did, and the count was lower than the number we had been reporting in good faith.

The same logic reaches well past alarm companies. Any business that sells on recurring revenue is eventually valued on the portion of that revenue it can prove.

If a buyer asked tomorrow how much of your monthly revenue sits under a signed, current, transferable contract, would you answer with a number or with an estimate? The Alarm Company Valuation Estimator walks through the same steps with your own figures.

This article is educational. It is not legal, tax or financial advice, and it is not an appraisal or opinion of value. A real transaction needs counsel experienced in alarm industry acquisitions, a financial expert, and may need other professional opinions as well.