They love your top line. They buy your bottom line.

If you are an operator looking to roll up competitors, acquire that next growth lever, or eventually position your holding for a sale, you need to get inside the mind of a buyer. And here is the first thing you have to accept: Revenue is a vanity metric. Profit is a sanity metric. But for a serious acquirer? They are looking at something even deeper.

You might look at your Profit & Loss statement and see a high number at the top and a healthy number at the bottom and think you are ready to cash in. But sophisticated buyers—whether they are private equity firms, family offices, or strategic competitors—are trained to look past the surface. They aren’t just buying your history; they are buying your future, and they are assessing risk.

If you are building a company with the goal of scaling through acquisition or preparing for an exit, you need to understand the specific lenses buyers use to evaluate real business performance. Let’s break down what they actually look for.

The Great Divide: Top-Line vs. Bottom-Line

We have all heard the phrase “revenue is vanity, profit is sanity.” But is that entirely true when selling a company?

It depends on who is buying. As Jason Lemkin points out in the SaaS world, a high-growth company can sometimes be valued at 10x-20x its revenue, even if it isn’t profitable yet . Why? Because the buyer is betting on future market dominance. They are buying the potential to generate massive profits later.

However, for most lower mid-market businesses—the ones operators are usually buying and selling—the story is different. In traditional main street and middle-market acquisitions, buyers are less interested in raw revenue if the profit isn’t there. A business doing $10 million in revenue but only breaking even is a business that is fundamentally broken in the eyes of a cash-flow buyer .

The reality is: Revenue fills the headlines, but profit fills the bank accounts. And how you generate that profit determines whether a buyer will write you a check.

The Real Metrics Buyers Care About

When a buyer kicks the tires, they aren’t just looking at your net income. They are digging into the quality of your earnings. Here are the specific metrics that separate a good business from a great acquisition target.

1. Normalized EBITDA

This is the king of metrics. Buyers don’t care about your reported net income after you expensed a family vacation, a new truck, and your brother-in-law’s consulting fees. They want to see EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) . More importantly, they want normalized EBITDA.

As Peter Rikhof notes, sellers often “normalize” their financials to adjust for one-time expenses or personal perks . A good buyer will do the opposite; they will dig through every line item to find expenses that aren’t necessary to run the business. If you are taking a $200,000 salary but a hired manager would only cost $100,000, a buyer is going to add that $100,000 back to profit.

2. Revenue Concentration vs. Recurring Revenue

Buyers are terrified of risk. Nothing screams “risk” louder than a customer list where one client makes up 40% of your revenue.

If you lose that client the day after the acquisition, the deal is broken. Buyers will heavily scrutinize your revenue concentration and will often discount your valuation if you are too dependent on a few whales .

Conversely, they love recurring revenue. If you have customers on long-term contracts or subscription models, your business is worth more because the future cash flow is predictable .

3. Gross Profit Margin

Top-line revenue can hide a multitude of sins, but Gross Profit Margin (GPM) reveals the truth about your product’s value. GPM is the difference between revenue and the direct costs of delivering your product or service .

A high gross margin indicates you have pricing power, a strong brand, or a unique product that customers can’t get elsewhere. Allen Harris compares Apple (44% GPM) to Intel (23% GPM) to illustrate this point . Apple’s high margin tells buyers they have a “competitive moat.” If your margins are shrinking, it suggests you are competing on price—a race to the bottom that sophisticated buyers want no part of.

4. Revenue Per FTE (Full-Time Employee)

This is a productivity metric that tells a buyer how lean and efficient your operation is . If you are doing $2 million in revenue with 20 employees, that’s $100k per head. If a competitor does $2 million with 5 employees ($400k per head), the competitor is a much more attractive acquisition because there is less “people risk” and higher operational efficiency.

Red Flags: When Revenue Lies

Sometimes, a growing top line can actually hide a failing business. Here is what buyers look for to spot trouble:

Declining Gross Margins: If your revenue is up but margins are down, you are working harder for less money .

Unsustainable Growth: A buyer might look at a surge in revenue and realize it came from slashing prices, offering crazy terms, or selling to “bad” customers who won’t pay.

Manipulation of Metrics: In earnout structures—where part of the price is paid based on future performance—sellers might try to pump up revenue, while buyers prefer to tie payments to EBITDA to ensure the business stays profitable .

How This Impacts Your Roll-Up Strategy

If you are the one doing the acquiring, you need to evaluate targets the same way a bank or an eventual buyer of your platform will. You aren’t just buying revenue; you are buying a platform for efficiency.

When looking at a potential roll-up target, ask yourself:

Can I improve their Gross Margin by consolidating suppliers?

Can I increase their Revenue Per FTE by integrating back-office functions?

Is their revenue sticky, or will it vanish the moment we change the brand?

The Bottom Line

Revenue is the engine, but profit is the fuel. A savvy buyer isn’t interested in a flashy car that’s about to run out of gas. They want a vehicle that runs efficiently and can go the distance.

If you are preparing your business for sale, stop obsessing over the top line. Focus on the durability of your margins, the loyalty of your customers, and the efficiency of your operations. That is what builds a business that someone else wants to own.

Ready to build a business that buyers fight over? Whether you are buying your next growth lever or preparing for an exit, understanding these metrics is the first step.
Click Here to learn more about acquisition-ready strategies

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