Security Monitoring Business Valuation: RMR Math in 2026

Key Takeaways

• The valuation formula: total monthly RMR multiplied by the applicable RMR multiple equals enterprise value. A company with $40K monthly RMR at 35x trades at $1.4M before working capital and earnout adjustments.
• Attrition adjustments compound. Sub-5 percent attrition supports 40-50x. 8-12 percent supports 32-40x. 12-18 percent supports 25-32x. Above 18 percent typically makes accounts unsellable to institutional buyers.
• Cellular communications premium runs 5 to 8x RMR per dollar of monthly billing over landline. Landline infrastructure is being phased out, creating conversion risk for buyers.
• Fire alarm and integrated security accounts command premium multiples (45 to 55x RMR) due to code-mandated inspection revenue and lower attrition.
• Account aging matters. Accounts past due 60 plus days are discounted to 50 percent of contracted RMR value. Accounts past due 90 plus days are typically excluded from the valuation entirely.
• Sample audit verification on 50 to 200 random accounts validates whether contracts match billing. Discrepancies above 5 percent trigger broader diligence and price retrade.
• Central Station signal data over 12 to 24 months proves account activity. Accounts with zero signal activity over 90 days are discounted or excluded entirely.

Why security monitoring uses RMR valuation, not EBITDA

What counts as RMR for valuation purposes

RMR multiple ranges by account type

How communications method affects the multiple

How attrition rate determines valuation

Why sellers should report all three attrition measurements

Account quality scoring

Common valuation traps sellers fall into

How buyers structure offers

How institutional buyers do diligence

Conclusion

Security monitoring business valuation operates under a different framework than nearly every other small business category, and the businesses that maximize exit value treat the RMR math as the foundational discipline. The sellers who clear premium multiples consistently share three habits. They report attrition using all three industry-standard measurements and pursue active attrition reduction in the 12 to 18 months before going to market. They convert landline accounts to cellular and clean the active account roster to remove inactive customers that depress the average quality score. They engage specialty advisors familiar with the security monitoring asset class and structure transactions with reasonable holdback terms rather than open-ended contingencies. Done with that discipline, security monitoring acquisitions clear at the top of the 25 to 55x RMR range, producing predictable buyer returns and capital-efficient exits for sellers.

Frequently Asked Questions

What is RMR in security monitoring valuation?

RMR stands for Recurring Monthly Revenue. It includes only contracted, recurring monthly billing to customers: monitoring fees, line costs passed through to customers, monthly maintenance contracts, and any contracted monthly service revenue. RMR excludes installation revenue, project revenue, equipment sales, time and materials service calls, and any one-time billings. The Central Station system reports active billing count and total contracted monthly billing automatically, which serves as the foundational RMR number.

Why don’t security monitoring businesses use EBITDA multiples?

Security monitoring business value sits in contracted forward cash flow from monitoring agreements, not in trailing operating profit. Installation revenue is project-based and offers no forward visibility. Monitoring revenue produces predictable monthly cash flow that can be modeled with confidence over 5 to 10 year horizons. Buyers running EBITDA models consistently underbid these businesses. The RMR multiple framework with attrition and account quality adjustments is the only methodology that aligns buyer and seller expectations.

What RMR multiples should I expect for my account base?

Residential monitoring on multi-year contracts trades at 35 to 50 times RMR. Small commercial monitoring trades at 32 to 45 times RMR. Large commercial fire and burglar accounts trade at 40 to 55 times RMR. Integrated fire and security accounts command 45 to 55 times RMR. Wholesale monitoring accounts trade at 20 to 30 times RMR. Within each range, attrition rate, contract length, communications method, account age, and payment history move the specific multiple.

How does attrition rate affect the RMR multiple?

Attrition rate is the single largest variable. Sub-5 percent annual attrition supports 40 to 50x RMR multiples because buyers can model 95 percent of current RMR remaining at year 5. Attrition at 8 to 12 percent supports 32 to 40x. Attrition at 12 to 18 percent supports 25 to 32x. Above 18 percent typically makes accounts unsellable to institutional buyers entirely, because the discounted present value of remaining contracts cannot justify any premium over current cash flow.

What is the landline conversion risk?

The major U.S. telecommunications carriers are sunsetting traditional copper telephone landlines over the next 5 to 10 years. Security monitoring companies still operating significant landline account inventory face conversion costs of $200 to $500 per account to migrate to cellular communications, plus customer churn risk during conversion. Buyers pricing landline-heavy account portfolios apply a 5 to 8x RMR discount per dollar of monthly billing to reflect this liability. Cellular-native accounts trade at full multiples.

What is account quality scoring?

Account quality scoring grades each account on six factors that drive the applicable multiple. Contract length remaining (3 plus years supports full multiple, month-to-month applies 50 to 70 percent discount). Communications method (cellular full multiple, landline applies 5 to 8x discount per dollar of billing). Account age (5 plus years premium, under 2 years applies 10 to 15 percent discount). Payment history (zero past due full multiple, 60 plus day late applies 15 to 30 percent discount). Financial responsibility (enforceable termination liability full, weak language applies 10 to 20 percent discount). Equipment ownership (alarm co owned premium, customer owned neutral).

How do buyers verify account quality during diligence?

Three verification methods. Central Station signal data over 12 to 24 months proves each account is actively monitored. Accounts with zero signal activity over 90 days are discounted or excluded. Aging reports show current accounts receivable status across all accounts. Accounts past due 60 plus days are discounted to 50 percent of value. Accounts past due 90 plus days are typically excluded entirely. Sample audit on 50 to 200 random accounts verifies the contract on file matches billing systems. Discrepancies above 5 percent trigger broader diligence.

What is a typical holdback structure?

Account holdbacks are standard. Buyers typically hold back 5 to 15 percent of purchase price for 12 to 24 months to cover account attrition above contracted thresholds. The buyer measures actual attrition during the holdback period against the contracted attrition rate (typically trailing 12-month rate at closing plus 2 to 3 percentage point tolerance). Excess attrition reduces the holdback proportionally before residual release to the seller. Sellers should resist holdbacks above 15 percent or longer than 24 months because the seller has limited operational control post-close.

Which Central Stations affect valuation most?

Wholesale monitoring contracts with major Central Stations (Rapid Response, COPS Monitoring, Affiliated Monitoring, AvantGuard, National Monitoring Center) are transferable but require formal consent. Central Station relationships matter for two reasons. First, the consent process can delay closing by 30 to 60 days if mishandled. Second, the Central Station’s reporting capability affects the buyer’s diligence efficiency. Companies on modern Central Stations with strong signal reporting receive faster diligence and higher confidence multiples than companies on outdated or limited Central Stations.

How do I prepare a security monitoring business for sale?

Six preparation workstreams 12 to 18 months before going to market. Clean the active account roster by removing inactive accounts that no longer pay or signal. Convert landline accounts to cellular to remove conversion liability discount. Implement consistent attrition reporting in all three industry measurements (gross loss, net loss after reactivations, account count basis). Strengthen customer financial responsibility language in new contracts at renewal. Verify Central Station relationships and confirm transfer consent procedures. Build the data room with 24 months of Central Station signal data, aging reports, sample contracts, and attrition history.