PE Firms Look at 4 Numbers, Not 40. Here's What They Actually Evaluate.

I spent years in private equity evaluating contractor roll-ups. Owners always showed up with elaborate dashboards. We never looked at most of it.

Four numbers determined whether a deal moved forward and at what multiple. The other 36 metrics didn't change the conversation. If you're 12-24 months out from an exit and trying to maximize valuation, focus here.

The 4 numbers that move PE valuations

1. DSO

Days Sales Outstanding. How fast you collect cash after invoicing.

Why PE cares: Lower DSO = more cash, less working capital required to operate. PE buyers fund the working capital gap during a transition. A contractor with 90-day DSO requires 50% more working capital injection than one with 60-day DSO. That comes directly out of the deal price.

The math: A $5M EBITDA contractor with 90-day DSO at 8% cost of capital has $984K in financing cost on AR. The same contractor at 45-day DSO: $492K. The $492K differential is real cash that hits enterprise value.

Valuation impact: Top-quartile DSO can swing your multiple by 0.5-1.0 turn of EBITDA. On a $5M EBITDA business, that's $2.5-5M in deal value.

Where most contractors stand: Median contractor collection rate is 80.8% — per Level Index data on 2,200+ service businesses across our 587-company benchmark. PE wants to see 92%+ within 30 days.

2. Gross margin per job type

PE doesn't care about your blended gross margin. They care about gross margin by service line: install, service, maintenance, T&M.

Why PE cares: Service and maintenance carry 2-3x the margin of install work. A contractor with 60% service revenue is worth substantially more than one with 60% install revenue, even at the same total revenue and EBITDA. Service margin is more durable, more recurring, and harder for competitors to replicate.

The math: From benchmark data on 2,159 contractors — per Level Index data on 2,200+ service businesses, typical margins by job type:

• Install: 15-25% gross margin
• T&M: 35-40%
• Service calls: 45-55%
• Maintenance contracts: 44-69%

Valuation impact: Service-heavy contractors trade at 7-9x EBITDA. Install-heavy trade at 4-6x. On $5M EBITDA, that's $5-15M difference in deal value.

The catch: Many contractors don't have job-cost data clean enough to break this out. 91% of jobs in our dataset have revenue but no cost data attached — per Level Index data on 2,200+ service businesses. If you can't show service vs install margin clean, PE assumes the worst (install economics) and prices you accordingly.

3. Customer concentration

What percentage of your revenue comes from your top 1, top 5, top 10 customers.

Why PE cares: Concentration is single-customer extinction risk. If 30% of your revenue comes from one customer and that customer leaves, your business halves overnight. PE buyers fund deals with debt; the bank doesn't tolerate concentration.

The math: SBA underwriters flag any single-customer concentration above 25%. PE buyers often start asking serious questions at 20%. From our benchmark data, the median contractor's top customer accounts for 31.6% of revenue — already above the threshold most PE buyers want to see.

Valuation impact: Above 35% concentration = 10-20% valuation discount. Above 50% = sometimes a deal-killer or major restructuring required (like a guaranteed contract from the customer that survives the sale).

The fix: This takes 12-24 months. Diversify the customer base by deliberately winning smaller customers, even at lower margin. The risk premium PE applies for concentration is bigger than the margin you'd gain by chasing only big customers.

4. Estimated vs actual labor variance

How accurately you estimate labor hours on jobs vs. how many hours actually get logged.

Why PE cares: This is the single best proxy for operational discipline. If a contractor's labor variance is +/- 5%, the operations team is in control: they know their costs, they price correctly, they finish on time. If variance is +/- 25%, the contractor is essentially gambling on every job.

The math: Among the 523 contractors who track estimated vs actual labor hours — per Level Index data on 2,200+ service businesses, the median contractor over-estimates by 12% (padding bids). Bottom 10% under-estimate by 22%+ (chronic overruns). Top 10% are within 1-2% of estimate consistently.

Valuation impact: This isn't a direct valuation lever — it's a multiplier on the others. PE buyers who see disciplined estimating accuracy assume the rest of operations is similarly tight. They give a 0.5-1.0 turn premium on multiple.

