How we calculate the Exit Score
No black box. The Exit Score combines a 0 to 100 readiness rating with a sourced, industry-specific valuation range. Here is exactly how both numbers are built.
By Exit Lab Research. Calculation version rules-11e6b1ed649f.
Two numbers, one honest read
Every Exit Score gives you two things. The first is a Readiness Score from 0 to 100 that measures how prepared your business is to transfer to a new owner at a strong price. The second is a valuation range in dollars, anchored to what businesses like yours actually sell for today. The readiness score and the valuation are linked: the same drivers that raise your score also raise your multiple.
The five drivers behind your Readiness Score
Your score is a weighted blend of five sub-scores. The weights reflect what buyers actually pay for, recurring revenue and owner independence matter most.
Recurring Revenue & Retention
25% of scoreWhat we look at: Recurring revenue share, service agreements in force, annual retention rate.
Predictable, contracted revenue is the single biggest premium driver. Buyers pay more for income that survives the owner's exit.
Owner Independence & Management
25% of scoreWhat we look at: Owner working hours, depth of the management layer, who owns the customer relationships.
If the business runs without you, it is an asset. If it runs because of you, it is a job. Buyers discount owner-dependent companies heavily.
Earnings Quality & Growth
20% of scoreWhat we look at: Revenue scale, profit margin, three-year revenue trend.
Size and direction matter. Larger, growing, healthy-margin businesses clear the thresholds that unlock higher multiples.
Transferability & Operations
15% of scoreWhat we look at: Customer concentration, quality of the books, documented systems and processes.
Clean financials and low concentration reduce a buyer's perceived risk, which protects your multiple in diligence.
Personal & Timing Readiness
15% of scoreWhat we look at: Your exit timeline, your plan for what comes next, whether you have been valued before.
Readiness is not just about the business. Owners with a clear timeline and plan negotiate from a position of strength.
What your score means
| Score | Band | What it signals |
|---|---|---|
| 80 to 100 | Platform-grade | Top of the multiple range. Private equity and strategic ready. |
| 60 to 79 | Buyer-ready | Sellable now, with a clear path to a premium. |
| 40 to 59 | Has potential | Real value, but value gaps to close first. |
| 20 to 39 | Early stage | Owner-dependent. Typically 12 to 24 months of prep needed. |
| 0 to 19 | Not yet transferable | Foundational work required before a sale. |
How we build the valuation range
The dollar range is earnings times multiple, with both adjusted for the realities of your business. Four steps.
Estimate your real earnings
We start from your profit and add back owner compensation and documented expenses a buyer may not inherit. This produces Seller's Discretionary Earnings (SDE). We then subtract estimated market compensation for a replacement manager to calculate normalized EBITDA. Exit Lab uses SDE when normalized EBITDA is below $500,000 and EBITDA at $500,000 or more. This adjusted earnings number, not raw revenue, is what a buyer applies a multiple to.
Set a base multiple for your industry
Each industry has a reference multiple range in the calculation model. We use the selected vertical's starting range, with source publication dates shown separately from the methodology version.
Adjust the multiple for your drivers
Your answers move the multiple up or down in fractions of a turn. Strong recurring revenue, a real management layer, and clean books push you toward the top of the range. Heavy owner dependence or customer concentration pulls you toward the floor. The multiple is then clamped to the realistic floor and ceiling for your industry so the estimate stays honest.
Produce a range, not a false-precision number
We multiply your adjusted earnings range by your adjusted multiple range to produce a valuation range. When you give us banded estimates instead of exact figures, we widen the range to reflect that uncertainty. A single number would be more satisfying and less honest.
Why the basis changes at $500,000 of normalized EBITDA
There is no universal earnings cutoff. The IBBA Q4 2025 Market Pulse reports deals below $2 million of purchase price on SDE and deals from $2 million to $50 million on EBITDA. Its reported multiple for the $2 million to $5 million tier is 4.1 times EBITDA, which puts the lower edge of that tier near $500,000 of EBITDA.
The economic distinction matters too. BizBuySell explains that SDE assumes a buyer performs the owner's job, while EBITDA assumes the business pays a market-rate manager. We calculate both, use the post-manager EBITDA figure for the crossover, and treat the result as an educational estimate rather than a formal appraisal.
Where our numbers come from
Our directional ranges use configurable industry assumptions alongside broker, marketplace and industry references. We publish the ranges and references on our multiples by industry page. Source publication dates vary. Calculation version rules-11e6b1ed649f identifies the rules used by the tool; it is not a market-data refresh date. A consolidated market-evidence review date has not been verified.
We deliberately avoid false precision. The Exit Score is an educational estimate designed to give owners an honest starting point, not a formal valuation. A real transaction depends on diligence, deal structure, and the specific buyer at the table.
Market data on our state pages
Every business count, employment figure, and market size estimate on our state valuation pages traces back to a named government dataset. Here is the exact chain.
1. Business counts, employment, and wages: BLS QCEW
Establishment counts, employment, and total wages come from the U.S. Bureau of Labor Statistics Quarterly Census of Employment and Wages (QCEW), 2024 annual averages, private sector. Roofing uses NAICS 23816 (Roofing Contractors). HVAC and plumbing share a single federal industry code, NAICS 23822 (Plumbing, Heating, and Air-Conditioning Contractors). The government does not split that code any further.
2. Separating HVAC from plumbing: BLS OEWS occupational mix
Because NAICS 23822 combines both trades, we apportion each state's totals using that state's actual workforce mix from the BLS Occupational Employment and Wage Statistics (OEWS), May 2024. Each state's employment of HVAC mechanics and installers (SOC 49-9021) versus plumbers, pipefitters, and steamfitters (SOC 47-2152) sets the split. Texas, for example, employs 42,290 plumbers and 32,070 HVAC techs, so plumbing gets 57 percent of the Texas NAICS 23822 totals and HVAC gets 43 percent. The two verticals always sum to the true QCEW total, so nothing is double-counted. Figures labeled "est." reflect this apportionment.
3. Market size: employment times revenue per employee
State market size is estimated as apportioned employment multiplied by an industry revenue benchmark: roughly $240K revenue per employee for HVAC and plumbing (PHCC and trade press averages) and $250K per employee for roofing (NRCA and IBISWorld averages). These are deliberately conservative planning figures, not precise census revenue counts.
4. Valuation multiples: transaction comps
The multiple bands on state pages match our multiples by industry page, with source references and publication dates shown there. These are model reference ranges for directional estimates. The methodology version identifies calculation rules and does not establish a market-data refresh date.
Known limitations: QCEW counts establishments with employees, so owner-only operations without payroll are undercounted. The OEWS split assumes a state's occupational mix mirrors its business mix, which is the best available federal proxy but still an estimate. Average pay and growth rates shown for HVAC and plumbing reflect the combined NAICS 23822 industry.
See your own Exit Score
It takes about two minutes, it is free, and it is confidential. You will get your readiness score and your valuation range, plus the specific drivers moving your number.
Exit Lab Research
Exit Lab Research explains the questions, assumptions, and calculations behind the Exit Score. The output is educational and directional, and it does not replace a professional assessment.
The Exit Score provides educational, directional estimates. It is not a formal valuation, appraisal, offer, certification, financing approval, or diligence conclusion. A buyer or advisor introduction requires your separate, specific approval. See Exit Lab's role and owner control for more information.