A few weeks ago I was talking to an entrepreneur that has a couple different product lines with one product being installed software and the other product being Software-as-a-Service (SaaS). Naturally, the strategic focus is on the SaaS product but the installed product is still doing well replacing more expensive incumbents. The entrepreneur then said something that really stuck with me:
A one-time sale is a sugar high for the business.
Think about it for a minute. Selling an installed product that has a one-time fee is great for short-term revenue but, like a sugar high, it’s only temporary. The following year you have to sell the same amount as the previous year just to get back to the same level of annual revenue. Now, with recurring revenue, each new customer adds more revenue that layers on to the existing revenue making it much easier to grow and making cash flow more predictable (assuming a sticky product with a high renewal rate).
Businesses with one-time sales aren’t bad, but, if possible, recurring revenue is a much more desirable business model.
What else? What are your thoughts on the saying that a one-time sale is a sugar high for the business?