The fix: Easier to fix than concentration but harder than DSO. Requires field-level discipline: every job estimated against historical data, weekly variance review, root-cause analysis on outliers. 6-12 months to clean up.

What buyers actually do in due diligence

I sat in dozens of these. The actual flow:

Week 1: Initial outreach. Buyer wants 3 years of P&Ls, top customer list, employee headcount, basic ops description.

Week 2-3: Buyer reviews materials. Builds a quick valuation model. Decides if there's enough meat to justify a real bid.

Week 4-6: First bid (LOI) submitted. Range, not specific number. "We'd value the business at 5-7x EBITDA depending on quality of earnings." This is where the 4 numbers above determine whether you're at the high end or low end of that range.

Week 7-10: Quality of earnings (QoE) review. Independent accountants come in and verify EBITDA, normalize for one-time items, dig into job-cost data. This is where your concentration, DSO, and gross-margin-by-job-type get scrutinized in detail.

Week 11-14: Final bid. Specific. Lower than initial range if QoE found problems, higher if everything checked out clean.

Week 15-26: Negotiation, contract, closing.

Total timeline: 6-12 months from first conversation to close. But the four numbers are determined long before week 1.

The 18-month exit prep that moves the 4 numbers

If you're 18 months out and want to maximize multiple:

Months 1-6: Audit and triage.

• Pull last 12 months and calculate the 4 numbers honestly. Don't game them.
• Identify the gaps. Most contractors have 2-3 of the 4 in red.
• Pick the 1-2 that move most for your specific business.

Months 7-12: Operational fixes.

• DSO: tighten collection cadence, escalate at day 30, model your billing speed.
• Margin by job type: clean up job-cost data, reprice low-margin work, drop loss-making customers.
• Concentration: deliberate sales diversification, smaller-deal win rate increase.
• Labor variance: weekly variance review, estimating retraining, post-mortem on outliers.

Months 13-18: Stabilize and document.

• Make sure improvements show in the trailing 12 months of financials before you go to market.
• Build the books PE wants to see (clean QuickBooks, monthly close in under 10 days, no big adjustments).
• Engage a sell-side advisor at month 16 to start running the process.

What NOT to bother fixing

Things contractors stress about that PE buyers don't care about:

• Marketing CAC. PE doesn't run marketing the way you do — they're going to roll you up with other contractors and rationalize spend.
• Vehicle fleet age. They'll model fleet refresh cost separately. Old trucks aren't a deal issue.
• Office space. Lease assumption or termination is a contract detail, not a valuation lever.
• Software stack. They might consolidate to their preferred FSM/accounting stack post-close.
• Employee retention plans for the office staff. The field team retention matters; office staff is replaceable in their model.
• Branding / reputation polish. They're buying cash flow, not your logo.

If you spend the 18-month exit prep window on these, you're polishing things that don't move price. Spend it on the 4 metrics above.

The thing nobody tells you

PE buyers know more about your business than you do.

By the time they show up, they've evaluated dozens of contractors in your trade. They know what good looks like. They know your sub-contracting customer's payment terms. They know your competitor's job-cost ratio. They know what 10x roll-ups have done to multiples in your geography.

Trying to spin numbers doesn't work. They'll find it in QoE and re-trade you down. The honest play is: clean numbers, real improvements, durable business. The owners who exit at the high end of multiples didn't pull a magic trick at month 23. They built durable financial discipline over the prior 5-10 years and the four metrics happened to be in the green when buyers came calling.

If you're 18 months out and one of the 4 numbers is materially red, fix that one. Forget the dashboard. Buyers will look at four numbers. Make sure those four are right.

Calculate your exit-readiness gap in 2 minutes or book a free 30-min audit — we'll show you where you stand on the 4 numbers and what's realistic to fix in your timeline.

Related reading

• How PE firms evaluate contractor financials
• Exit readiness for contractors
• Public contractor valuation multiples
• Customer revenue concentration benchmarks
• Maintenance vs install revenue (and why valuation differs)