When a buyer looks at a soft FM business, they rarely take today's margin at face value. They want to know whether that margin can survive the one cost that rises every year without fail: the wage floor. It is one of the quieter tests in due diligence, and one of the most revealing.
The Cost That Rises Every April
The National Living Wage rose to £12.71 an hour on 1 April 2026, a 4.1 per cent increase from £12.21 for workers aged twenty-one and over. The band for eighteen to twenty-year-olds rose further, to £10.85, and the apprentice rate to £8.00. For cleaning, catering, portering and the other labour-intensive parts of soft FM, that floor is not an abstract policy point. It is a direct input cost, and every rise in it lands on the same contracts.
What matters to a buyer is not whether you are exposed to that floor. Almost every soft FM operator is. What matters is how your contracts respond when it moves, because that is what decides whether a healthy margin today is durable or borrowed from next year.
Two Contracts, Two Fates
Picture two contracts with the same margin this morning. The first is priced as a fixed input cost: a set rate for labour hours, locked for the term. When the wage floor rises, the cost climbs while the price stays put, and the increase comes straight out of profit. That contract loses a little value every April, and the loss compounds.
The second is priced on the output the client buys, with a pass-through mechanism that adjusts the price for statutory wage increases. When the floor rises, so does the price, and the margin holds. Same starting point, opposite trajectory. A buyer modelling the two will pay more for the second, because it is the one whose profit does not quietly erode with each Low Pay Commission announcement.
This is why margin quality, not just margin level, has become a standard part of the conversation. A strong margin on fixed input-priced contracts carries a risk the buyer can see coming. A slightly lower margin that is fully protected against wage rises can be worth more, because it is real and it lasts. It is the same logic that sits behind the whole recurring-revenue case, which I set out in a separate piece on why recurring revenue is the whole game: buyers pay for income they can rely on.
The Work to Do Before You Sell
The task for contract season is to know your own book honestly. Which contracts are input-priced and exposed, which have pass-through protection, and where the renewal calendar gives you a chance to move a contract from the first category to the second before you ever go to market.
Repricing a contract at renewal is ordinary commercial work. Done deliberately, with a sale in view, it converts exposed margin into durable margin, and durable margin is exactly what earns the top of the valuation range. The wage floor is one of four forces I examine in the September briefing on the anatomy of a valuable FM book.
Margin quality is one of four forces in the anatomy of a valuable FM book. Read the full September market briefing, or start with a free, confidential valuation. No obligation, and nothing moves forward without your say-so.
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