With investors once again looking to buy into the work comp service sector, owners are looking to figure out what their company is worth. Truth is, many work comp services companies are tough to value, in large part due to their “non-contractual customers.”

Joe Paduda

Revenues and profits from “non-contractual” customers are often discounted by potential buyers, who much prefer locked-in, guaranteed-price, long-term deals for their inherent predictability.

But that isn’t the way the real world works; often case management firms, independent medical evaluator companies, utilization review vendors and other service entities don’t have formal contracts with many of their customers. Instead, they provide a service and send a bill to the claims adjuster. There may, or may not, be an upfront understanding of the service’s price.

Claims payers like this because it doesn’t lock them into a vendor, while service companies are eager to work with payers, and the contracting and price negotiation process can take a long time and yield little real benefit.

Which brings us to a conundrum: How does a seller or buyer value “non-contractual” revenue? Here are six ways to think about that — ways that might get you a higher price.

• How many people have made a transaction, used our product or service some time within the trailing 12 months?
• How many people have made a repeat purchase, have engaged with us at least twice over that trailing 12 months?
• Of all the people who made a transaction with us back in 2015, how many came back and did it again in 2016?
• With all the purchases that we had today, what percentage of them are from customers who did something with us in the previous year?
• Of all the customers who bought with us, what percentage were with us previously? Or of all the orders that were placed with us this year, what percentage of them are by customers who have bought previously?
• Of all the customers who have done anything with us in the past year, how many things did they do? How many purchases did they make or sell on?

I can hear you groaning: How can I figure this out? I don’t have time for this. We don’t have the data.

All likely true. However, if you don’t have time to value your business, you won’t know what it is worth to you. You also won’t know where you should be investing, what customers drive what part of your profits, and what that means for your strategy going forward.

What does this mean for you?

Knowledge is the most valuable asset you have. It’s worth the time to obtain it.

Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers. This column is republished with his permission from his Managed Care Matters blog.